Exploring Price Elasticity to Optimize Posted Prices in e-Commerce

In a recent paper we have shown how Internet retailers could optimize their price levels according to their strategy. The discussed method optimizes short-term profitability by determining the exact demand curve. The method involves the application of empirical price tests. For this purpose visitors of an Internet retailer are divided in statistically identical subgroups. Using the A-B testing method different prices are shown to each subgroup and the conversion rate as a function of price is calculated. We describe the organizational requirements, the technical approach, and the statistical analysis applied to determine the price optimizing the per-order profit and the average customer lifetime value. In this paper we review the results of a field study carried out with a large Internet retailer and shows that the company was able to optimize a specific price component and thus increase the contribution margin per order by about 7%. In addition we argue that at the same time the customer lifetime value could be enhanced by 13%. We conclude that the discussed method could be applied to answer further research questions such as the temporal variation of demand curves.

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As a cleaner, high-efficiency, and low-carbon fuel, natural gas has been an important fuel resource for China. To achieve a substantial increase in natural gas demand, China has sought to reform its natural gas pricing mechanism. Employing a set of unbalanced panel data for China’s 30 provinces covering 1999–2015, this study aims to estimate the evolving price and income elasticities of natural gas demand and explore the effect of natural gas price reform in China. For this purpose, a series of econometric techniques allowing for cross-sectional dependence and slope homogeneity is utilized. The results suggest that although natural gas demand in China still lacks negative price elasticity, the phenomenon is improving. Moreover, the estimates suggest that natural gas demand in China is indeed becoming increasingly sensitive to income changes. Our estimates also provide strong evidence in favor of the effect of natural gas price reform on the change in price elasticity as the price elasticity decreases in five of the seven regions. In addition, the results indicate large variations in the change in price and income elasticities of natural gas demand across China’s regions. Natural gas demand is becoming more price inelastic in Southwest China and Northwest China, while such demand in North China and East China responds less sensitively to income changes. These findings offer several policy suggestions for the reform of China’s natural gas market at the national and regional levels.

Measures of demand elasticity indicate the direction and intensity of the reaction of the quantity of demand for a good or service due to a change in the determinants of demand. Among them, the price elasticity of demand stands out because it measures the reaction of customers to price changes. Price elasticity is therefore important for management in making pricing decisions because it answers the question of how raising or lowering prices will affect sales revenue and, consequently, the company's financial results. In this paper, the elasticity of demand for selected types of bread from the company Bobis d.o.o. was empirically tested. The listed company is the leader in the production of bread, fresh pastries, confectionery products, and cakes (NKD 2007 10.71) in County of Split-Dalmatia, and, at the same time, one of the top ten entrepreneurs in the same industry at the national level. For the analysis, data on sales volumes and associated prices of bread in forty-four branches within County of Split-Dalmatia in 2022 were used. In the empirical part of the paper, the coefficients of price and income elasticity of demand for selected types of bread were estimated. By comparing the calculated coefficients of price elasticity of demand for selected types of bread before and after the introduction of the pricing campaign, the results point to the conclusion that the demand for bread is price elastic. The range of the calculated coefficients of price elasticity of demand is significantly higher when the campaign is introduced, in other words, the introduction of the pricing campaign reduced the sensitivity of customers to price changes in the short term, i.e. after the end of the pricing campaign sales increase despite the return of prices to the levels that preceded the campaign. Finally, the calculation of the coefficients of income elasticity of demand implies that, for all selected types, bread is considered to be a normal good.

