One of the most powerful principles of economics is that of price elasticity of demand. Simply stated, demand is sensitive to price changes. Given that, demand can be stoked only by reducing prices. This is ironical since revenue growth owes a great deal to how prices are strategically managed. However, there is really no conflict here. While demand may be sensitive to price changes, it does not mean that demand gets killed when price changes – here we are talking about price increases. Price has another critical relationship – with value. Price is as elastic as its relationship with value allows. What does that mean? It means that if the value perceived for a product is higher than its price, elasticity comes down. Take the example of Apple products. They consistently defy the demand elasticity principle and have a growth path irrespective of price increases.
via Pricing – The Heart of Revenue Generation and Profitability, by S. Lakshmi Narasimhan.
