The higher the brand loyalty, the less likely it is that an increase in price will lead to a consumer leaving the product- the consumers feel the product is hard to substitute. Price Elasticity of Demand tells us how much demand of a good is likely to change if its price goes up. Increases in prices of products lead to a fall in demand overall, as well as an increase in demand for some unique items. The demand elasticity is a measurement of how much it is likely to change (Kokemuller, 2020). The more price conscious customers are, the more likely they are to stop buying an item if the price goes up, the higher the elasticity. When speaking of oil or petrol for example, these products have low demand elasticity, and you can see that despite increases in petrol prices, people still buy as much fuel as they normally do for their cars, because there is not another alternative option (Kokemuller, 2020)
This is product differentiation- less important goods tend to have a higher elasticity because they can either be substituted or sacrificed altogether. An example of this would be not going to the movie theater, and just watching a movie at home. There is an effect of brand loyalty which essentially makes goods less easy to substitute and an example is Coca-Cola (Kokemuller, 2020). Although there are many other sodas and colas, Coca-Cola has brand loyalty where consumers will still buy it even if it means paying more. If Coke increased the price of its soft drinks by 15% they may not have as many sales, but it would still be less than if an unbranded cola had a fall in sales and it would be less elastic (Kokemuller, 2020). The ease of substituting a product is a factor of demand elasticity, and it is clear that these two are linked.
Kokemuller, Neil. How Does Product Differentiation Affect Price Inelasticity? June 8, 2020. Retrieved from: www.azcentral.com (Links to an external site.).
Yes, there is a relationship between price elasticity of demand, brand loyalty, and product differentiation. Product differentiation you brand your business as a source of a unique product. When a company uses a differentiation strategy that focuses on the cost value of product versus other products, it creates a value among consumers. (Kelchner, 2019). Price elasticity of demand shows the relationship between price and amount demanded. A product has high elasticity when a price change causes a change in demand (Kokemuller, n.d.). Products that consumers consider essential have less elasticity than products that are luxury. Brand loyalty is the consumers attach to a product or brand. The loyal customer will purchase the brand no matter what the convenience or price. The consumers will know the value of the differential product and purchase even if there is a price increase. Given that product the price elasticity of demand that relates to the change in quantity demanded.
Kelchner, L. (2019) The Advantages of a Product Differentiation Strategy, Retrieved from https://smallbusiness.chron.com/advantages-product-differentiation-strategy-17691.html (Links to an external site.)
Kokemuller, N. (n.d.) What Factors Impact the Elasticity of Demand for Products? Retrieved from https://smallbusiness.chron.com/factors-impact-elasticity-demand-products-65867.html
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