HOW NUTRITION-FACT INFORMATION INFLUENCES ONLINE FOOD SALES

PurposeThe fundamental research question is which aspects of the external environment are most strongly associated with the differential market share between large multinational online retailers and smaller, local retailers in emerging markets. For the purposes of this study, the differential market share refers to the likelihood of having a higher market share for multinational online retailers than for local online retailers.Design/methodology/approachThe theoretical framework of the study is based on PESTLE analysis. This study uses longitudinal country-level archival data and conducts a stepwise logistic regression analysis to investigate the impact of environmental factors.FindingsThe results indicate that the effectiveness of law-making bodies and government involvement with information and communications technologies (ICTs) among other factors are significantly associated with a higher market share for multinational online retailers relative to local retailers.Research limitations/implicationsThe study examines the impact of certain external factors (i.e. socioeconomic variables and legal environment) on the differential market share between multinational online retailers and local ones. Future research should investigate additional factors such as cultural roles and internal operating dynamics of online retailers. The research emphasizes online retailing. A logical extension of the current study is to examine how the online retailing environment differs from the brick-in-store retailing environment relative to the competition. The current study investigates the differential market share between multinational and local online retailers only in the emerging markets setting. The results may differ if the developed market setting is also considered. We recommend that future research compares the developed markets and emerging markets settings relative to the differential market share between multinational and local online retailers.Practical implicationsNot all improvements in legal institutions are associated with improved market conditions for multinational online retailers. Managers of multinational online retailers must pursue some mitigation strategies to prevent institutional voids in emerging markets. Therefore, adapting the business model by collaborating and establishing relationships with local online retailers is an effective strategy to mitigate institutional voids (Dohet al., 2017; Yanget al., 2012). Moreover, multinational online retailers are recommended to collaborate with local governments to change unfavourable legal conditions (Dohet al., 2017; Boddewyn and Doh, 2011).Originality/valueThe extant literature on online retailing frequently addresses internal company characteristics and consumer behaviour. This study focuses exclusively on environmental factors associated with differential market share. We contribute to the literature on online retailing, retailing strategies and competition dynamics in emerging markets.

Do online shops support customers’ decision strategies by interactive information management tools? Results of an empirical analysis

PurposeFast fulfilment is a key performance measure in online retail, and some retailers have achieved faster times by adopting new designs in their order fulfilment infrastructure. This research empirically confirms and quantifies the fulfilment time advantage that Amazon has achieved, relative to other online retailers. The purpose of this paper is to investigate three research questions: what is the overall mean fulfilment time difference between the new logistics designs of Amazon and the alternative designs of other retailers? For each order what is the distribution of the fulfilment time difference? What is the difference in fulfilment time by product category, price and size?Design/methodology/approachThis research uses an empirical method to evaluate the fulfilment time performance of consumer orders made through the Amazon website and one or more competing online retailers. For 1,000 different products two fulfilment times, one at Amazon and another at a competing omnichannel retailer, are recorded. The analysis is then focused on the comparison between this paired data.FindingsThe research confirms that the new logistics methods, including physical facilities, distribution networks and intelligent order processing methods, have resulted in faster order fulfilment times. The performance, though, is not universally dominant and for 33 per cent of orders, the difference is 1 day or less. The fulfilment time difference varied by product, category, price or size.Practical implicationsThe ongoing transformation of fulfilment and logistics operations at online retailers has generated several new research questions. This includes the need to confirm the fulfilment efficiency of the new designs and specify time targets. This paper identifies the fulfilment time gap between new and traditional operations. The results suggest that store-based or distribution centre-based fulfilment strategies may not match the new designs.Originality/valueThe study provides a quantitative analysis of the fulfilment time differentials in online retailing. The critical role of fulfilment logistics in the rapidly growing online retail industry can now be better modelled and studied. The survey method representing a single buyer allows for order pair equivalency and eliminates order bias. The results suggest that new warehousing and logistics designs can lead to significantly faster fulfilment times.

