Elasticity

A product’s price elasticity of demand is a measure for how much the demand for it reacts to a change in its price. There are multiple definitions for measuring elasticity.

Example:

Our Elasticity KPI is using the second elasticity definition, which is often referred to as “Mid Point Elasticity”. The advantage of this definition is that going back from P₂ to P₁ will give you the same elasticity, so it is symmetric. Also, the Simple Elasticity often comes up with very large elasticity outliers which are difficult to interpret.

We learn Elasticity on market, channel and product level based on product specific price change history and based on product attributes. If we don’t have any information on the product specific price history, we approximate it using similar products. To ensure that we capture the true relationship between price changes and sales, we automatically detect seasonal patterns – like summer or holiday trends – and correct the data accordingly. For example, the sales of a seasonal product like sandals, which sells well in summer but less in winter, are smoothed out to account for their summer peak before calculating elasticity.