Name: Price Elasticity- Learn Customer Analytics
Uploaded: 2020-03-09T01:01:05.000Z
Duration: 9 min 34 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

This is a quick crash course video where we’ll talk about customers analytics, data science,

The topic we will be discussing here is price elasticity.

Leading companies are always on the lookout for savvy data scientists to join their fast-growing

In that sense, considering a career as a data scientist in customer analytics is a super

But here’s why exactly: First, companies need people who know how

to use data to understand their customers' needs.

Once they understand their needs, they can provide the products customers want to buy.

Second – and that’s a bit more technical – companies need people who have the skills

to build the analytics capabilities that will help them provide these innovative customer

In these videos, we’ll be focusing on the customer part of customers analytics.

Because even if you know how to do the technical analyses well, unless you understand the customer,

you won’t be able to meaningfully help your company.

So let’s build those foundations, shall we?

Just one more thing before we get started!

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Now, let’s get into customers analytics and more specifically price elasticity.

In the broadest terms possible, price elasticity measures how purchasing behavior changes when

For instance, let’s assume a bottle of Coca-Cola costs $1.

If the price increases to $2, many people would stop buying Cola, as it would be too

On the other hand, if the price decreases to 10 cents, many more people are going to

The measure we use to quantify this phenomenon is called: ‘price elasticity of Coca-Cola

demand’ or ‘price elasticity’ in short.

Now, as you can imagine, if we assume that a Pepsi also costs $1 and Coca-Cola cuts its

prices to 10 cents, then most of the people that used to buy Pepsi, would immediately

If prices of coke increase to $2, instead, people will likely stop buying coke and turn

That is to say that there seems to be another important phenomenon - ‘price elasticity

of Coca-Cola demand with respect to the price of Pepsi’, or the so-called ‘cross-price

Now, in the first case, where we measure the elasticity of Cola with respect to itself

only, we call that own-price elasticity, price elasticity of Coca-Cola demand, or simply

However, in the second case, where we’ve got 2 products, we must say the whole name:

‘price elasticity of Coca-Cola demand with respect to the price of Pepsi’, in order

to be sure that there will be no confusion.

Now that we have an idea about what price elasticity is, let’s discuss it in economics

Price elasticity stems from the basic economic law of supply and demand.

The cheaper the product – the higher the demand.

The more expensive the product, the lower the demand.

It is extremely important for businesses though, because there is this sweet spot which maximizes

Since revenue is equal to the ‘price’ times ‘units sold’, we can use this price

elasticity concept to find the point at which ‘price’ times ‘units sold’ is optimal.

Okay, but how does this look in mathematical terms?

Well, price elasticity is the percentage change of an economic outcome of interest in response

Usually that economic outcome of interest is the number of units sold.

Let us denote the economic outcome of interest with Y, and price with P. Then, the price

elasticity of the Y must reflect the percentage change in Y in response to a 1 percent change

in the P. We can obtain that by taking the percentage

change of Y and dividing it by the percentage change in P. Well, the percentage change of

Y is the difference between its present and past value, divided by the past value.

Similarly, the percentage change of ‘Price’ is the difference between the present and

the past price, divided by the past price.

Now let’s tie price elasticity to the subject matter of our course.

Remember, we’re going to address three questions related to economic outcomes of interest:

(1) Will a customer buy a product from a particular product category when they enter the shop?

(2) Which brand is the customer going to choose?

(3) How many units is the customer going to purchase?

These three questions boil down to the estimation of the following economic outcomes of interest:

(1) Purchase probability, (2) Probability for brand choice, and

Naturally, we would be interested in price elasticities of each of these economic outcomes,

so we’ll look at: (1) Price elasticity of purchase probability,

(2) Price elasticity of probability for brand choice, and

(3) Price elasticity of purchase quantity.

It’s time to see why we need each of them.

What can we expect when we calculate the price elasticity of purchase probability?

Well, there may be a lot of different brands with differing prices from the same product

For instance, the price of different brands of beer.

Suppose we can calculate an aggregate price for the whole category.

The law of demand says that the greater the price, the lower the quantity that customers