Price elasticity of demand (PED) is the concept that distinguishes the relationship between price and quantity demanded and it also provides a precise calculation of the effect of a change in price on quantity demanded (Economics Online Ltd; 2016). When in the concept of identifying a brand's competitors it is important to understand the relationship between an elastic and inelastic prices in response to the changes of prices. An elastic price is when the demand is significantly higher and the inelastic demand is when there are small changes in prices (Kotler & Keller; 2012). Economists often use the term of "ceteris paribus" to describe price elasticity, because it it is the balance in the business marketing world that needs to happen to maintain the prices in the field. When in relations to identifying brand competitors, one of the biggest factors that plays into this is the brand loyalty does effect the price sensitivity as well. By understanding how the price effects the price sensitivity it helps determine how the customers will react to the prices in the market. As Kotler & Keller (2012) state " customers are less sensitive to low-cost items or the buy infrequently" (p. 390). Sellers will be able to stretch and increase prices strictly on the merit of if they can convince their consumers that their product is worth them being bought. Ultimately, the producers will have to keep close attention to the market to understand the flow of their consumers on their market.
Price elasticity depends on the magnitude and direction if the contemplated price change. It could be something that isn't noticeable as a small price change or big like a large price change. It may differ for a price cut versus a price increase, and there may be a price indifference band within which price changes have little or no effect (Kotler& Keller, 2012). While identifying brand competitors, price elasticity is the major determinant, which results in increase or decrease of demand. Moreover, the change or introduction of any prices initiates the competitors and customers response to the product.
This is important especially in determining a brand's competitors since it's important to know where you are in relation to your competitors. This will tell just how much a price could possibly increase or decrease and would do the opposite for the opposing product. This is even more important when it comes to competition and competitors. For instance take two substitutes and one will be name product A and another product B. Elasticity is important in measuring the demand for a good due to the change in a related good- product B. For example, the increase in the price of one soap may increase the price of another good which on the other hand may increase the demand of the rival product.
References:
Kotler, P., & Keller, K. (2012). Marketing Management (ed.14). Upper Saddle River: Pearson Education, Inc.