Online retailers have taken recourse to many smart marketing strategies to sell digital music. This paper investigates the strategic decisions of online vendors for offering different mechanisms such as sampling and online reviews of digital music to increase their online sales. In this research we seek answers to the following research questions (1) should online retailers offer sampling for experience goods such as music CDs; (2) under what circumstances is offering sampling more important than offering reviews. Our empirical study shows that online markets behave as communication markets, and consumers learn about product quality information both passively (by reading online reviews) and actively but subjectively (by listening to music sampling). Using data from Amazon.com , we empirically show that sampling is a strong product quality signal that reduces product uncertainty and attracts interested shoppers. Products with the sampling option enjoy a higher conversion rate (which leads to better sales) than those without it. Second, the impact of online reviews on conversion rate is lower for experience goods with a sampling option than those without. Third, when the uncertainty of the online reviews is higher, sampling plays a more important role because it mitigates the uncertainty introduced by online reviews. We believe this paper makes an important contribution by comparing and studying the interactions between two commonly adopted online marketing strategies (i.e., sampling versus online reviews) and provides important insights on which strategy is beneficial for vendors in the context of online selling of digital music.

Iran, as an oil-revenue–based economy, remains one of the world's largest providers of fossil fuel subsidies, with the electricity sector receiving the greatest share. This sustained support has driven per-capita electricity consumption to grow by 5 % annually, significantly above the global average. To assess the economic and behavioral effects of delayed subsidy reforms on consumption patterns and demand elasticities, a state-space model was applied across five phased scenarios spanning 1985–2023. Results reveal pronounced temporal variation in both price and income elasticities: subsidies have dampened consumer responsiveness and entrenched reliance on low-cost energy. All reform scenarios demonstrate a positive relationship between tariff increases and price elasticity, underscoring the necessity of gradual, stepwise subsidy removal. Delays in reform not only heighten the government's fiscal burden but also weaken price elasticities and undermine the effectiveness of subsequent measures. Accordingly, we recommend a five-year, phased reform plan—with targeted support measures for vulnerable households—to steer electricity consumption toward greater efficiency and equity. • Iran leads in providing fossil fuel subsidies, driving a 5 % annual growth in electricity consumption. • Price and income elasticities of electricity demand have declined over time. • Delays in subsidy reforms reduce price elasticity and policy effectiveness. • Gradual subsidy removal can increase price elasticity, leading to reduced electricity consumption. • Phased reforms with targeted support ensure equitable and efficient consumption.

Online retail has become more prominent around the world in the last decade. As a result, online retailers' website performance is increasingly important. Previous literature has extensively studied customer sensitivity to service speed and wait times in offline services. In “Need for Speed: The Impact of In-Process Delays on Customer Behavior in Online Retail,” Gallino, Karacaoglu, and Moreno extend this literature to online retail. They study the impact of delays in online retail on customer behavior. They estimate sizable negative effects of website slowdowns on online sales and conversion rates. Moreover, they explore how customer sensitivity to online delays varies throughout customers' shopping journeys. They find that the impact of waiting times varies along the different stages of the shopping journey, with customers becoming more sensitive to slowdowns at the checkout stage. Their findings have implications for website design decisions. This research is especially relevant in the current regulatory environment with ongoing policy debates about net neutrality.

This paper contributes to residential water demand literature by providing price and income elasticity estimates for a country which has undergone deep structural, institutional and economic changes. We analyze short‐run and long‐run residential water demand using household‐level data for the Czech Republic for the period of 1993–2016, during which the price of water nearly tripled, consumption decreased by a third, and families became considerably richer. Our estimates of price and income elasticity indicate low responsiveness of households to changes of these factors. Income elasticity is about +0.16 and it is robust across models. The short‐run price elasticity is about −0.22, on the low end of estimates derived for other developed economies. Long‐run price elasticity is around −0.30. While households were more price responsive during the period of economic transformation, they became completely unresponsive during the later economic boom.

