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Teaching notes · lesson 4 · a 20-minute class

Price elasticity and value

What a price move does to units, sales and margin. Tracks: Pricing, Finance.

Open the lesson

Learning goalsBy the end, students can

  • Define price elasticity and use it to estimate a volume change.
  • Explain when a price rise lifts or lowers sales value and gross profit.
  • Explain why a deal moves volume more than the same cut in the shelf price.

The 20-minute classMinute by minute, with the lab on the projector

  1. 0:003 min, to 3:00

    Cold open

    Ask: if Brightwater raises its price 5%, does it make more money? Take a show of hands for yes, no and it depends.

  2. 3:004 min, to 7:00

    The idea

    Define elasticity. Work one quiz example on the board: −2 times 3% is about −6% volume.

  3. 7:005 min, to 12:00

    Lab on the projector

    Move the shelf price up 5% and read volume, sales value and gross profit against the plan. Then switch to a deal of the same depth and compare.

  4. 12:003 min, to 15:00

    Pairs

    Pairs explain in two sentences why gross profit barely moved, or fell, after a price rise.

  5. 15:003 min, to 18:00

    Discussion

    Take the pricing power question. Ask what makes buyers stay when the price rises.

  6. 18:002 min, to 20:00

    Check

    Three lesson questions. Revisit the hands from the cold open.

Discussion questionsWith what a strong answer covers

  1. When does a price rise make more gross profit?

    A strong answer covers
    • When buyers barely react, so few units are lost.
    • Margin per unit rises while unit cost stays put.
    • At typical packaged-goods elasticities the lost units eat most or all of the gain.

  2. Why does a deal move volume more than the same cut in the shelf price?

    A strong answer covers
    • Deals are noticed and bought more readily.
    • Published deal elasticities are several times regular ones.
    • Some deal volume is pull-forward, not new demand.

  3. What gives a brand pricing power?

    A strong answer covers
    • Buyers who stay when the price rises: low elasticity.
    • Memory and quality that justify the premium.
    • Notes repeated deep cuts teach shoppers to wait for deals.

The lab as homeworkAbout 15 minutes for a student

Use the lab to compare a price rise in the first quarter with the same rise over the year.

  1. Set the shelf price to +5%.
  2. Note volume, sales value and gross profit in the first quarter and over the year.
  3. Repeat at −5%.

They answer: What does a 5% price rise do to Brightwater's gross profit in the first quarter and over the year, and why do the two differ?

A strong answer covers
  • Quotes the lab: gross profit falls in the first quarter and ends the year roughly flat.
  • Explains the volume loss against the higher margin per unit.
  • Mentions habit: the response is stretched over several quarters.

Students also answer the lesson's three questions. Their score is worked out on the server from their answers.

Set this lab as homework

Students open a link, do the lab, answer the three questions and write what they found. You see each student's quiz score and finding on your class page.

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