Price elasticity

Price elasticity of demand measures how much your bookings change when your price changes. If a 10% price cut brings 20% more bookings, elasticity is −2.

Formula

Elasticity = % change in bookings ÷ % change in price

It's almost always negative, since higher prices mean fewer bookings. What matters is the size:

• Less than 1 (ignoring the sign): inelastic. A price rise lifts revenue.
• More than 1: elastic. A price rise loses more bookings than it gains in rate.

Worked example

Hypothetical. Say you cut your compact rate from NZ$100 to NZ$90 for a fortnight, a 10% cut. Bookings rose from 200 to 230, up 15%.

• Elasticity = 15% ÷ −10% = −1.5
• Revenue before: 200 × 100 = NZ$20,000
• Revenue after: 230 × 90 = NZ$20,700

Revenue rose 3.5%, but you also did 30 more hires, each with turnaround costs. At NZ$40 a turnaround that's NZ$1,200, more than the NZ$700 you gained. The cut lost money.

Why it matters for a rental operator

Elasticity changes by date. On peak dates with little supply left, customers are less price-sensitive and you can hold rate. On quiet dates in a crowded market, a small price gap moves a lot of bookings.

It also changes with your position. If you're already well under the market, cutting further rarely buys much.

Test it in small steps, one category at a time, and compare against a control period. Market moves can fake a result, so check what competitors did over the same dates.

See it in Rate Pulse

Rate Pulse doesn't measure your elasticity. It shows where competitors priced on each pick-up day, so you can tell whether your bookings moved because of your price or theirs. Start at Rate Pulse.