Is the price right? Reconceptualizing price and income elasticity to anticipate price perception issues

Abstract

Price perception by consumers represents a challenge to the ability of a business to correctly and profitably price and sell their products or services in a given market and any new target market. Complicating the perception of prices is the dynamics of price and income elasticity, both of which are key for estimating demand. This article proposes a novel and elegant identity that conceptualizes elasticity as a means of quantifying the potential for price perception problems in a market. Elasticity studies from 1990 to 2023 (n=30) were sampled to evaluate the relationship between price and income elasticity for various consumer commodities using the identity. The results suggest that, given known price and income elasticity values, a business can anticipate pricing perception problems in advance and address the potential for damaging distortion of their value proposition. Further, the business can use this insight to correctly choose a strategic pricing approach.