Elastic Demand: Why Your Pricing Strategy Is Leaving Growth on the Table

Elastic demand describes how sensitive consumer purchasing behaviour is to changes in price. When demand is elastic, a price increase causes a proportionally larger drop in volume sold, and a price decrease drives proportionally more volume. When demand is inelastic, buyers are relatively unmoved by price changes in either direction. Understanding where your product sits on that spectrum is not an academic exercise. It determines how you price, how you promote, how you grow, and where your marketing budget will actually do something useful.

Most marketers treat pricing as someone else’s problem. That is a mistake that compounds over time.

Why Marketers Cannot Afford to Ignore Price Elasticity

There is a version of marketing that exists entirely in a world without prices. Campaigns get built, audiences get targeted, messages get tested, and somewhere off to the side, the finance team sets a number on the product. The two worlds rarely speak properly to each other. I have sat in enough quarterly planning sessions to know that this is not an edge case. It is the default.

The problem is that price is not a neutral variable. It is a signal. It shapes how buyers perceive quality, how competitors respond, and how much volume you move. If your product is in an elastic category and you raise prices without building enough brand equity to justify it, you will lose volume faster than your margin gain can compensate. If your product is inelastic and you are running heavy promotional activity to drive volume, you may be spending money to shift behaviour that would have happened anyway, at a lower price point that eats your margin.

Neither scenario is hypothetical. Both are common. And both are avoidable if marketing and commercial strategy are genuinely integrated rather than just co-located on an org chart.

If you are working through the broader mechanics of how demand fits into your growth model, the pieces on go-to-market and growth strategy cover the wider territory this article sits within.

What Actually Determines Whether Demand Is Elastic or Inelastic

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. A figure greater than 1 (in absolute terms) means elastic. Less than 1 means inelastic. That is the textbook version, and it is useful as a framework, but the more practical question for a marketer is: what drives elasticity in the first place?

Several factors consistently shape where a product sits on the spectrum.

Availability of substitutes

The more easily a buyer can switch to an alternative, the more elastic demand tends to be. Commodity markets are the clearest example. If your product is functionally identical to three competitors and sits next to them on a shelf or a search results page, buyers will move on price. Differentiation, whether through product features, brand perception, or customer experience, reduces substitutability and therefore reduces elasticity.

Necessity versus discretionary purchase

Insulin is inelastic. A premium gym membership is elastic. This is not a revelation, but the implication for marketing spend is often missed. Brands in highly discretionary categories need to work harder to justify their price point, because the buyer’s internal calculus always includes the option of not buying at all. That makes brand building and emotional resonance more commercially important, not less.

Price as a share of income

When a purchase represents a meaningful proportion of a buyer’s income or budget, they pay more attention to price. A 10% increase on a box of matches barely registers. A 10% increase on a car or a software enterprise contract gets scrutinised carefully. This is why B2B marketing, particularly in high-ticket categories, tends to require more justification of value rather than pure price competition.

Time horizon

Demand often becomes more elastic over time. In the short term, buyers may absorb a price increase because switching is inconvenient or because they have existing commitments. Over a longer period, they find alternatives, adjust behaviour, or renegotiate. This is particularly relevant for subscription businesses and long-cycle B2B relationships. Short-term retention numbers can mask a slow drift that only becomes visible 12 to 18 months later.

Brand strength

This is the one that marketers have the most direct influence over, and it is the one most often underinvested in. Strong brands reduce price sensitivity. A buyer who genuinely prefers your brand, who associates it with quality, reliability, or identity, will tolerate a higher price before switching. That tolerance is not infinite, but it is real and measurable. It is also the result of sustained brand investment over time, not a single campaign.

The Promotion Trap in Elastic Markets

Promotional pricing is seductive. You run a discount, volume spikes, the dashboard looks good, and someone in the room says it worked. The harder question is what it cost and what it trained your buyers to expect.

