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 The “Four P’s” element of the marketing mix
 Elasticity of Demand
PRICE
PLACE
The Four
P’s
PRODUCT
PROMOTION
Elasticity of Demand is the change in quantity demanded resulting
from a change in price. To calculate Elasticity of Demand use the
following equation:
Price Elasticity (PED)
Percentage change in demand
Percentage change in price
If PED is less than 1 then the demand is “Price-inelastic”
If PED is more than 1 then the demand is “Price-elastic”
This is an example of Price In-elastic:
Magic Carpets Ltd have increased the price of its most popular and most expensive carpet by 10%.
A week later the manager realises that the demand has decreased by 2%. The equation would look
like this:
(PED)
2%
10%
0.2
This is an example of Price Elastic:
Magic Carpets Ltd have decreased the price of an unpopular carpet by 20%. A week later they sold
50% more of those carpets. The equation would look like this:
(PED)
50%
20%
2.5
Income Elasticity – this shows how the change in demand responds
to changes in customer income.
Income Elasticity
Percentage change in demand
Percentage change real income
Cross Price Elasticity – This shows how the change in the demand
of goods responds to the price of related goods.
Percentage change in quantity demanded of good x
Cross Price Elasticity
Percentage change real income
There are two main factors affecting Elasticity:
The number of substitutes for a product: The
more substitutes there are for a product, the more
sensitive it will become to changes in price. For
example, if the price of a tin of Heinz beans
increases then there are other brands for the
customer to choose from.
Time: The longer a product is available the more
price elastic it will become. For example, if Widescreen TV’s are available for two years then the
price after two years would be less because the
price of technology would be cheaper.
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