Research Topics:

Pricing Research

Content Type:

Glossary

Cross-Elasticity Definition

The extent to which products are substitutes for one another. Marketers use differentiation and quality to seek to minimize cross-elasticity and thus it could be seen as part of brand equity or marketing effectiveness. See also elasticity.

Cross-elasticity measures the responsiveness of demand for one product to changes in the price of another related product. It quantifies how that price change impacts the quantity demanded of another product to the extent that one is substituted for another. It helps assess whether products are substitutes or complements in consumer preferences. Marketing professionals use differentiation and quality to minimize cross-elasticity, so cross-elasticity could be seen as brand equity or marketing effectiveness. Cross-elasticity offers several insights for marketing research, including substitutability, in whether products are substitutes or complements; pricing strategy, in setting optimal prices to maximize revenue and market share; competitive analysis, in assessing the competitive landscape by understanding how changes in competitor prices might influence demand; market segmentation, in segmenting the market based on consumer preferences and price sensitivity; and forecasting, in predicting how changes in prices will affect overall sales.

Who relies on cross-elasticity?

Businesses, marketing professionals and economists involved in strategic pricing and market analysis use insights from cross-elasticity to make decisions about pricing strategies, product positioning and market segmentation. 

Why should I care about cross-elasticity?

Cross-elasticity provides insights into how price changes of related products can impact sales and revenue. Understanding how cross-elasticity works and impacts the marketplace allows businesses to adjust pricing strategies, predict changes in demand and identify potential competitive threats.