In elastic categories, promotions can be an effective lever for driving trial, clearing inventory, or responding to competitive pressure. But there is a well-documented pattern where frequent discounting gradually shifts the reference price in the buyer’s mind. They stop thinking of your full price as the real price. They wait. They become deal-seekers rather than brand loyalists. And when you try to pull back on promotions, volume drops in a way that looks like the market has changed, when what has actually changed is your buyer’s expectations.

I have seen this play out in consumer categories where the promotional calendar had effectively become the business model. The brand was spending significant budget to generate volume that was structurally unprofitable, and the marketing team was being measured on the volume rather than the margin. Untangling that takes longer than building it does, and it is painful, because the short-term volume drop looks like failure even when it is the right commercial decision.

The alternative is not to never run promotions. It is to be deliberate about when, how often, and with what framing. A promotion positioned as a reward for loyalty or a limited seasonal event lands differently to a standing 20% off that is always there if you look for it. One reinforces brand value. The other erodes it.

How Brand Investment Shifts the Demand Curve

There is a conceptual distinction worth being clear about here. Most marketing activity operates within a demand curve. It tries to move buyers along the existing relationship between price and quantity. Brand investment, done well, shifts the curve itself. It changes the underlying relationship so that at any given price point, more people are willing to buy.

This is not a soft, unquantifiable idea. It shows up in pricing power, in reduced churn, in higher conversion rates at full price, and in the ability to grow without proportionally increasing marketing spend. When I was running agencies and working with clients across multiple categories, the brands that had invested consistently in brand-building over years were noticeably more resilient when markets tightened. They did not have to discount as hard or as often to hold volume. That resilience has a real commercial value that rarely appears in the short-term attribution models most businesses use.

The challenge is that shifting the demand curve takes time, and most business planning cycles reward quarterly results over multi-year brand equity building. That tension is real and I am not going to pretend it is easy to resolve. But understanding it clearly is at least the starting point for having an honest conversation about where marketing investment should go.

For context on how market penetration thinking connects to this, the Semrush overview of market penetration strategy is a useful reference point for how volume and pricing interact at a category level.

Performance Marketing and the Elasticity Blind Spot

For a significant stretch of my career, I was closer to the performance marketing end of the spectrum than I would be now. It is where a lot of the measurable action is, and when you are running an agency and clients want to see numbers, performance channels give you numbers. I overvalued it for longer than I should have.

The thing I came to understand more clearly over time is that most performance marketing is demand capture, not demand creation. It reaches people who are already in the market, already searching, already comparing. In elastic categories, that is valuable. Those buyers are moveable on price and offer, and a well-targeted paid search campaign or a retargeting sequence can tip them your way. But you are still competing within an existing pool of demand. You are not expanding it.

Think about it this way. Someone who walks into a clothes shop and tries something on is many times more likely to buy than someone who walks past the window. Performance marketing is very good at finding the people already inside the shop. Brand marketing is what gets people through the door in the first place. If you only invest in the former, you are fighting over a finite pool with every competitor who has also figured out how to run a paid search campaign. And in elastic markets, where substitutes are plentiful and switching is easy, that competition on price and offer can become a race to the bottom.

The growth brands I have seen do this well treat performance and brand as genuinely complementary rather than competing for the same budget line. They use performance channels to capture demand efficiently, and they use brand investment to grow the pool of demand they have to capture from. The ratio between the two is not fixed. It depends on category, competitive position, and stage of growth. But the idea that you can grow indefinitely by optimising only the bottom of the funnel is a fiction that the attribution models of the last decade made it easy to believe.

The Vidyard piece on why go-to-market feels harder touches on some of the structural reasons why pure performance approaches are running into diminishing returns across categories.

Elastic Demand in B2B: A Different Set of Complications

In consumer markets, price elasticity is relatively observable. You can run a price test, look at volume, and get a reasonable read on sensitivity. In B2B, the picture is more complicated, and the complications matter for how you build your go-to-market approach.

B2B purchasing decisions typically involve multiple stakeholders, longer cycles, and higher switching costs. Those factors tend to push demand toward inelastic in the short term. Once a business has integrated your software, your logistics provider, or your professional services firm into their operations, the cost of switching is not just financial. It is operational disruption, retraining, and risk. That creates a degree of price insensitivity that can be commercially valuable, but it also creates a false sense of security.

