Good Morning, It’s Wednesday, April 9.

• Topic: Tariff-driven pricing strategy | Demand elasticity | Price modeling

• For: Operators. Pricing Managers. Business Leaders

• Subject: Economics → Practical Application

  • Concept: Price elasticity modeling in tariff environments

  • Application: Using elasticity data to make critical pricing decisions during economic shocks

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What is going on

New U.S. tariffs in 2025 (25% on imported vehicles, 10% baseline on most imports) have disrupted the market.

Automakers are responding with strategic pricing moves, offering a real-time case study in navigating economic shocks.

Let’s break down what Ford, Ferrari, and others are doing—and how you can use their logic to price your product, today.

Real-World Snapshot

• Ford rolled out “employee pricing for all,” giving regular customers insider discounts to clear inventory.

• Nissan cut MSRPs by up to $1,900 on models like the Rogue and Pathfinder, targeting elastic buyers.

• Stellantis launched deep dealer incentives under its “Freedom of Choice” campaign to maximize volume.

• Ferrari raised prices by 10% on most models but absorbed costs on high-end models to protect loyalty.

• Toyota and Hyundai froze prices temporarily, buying time and trust.

• BMW will cover tariff costs until May, with planned price increases later.

Different strategies, same shock: a 25% tariff on imported vehicles and parts.

The Bigger Picture: Tariffs Create Surpluses and Shortages

Tariffs disrupt supply-demand equilibrium:

• Costs Rise: Importers face higher costs for vehicles, parts, or products not made domestically.

• Reactions Vary: Some pass costs on (Ferrari), others absorb them (BMW), some discount (Ford), others freeze (Toyota).

• Demand Shifts: These moves change buying behavior, triggering:

  • Shortages: If promotions work too well (e.g., Ford’s discounts spike demand, supply can’t keep up).

  • Surpluses: If demand fades post-discount (e.g., unsold inventory piles up after Nissan’s price cuts).

This echoes 2021: artificial demand, production whiplash, inventory mismatches.

Supply decrease (S1 to S2) → higher prices (P1 to P2), lower quantity (Q1 to Q2).

Demand decrease (D1 to D2) → lower prices (P1 to P2), unsold inventory.

Why Demand Elasticity is the Missing Variable

Elasticity measures how much demand changes when the price changes:

• High Elasticity: Small price hike = big sales drop (e.g., mass-market autos, elasticity ~–1.2).

• Low Elasticity: Price goes up, buyers still pay (e.g., luxury goods, elasticity ~–0.5 to –1.0).

Automakers are betting on this: Ford pulls forward elastic demand with discounts; Ferrari knows its buyers are inelastic—they’ll pay.

Here’s a benchmark of elasticity ranges across industries:

How to Estimate Elasticity Today (With or Without Data)

You don’t need a PhD or a survey. Here’s how:

Option A: You Have Past Sales Data

Use Excel for linear regression:

Quantity Sold = a + b × Price  
Get slope and intercept using Excel’s =LINEST()
Forecast: Q = Intercept + (Slope × Price)

(For a comprehensive use of linear regression and statistics for better sales forecasting and demand, read here).

Option B: You Have No Data

Use the elasticity chart above, then plug into this formula:

New Q = Current Q × (1 + Elasticity × %∆Price)  
Example: 1,000 units at $100, 10% price increase to $110, elasticity –1.2:  
New Q = 1,000 × (1 – 1.2 × 0.10) = 880 units

How to Test Price Sensitivity Without Talking to Customers

No time for surveys? Use these signals:

• Compare volume before/after past price changes

• Track cart abandonment or quote drop-off

• Ask your sales team where objections hit

• Study competitors who raised prices—did they lose share?

Cost-Plus vs. Value-Based Pricing (and When to Use)

Choose your pricing model intentionally:

• Cost-Plus Pricing: Price = Cost + Margin
  Good for stable costs, commoditized products. Risky with tariffs (costs rise unpredictably).