Natural gas consumption in Saudi Arabia (KSA) has grown at an annual rate of approximately 7% as a result of population growth and other economic and non-economic factors. This study aims to estimate the short- and long-run price and income elasticities of natural gas demand in Saudi Arabia using time series data from 1990 to 2020, applying the Autoregressive Distributed lag Procedure (ARDL). Employ an Error-correction model to obtain estimates of adjustment speeds with long and short-run elasticities. The elasticity of demand for natural gas was calculated by including population growth as a control variable. The short-run dynamics evaluated indicate that the speed of adjustment is 70% annually, the long-run income and the price elasticities are 0.0002 and -2.09 respectively. The short-run income and price elasticities are 0.0002, -1.17 respectively. This means that price changes have a greater impact on natural gas demand than changes in income in the short and long run. Population growth has contributed to the increase in natural gas consumption in Saudi Arabia in the short and long run. In general, based on the results, the trend of Saudi Arabia to increase the consumption of natural gas needs to maintain low prices, due to the high price elasticity of demand.

In the March I 988 issue of this JOURNAL, Riedel claims that the findings of relatively low price elasticity of demand by 'the bulk of time series work' are based on the assumption of infinite price elasticity of export supply and that the demand parameters derived from a fully specified, simultaneous equation model strongly contradict the consensus view (on the basis of his results suggesting infinitely price elastic demand for exports of manufactures from Hong Kong). In this Comment, both of his claims and his results are disputed. The author's conclusion concerning infinite price elasticity of demand for exports can be objected to on at least three grounds: First, in the context of his formulation, it implies an abnormally large degree of 'money illusion' on the part of the importers of manufactures. Second, in using the inverse form of the demand function rather than the normal form he would necessarily produce a much larger estimate of price elasticity than otherwise. Using his approach, one can quite easily produce an estimate of the marginal propensity to consume in excess of unity or an implausibly large estimate of the marginal propensity to save. Third, infinite price elasticity is inferred from the statistical nonsignificance of the coefficient of export quantity in the inverse form of demand (which represents the inverse of price elasticity). However, it can be argued that the estimate of the coefficient of export quantity is not statistically significant because of the high intercorrelation (multicollinearity) between quantity and income. In view of the obvious upward bias involved in his approach to the estimation of price elasticity of export demand, it is not only possible but also most probable that the adoption of his approach will also yield very high estimates of price elasticities of demand generally. It is conceivable that one can produce a highly elastic demand for primary exports not only at individual country level but also at the world level, using his approach. If LDCs wrongly believe that demand for their primary exports is price elastic when in fact it is not, unwarranted expansion of production could cause a significant fall in their export earnings with grave consequence for their economic development. It is therefore most important to point out the weaknesses of his approach before it is widely adopted by other researchers keen to get high price elasticities of demand.

An increasing number of studies deals with consumer decisions regarding organic food, but only a few provide quantitative estimates of price and income elasticities. This paper contributes to the existing literature by providing own-price elasticity estimates as well as an analysis of the sociodemographic determinants of demand for organic milk. The analysis is based on the GfK Consumer Scan Scanner panel dataset on food purchases of German households covering a sample period of four years from 2004 to 2007. A two-step estimation procedure is applied. First, a probit regression examines which household characteristics affect the probability to buy organic milk. Second, a fixed-effects panel regression determines factors that have an impact on the quantity demanded. Finally, the study investigates whether the price elasticity of demand depends on income, age or household size and whether the price elasticity varies among different retail formats. The results show that the probability to buy organic milk increases with education and income level. Furthermore, the demand is on average higher in households with young children and with a female being mainly responsible for food purchases. However, the probability declines when there is more than one child per household. The results of the fixed-effects regression indicate that the demand for organic milk in Germany is highly price-inelastic. Low absolute price elasticities for organic milk indicate that price promotions at retail level will not lead to an increase in sales. As expected, for all types of milk price sensitivity is higher, but still inelastic, in discount shops than in other retail formats such as supermarkets or large-scale retail. Demand in organic food shops is the least responsive to price changes. Besides, households headed by a person younger than 25 or older than 45 years show a higher price responsiveness than middle-aged households.