The inelasticity in B2B is often time-bound. At renewal, the calculation changes. The buyer has had time to evaluate alternatives, the switching cost is more predictable, and if your product has not delivered clear value, the conversation becomes a price negotiation rather than a renewal. I have seen this pattern repeatedly in software categories where the initial sale was strong but the retention economics were quietly deteriorating because the product value was not being communicated or reinforced during the contract period.

The implication for marketing is that customer marketing and retention communication are not afterthoughts. In B2B categories where demand is conditionally inelastic, the work of justifying value is ongoing. The moment you stop doing it, the next renewal cycle becomes more elastic than the last one.

BCG’s analysis of go-to-market strategy in financial services is a useful reference for how complex buyer behaviour and price sensitivity interact in high-stakes B2B-adjacent categories.

Using Elasticity Thinking in Campaign Planning

Understanding elasticity conceptually is useful. Applying it to actual campaign decisions is where it becomes valuable. Here is how I would frame the practical application across a few common scenarios.

Scenario 1: You are launching into a price-sensitive category

If you are entering a market where demand is elastic and substitutes are plentiful, competing purely on price is a short-term strategy with a long-term cost. You can use price to generate trial, but the objective should be to convert trial into preference. That means your post-purchase experience, your communications during the early customer relationship, and your product’s ability to deliver on its promise all become part of the marketing problem. The campaign gets people in. What happens next determines whether you built a customer or just moved a unit.

BCG’s work on planning a successful product launch covers the structural thinking around launch strategy in ways that translate beyond the biopharma context it was written for.

Scenario 2: You have pricing power and are not using it

Some brands have built genuine equity and are still pricing as if they are competing in a commodity market. They are leaving margin on the table. The marketing implication here is that brand communication should be actively reinforcing the reasons why the premium is justified. If your messaging is generic or purely functional, you are not using your brand asset. You are letting it sit there while your pricing strategy fails to extract the value it could support.

Scenario 3: You are over-reliant on promotional volume

If your volume numbers look good but your margin numbers do not, and if a significant portion of your revenue comes during promotional periods, you have an elasticity problem masquerading as a marketing success. The work here is to understand what proportion of your promotional volume is genuinely incremental (buyers who would not have purchased otherwise) versus what is simply borrowed from future periods or taken at a lower price from buyers who would have paid full price. Both are worth knowing. Neither is comfortable to look at honestly.

Scenario 4: You are trying to grow market share in a flat category

In a category where overall demand is not growing, gaining share means taking it from someone else. In elastic markets, price is a lever, but a costly one. The more durable approach is to reduce the perceived substitutability of your product through differentiation and brand investment. If buyers see your product as genuinely different rather than functionally equivalent, you are competing on a different basis than price. That is a harder thing to build, but it is also harder for competitors to match.

The Semrush examples of growth hacking are worth reviewing for how some brands have found ways to grow share in competitive categories without defaulting to price as the primary lever.

The Measurement Problem: Why Elasticity Is Hard to Track

One reason elasticity thinking does not show up more often in marketing planning is that it is genuinely difficult to measure well. Most marketing measurement is set up to track response to campaigns, not to understand underlying price sensitivity. You can see that a promotion drove volume. You cannot easily see from standard reporting whether that volume came from buyers who would have purchased anyway at full price, buyers who were genuinely triggered by the discount, or buyers who were pulled forward from next month’s purchase cycle.

Proper price elasticity measurement requires controlled testing, which most businesses do not do consistently. It requires separating the price effect from other variables like media spend, seasonality, and competitive activity, which is analytically demanding. And it requires a time horizon long enough to see the lagged effects, which most planning cycles do not accommodate.

None of that means you should not try. Marketing does not need perfect measurement. It needs honest approximation. A rough understanding of where your product sits on the elasticity spectrum, based on category knowledge, competitive observation, and whatever testing you can run, is far more useful than ignoring the question entirely because it is hard to answer precisely.

