Is your product a vitamin or an aspirin?” is a long-standing startup question. Josh Linkner, managing partner of Detroit Venture Partners, explains on his blog that vitamins increase health but lack immediacy. Thus, vitamins are optional for most people. In contrast, aspirin solves immediate, painful problems, and subsequently, is much easier to sell. Per Josh:
“Businesses that service burning demand and visceral human needs tend to accelerate faster and require far less marketing push than those that offer stuff customers can easily live without.”1
In economics, the difference between vitamins and aspirin is illustrated by the price elasticity of demand, which explains the variance in the quantity of a product demanded at a certain price. As a product’s price rises, you generally see fewer units of the product purchased. When price greatly influences demand, economists say the demand for such a product has high elasticity. Ice cream, fashionable shoes, and real estate all have high elasticity. In contrast, the demand for some products, such as water, air, and basic food is highly inelastic.
Elasticity relates to both price and demand. The more inelastic the demand for a product, the more a buyer will be willing to pay to acquire it. For example, your need to breathe makes the demand for oxygen incredibly inelastic. You would pay any price to breathe. Now, oxygen is omnipresent even though there is inelastic demand. The extraordinary supply results in the price ...