Customer Experience Elasticity

Customer Experience Elasticity is the most important factor that most companies overlook when making decisions about customer-facing services.

In Econ 101, we learned about price elasticity of demand:

When price changes, demand responds. If demand drops a lot when price rises, demand is elastic. If it barely moves, demand is inelastic.

But there’s a parallel concept that wasn't in my Econ 101 and that most companies overlook:

Customer Experience Elasticity

Instead of price changing, the experience changes.

And demand moves.

The taxi industry learned that lesson the hard way.

For decades, the taxi industry operated as if demand for rides was inelastic.

People needed transportation.

Supply was limited.

So customer experience didn’t seem to matter much.

Then something interesting happened.

A new entrant didn’t just offer rides — it offered a dramatically better experience:

• Tap a button instead of waving on a corner

• Know the price in advance

• Track the car in real time

• Rate the driver

• Pay automatically

Suddenly, what looked like inelastic demand turned out to be highly elastic.

Riders didn’t just switch a little — they switched en masse.

What the NYC Taxi & Limo Commission data shows is "customer experience elasticity" driving demand:

When alternatives were limited, customers tolerated friction.

Once a better experience appeared, demand proved far more sensitive than incumbents assumed.

This pattern shows up everywhere — taxis, hotels, banking, events, healthcare.

Customers are often less price sensitive than they are friction sensitive.

The strategic lesson:

If your industry believes customer experience is just a "nice to have" (implicitly assuming demand is inelastic to CX changes), it may simply mean no one has improved the experience enough yet.