I spent time judging the Effie Awards, which are specifically focused on marketing effectiveness. One thing that consistently separated the stronger entries from the weaker ones was not the sophistication of the measurement methodology. It was the clarity of thinking about what the marketing was supposed to do commercially, and why. Brands that had thought carefully about their demand environment, including price sensitivity, tended to make better strategic choices even when their measurement was imperfect.

Cross-Category Elasticity: When Your Category Competes With Others

Most elasticity thinking focuses on within-category competition. But in discretionary spending categories, you are also competing with other categories for a share of the buyer’s budget. A consumer deciding how to spend discretionary income is not just choosing between your product and a direct competitor. They are choosing between your product and a restaurant meal, a streaming subscription, or a home improvement project.

This cross-category competition is often invisible in standard market analysis, but it matters particularly in economic downturns or periods of cost-of-living pressure when discretionary budgets tighten. Demand that looked relatively inelastic within your category can become elastic at the budget level, where the buyer is making trade-offs across categories rather than within them.

The marketing implication is that in discretionary categories, the case for purchase needs to be made at two levels. First, why your product rather than a competitor’s. Second, why this category rather than another use of the same money. The second question is the one most category marketing ignores, and it is the one that becomes most important when economic conditions tighten.

Forrester’s work on go-to-market challenges in complex categories illustrates how cross-category budget competition shows up in practice, even in sectors where you might not expect it.

Elastic Demand and Creator-Led Marketing

One area where elasticity thinking has interesting practical implications is in creator and influencer marketing, particularly for brands in elastic consumer categories. The conventional logic is that creators drive awareness and consideration. That is true, but there is a more specific mechanism worth understanding.

Creators who have genuine authority in a category can shift perceived value. A product endorsed credibly by someone a buyer trusts does not just become more visible. It becomes more desirable at a given price point. That is a demand curve shift, not just a position on an existing curve. The buyer who discovers a product through a trusted creator is less likely to be purely price-driven than a buyer who finds the same product through a generic paid search ad, because the discovery context has already done some of the brand-building work.

This is not an argument for replacing other channels with creator marketing. It is an argument for understanding what creator marketing is actually doing in your demand model. If you are in an elastic category and you are using creators purely as a reach play, you may be underestimating the value they can deliver as a brand-building mechanism that reduces price sensitivity over time.

The Later webinar on go-to-market with creators covers some of the practical mechanics of how creator campaigns can be structured to drive conversion rather than just awareness, which is relevant if you are thinking about this in the context of elastic demand and promotional timing.

What This Means for Go-To-Market Strategy

Elastic demand is not a problem to solve. It is a condition to understand and plan around. The businesses that do this well are the ones where marketing and commercial strategy are genuinely integrated, where the pricing team and the brand team have had honest conversations about what the market will bear and what the brand needs to do to support it.

The practical starting points are straightforward, even if the execution is not. Know whether your category is elastic or inelastic, and understand what drives that. Know where your product sits within that spectrum relative to competitors. Understand what your promotional history has done to buyer expectations and reference prices. And be honest about whether your current marketing investment is building the brand equity that supports pricing power, or whether it is capturing existing demand efficiently without expanding it.

Those are not comfortable questions in every organisation. In my experience, the discomfort is usually proportional to how much the answers matter.

Early in my career, I was handed a whiteboard pen in a Guinness brainstorm at Cybercom when the founder had to leave for a client meeting. The internal reaction was something close to panic. But the thing about being put in that position is that it forces you to think from first principles rather than deferring to whoever usually holds the pen. Elasticity thinking works the same way. When you stop deferring to the assumption that marketing is about reaching more people at lower cost, and start asking what you are actually trying to do to demand, the answers tend to be more useful.

More on the strategic frameworks that connect pricing, positioning, and growth planning is available through the go-to-market and growth strategy hub, which covers the broader territory this article sits within.

About the Author

Keith Lacy is a marketing strategist and former agency CEO with 20+ years of experience across agency leadership, performance marketing, and commercial strategy. He writes The Marketing Juice to cut through the noise and share what works.

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