Marketing Management, 16th Edition

Determining Demand

Each price will lead to a different level of demand and have a different impact on a company’s marketing objectives. The normally inverse relationship between price and demand is captured in a demand curve: The higher the price, the lower the demand. For prestige goods, the demand curve sometimes slopes upward. Some consumers take the higher price to signify a better product. However, if the price is too high, demand may fall.

To estimate the demand for a company’s offering, marketers need to know how responsive, or elastic, demand is to a change in price. Price elasticity of demand reflects the degree to which a change in price leads to a change in quantity sold. The lower the price elasticity, the less sensitive consumers ...