Cutting price into demand that does not move

A price cut into demand that does not move is the most expensive habit in pricing, and it feels like success while it runs. Volume rises, the shop is busy, the campaign report shows a lift. The margin given away on every unit that would have sold anyway is invisible, and it is nearly always larger than the margin earned on the units the cut brought in.

The sum that exposes it takes a minute. A cut of 5% on a 30% margin needs 20% more volume to break even. A cut of 10% needs 50% more. On a thinner margin the numbers run away: at 20% margin, a 10% cut has to double the volume. Those are not targets a promotion sets for itself. They are what it has to deliver to avoid losing money, before anyone counts the cost of running it.

What inelastic demand looks like

Some demand does not move much with price. Customers buy the category because they want the category, at roughly the rate they always have. A lower price changes who they buy from and when, not how much they buy. Staples. Habits. Regulated products. Anything bought on a routine. In those markets a price cut mostly rewards the people who were coming anyway.

The evidence is in the history. Put five years of promotions beside five years of volume and look for the weeks where volume did not move. In inelastic demand there are a lot of them. The weeks where it did move are followed by weeks where it fell back below trend, because the cut pulled tomorrow's purchase into today.

Example: A consumer wagering operator ran price promotions for the best part of a decade. Each event was judged on turnover during the event, and turnover always rose. When the promotions were finally put beside the breakeven, the volume each needed was several times what any event had ever delivered. The customers had been betting the same amounts on the same days, at a lower margin, for ten years.

Why it keeps happening

Volume is visible and margin is not. The weekly report has a column for units and a column for sales. It does not have a column for the contribution that units at full price would have earned, so nobody sees what was given away.

The comparison is wrong. Sales during the event are compared with the weeks before, not with what the same weeks would have done without the event. The uplift includes the base, and the base was coming regardless.

The promotion has no stated job. Our grid's lowest stage on promotion planning reads: "Promotions run because they ran last year or because trade was slow that week." An event with no job cannot fail at it, so it runs again.

And nobody has an elasticity. Our grid's lowest stage on that practice reads: "Nobody can say what a 5% price move would do to units; the debate is settled by nerves." A business without an estimate of how much volume a cut will bring is guessing, and the guess is usually the number that makes the event look good.

Example: A retailer's monthly pack reports every promotion as a success, because each one sold more than the week before. Its best-selling line is on promotion two weeks in four. Measured against a baseline, the line's annual volume is the same as it was before the promotions started, at a lower average price.

The sum that stops it

Before any cut, run the breakeven: on this margin, at this depth, how much extra volume do we need? Write the number down. Then ask the only question that matters, which is whether any event on this product has ever delivered it. If the answer is no, the cut is a gift to people who were already buying.

Then make the promotion earn its slot. Give it a job: traffic, clearance, a new customer, a competitor's launch. Forecast the uplift against a baseline, not against last week. Measure what it delivered net of pull-forward and cannibalisation. Kill the clear losers and let the rest compete for the calendar. That is the difference between the bottom of the promotions practice on our grid and the top. At the top, the programme is designed as a portfolio with a target return, and events compete for their slot.

None of it needs a data scientist. It needs the breakeven done before the cut, and the courage to believe it over the busy shop.

Check your pricing practices · Price-rise breakeven: how much volume can you afford to lose? · Breakeven calculator