Elastic profits

When setting prices, most firms focus on the question of how sales will react. This relationship, known to economists as "the price elasticity of demand", is important - but only part of the profit equation. Costs, although obviously a key factor, are too often neglected in pricing decisions. By building the links between sales volumes and costs into the analysis, companies can more confidently identify the price ranges within which new pricing strategies are likely to be profitable, and so reduce risk.

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