• Value-Based Pricing: Price = What customers believe it’s worth
  Good for differentiated offers, strong brands (e.g., Toyota’s price freeze signals reliability).

Hybrid Approach: Use cost as your floor, value as your ceiling.

Tactical Pricing: What to Do Now

Let’s get concrete with a 4-step playbook:

Step 1: Define Your Pricing Objective

What’s your goal?

• Maximize volume (Ford)?

• Protect margins (Ferrari)?

• Survive tariffs (BMW)?

• Defend market share (Toyota)?

Every number follows this intent.

Step 2: Build 3 Pricing Scenarios

In Excel:

Step 3: Build Your Price Ladder

Add more price points ($95, $105, $115, $120, $125). Estimate demand and profit:

• Revenue-maximizing price ($90: $100,800)

• Profit-maximizing price ($95: $30.7K)

• Risk-minimizing price ($100: stable demand)

Step 4: Implement and Monitor

• Update pricing in POS/ERP systems.

• Notify distributors and train sales teams on new pricing.

• Monitor sales daily for 2 weeks, adjust if demand deviates (e.g., use flash sales for surplus inventory).

What Are Automakers Actually Doing?

They’re running this playbook with different elasticity assumptions:

• Mass-Market Brands (Ford, Nissan, Stellantis): Elastic customers → discount now → defend volume.

• Luxury Brands (Ferrari, BMW): Inelastic buyers → pass on costs or absorb temporarily.

• Toyota, Hyundai: Freeze prices → signal stability → buy time.

What to Expect in the Coming Months

• Initial “Buy Now” Rush: Promotional period (through June) will spike sales.

• Price Adjustment Phase: June-July, expect 5-10% price increases.

• Demand Cliff: Sales will drop as elasticity effects kick in.

• Inventory Imbalance: Popular models may become scarce; less desirable ones create surpluses.

• Production Shift: Manufacturing will relocate to avoid tariffs (12-18 months).

Action Tip: If sales drop in July, reduce production by 10% to avoid surplus.

Limitations

• Data Accuracy: Historical data may be outdated during rapid shocks (e.g., JPMorgan predicts a 40% global recession probability in 2025).

• Market Variability: Elasticity varies by region and segment (e.g., California luxury buyers may be less price-sensitive than Texas).

• External Factors: Competitor pricing or consumer income shifts can skew results (e.g., if Harley-Davidson discounts, your elasticity may increase).

• Short-Term vs. Long-Term: A 10% price increase might initially reduce demand by 12% (elasticity –1.2), but over months, customers may switch to substitutes, increasing elasticity.

Complement elasticity with real-time feedback and scenario testing.

Where Can You Apply This?

• Consumer Electronics: Model elasticity by price tier (e.g., iPhones –0.8, budget phones –1.5).

• Retail: Use price laddering to maintain value while adjusting costs.

• Manufacturing: Build scenarios to guide production decisions.

• Software/Services: Leverage lower elasticity of existing customers vs. new ones.

The Playbook You Can Use

Your short-form checklist:

• Estimate elasticity (regression or benchmarks)

• Set your objective (volume, margin, defense)

• Build price scenarios (with Excel, not guesses)

• Create a price ladder (pick the best outcome)

• Implement, monitor, and adjust (watch signals, act fast)

Top Links to Deep Dive

Want to go beyond today’s breakdown? Here are the best resources to master this topic:

• Harvard Business Review – A Refresher on Price Elasticity. Link here.​

• Educba – Price Elasticity Formula. Excel tutorial

• Khan Academy – Elasticity. Video here.

• Forbes – Understanding Pricing Strategies, Price Points And Maximizing Revenue. Link here.

• Economics – Effect of tariffs. Link here.

• The Noble Manager – Sales Forecasting Simplified: A 3-Step Framework for Better Decisions. Link here.

• BBC – What are tariffs and why is Trump using them? Link here.