Free Webinar
The Truth About Price Elasticities – And Why They’re Holding You Back
Price elasticities promise precision, but most RGM decisions fail because they are used outside the context that created them.
Why elasticities explain markets poorly when decisions are made in portfolios, not products
Price elasticities are one of the most widely used concepts in RGM, and one of the most frequently misunderstood. They reduce complex shopper behaviour into a single number, then get reused across decisions involving promotions, competitors, portfolios, and external shocks like tariffs or inflation. That simplification is convenient, but it is also where many pricing decisions quietly go wrong. [06:27]
This session takes a hard look at what price elasticities can and cannot do in real CPG environments. Rather than rejecting elasticities outright, Ingo and Doug explain where they still add value, where they break down, and why modern RGM requires moving beyond single-number logic toward decision systems that account for context, interactions, and behaviour. [27:26]
What You'll Learn
- Why price elasticities work as insight but fail as instruction.
The session shows how elasticities help describe sensitivity in hindsight, but become unreliable when used directly to set prices in complex, changing market conditions. [34:49] - How context changes elasticity more than the product itself.
Ingo explains why elasticities differ depending on whether a single SKU moves, a whole category moves, or promotions and competitors shift at the same time. [24:28] - Why promotions fundamentally distort elasticity calculations.
The discussion demonstrates how promotions shift demand curves rather than move along them, making it unclear which elasticity number should be used for decision-making. [23:43] - How external shocks like tariffs and inflation amplify elasticity mistakes.
Using a tariff example, the session shows how small modelling errors compound into material profit losses when elasticities are misapplied. [15:03] - What replaces elasticities when portfolios and competitors matter.
Doug introduces a generalised approach that models shopper choice across products and attributes, rather than relying on isolated price sensitivity. [28:13]
Meet the Speakers
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Ingo ReinhardtCo-founder and Managing Director at Buynomics |
Before Buynomics, Ingo was a Senior Director with Simon-Kucher & Partners, a global leader in pricing. He holds a Ph.D. in Management from the University of Cologne and Master's degrees in Management and Mathematics. Ingo was a PostDoc at the University of Oxford and published in the Strategic Management Journal.
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Doug HampshireHead of Customer Value at Buynomics |
Doug leads Customer Value at Buynomics, supporting clients in using AI-driven decision tools to improve RGM performance. Prior to Buynomics, he worked across multiple roles at Deloitte, including strategy and operations leadership and management consulting, delivering projects across public sector, retail, and supply chain domains. He has worked internationally across the UK, India, and Africa.
Session Highlights
Elasticities collapse complex shopper behaviour into a single, fragile number.
Ingo explains how elasticities emerged from a paper-and-pencil era and why that simplification struggles in today’s data-rich, multi-product markets. [21:10]
Category-level price moves behave very differently from single-SKU changes.
The session revisits essential goods examples to show why categories can appear inelastic while individual brands remain highly exposed to switching. [04:26]
Profit-optimal pricing depends on demand shape, not just elasticity size.
Through linear and constant-elasticity demand examples, Ingo shows why the same elasticity can imply very different pricing actions when costs change. [10:42]
Tariffs create hidden profit losses even when prices are adjusted “correctly.”
A worked tariff example reveals how combined manufacturer and retailer profit shrinks due to reduced demand, even when prices remain theoretically optimal. [15:09]
Promotions create multiple demand curves, not one elasticity.
Real sales data illustrates how promotional activity shifts demand upward, making elasticity estimates highly sensitive to starting points. [23:29]
Portfolio and competitor changes invalidate standalone elasticity assumptions.
Doug demonstrates how adding a budget product or reacting to competitor pricing can radically change observed elasticities overnight. [31:11]
Optimisation beats interpretation when elasticities conflict.
Rather than debating which elasticity is “right,” the session shows how scenario-based optimisation identifies better price responses under real constraints. [33:09]
Q&A
Are price elasticities still useful in modern RGM?
Yes, but mainly as descriptive signals rather than direct pricing rules. The speakers stress elasticities are helpful for orientation, but dangerous when used without context. [39:49]
How does inflation affect elasticity measurement?
Inflation lowers apparent elasticities at category level because prices and demand often rise together. Ingo notes that isolating true price effects becomes extremely difficult with traditional methods. [36:43]
Should elasticities be measured at SKU, brand, or category level?
It depends on the decision. SKU elasticities help with tactical changes, while brand or category elasticities are more relevant for strategic moves and portfolio thinking. [37:39]
How should leaders think about cross-elasticities in practice?
Rather than isolating cross-elasticities mathematically, the speakers recommend modelling full portfolio responses so switching effects are captured directly. [38:53]
How do you explain elasticity limitations to senior leaders?
Elasticities can be communicated directionally, such as which products are more or less sensitive. Precise elasticity values should not be positioned as fixed inputs for strategy. [40:49]
What is the alternative when elasticities contradict each other?
Doug argues optimisation and simulation are more reliable than choosing between conflicting elasticity estimates. This shifts the focus from interpreting numbers to selecting actions. [34:49]
