The advertisement expenditure helps in promoting sales. The impact of advertisement on sales is not uniform at all level of total sales. The concept of advertising elasticity is significant in determining the optimum level of advertisement outlay particularly in view of competitive advertising by rival firms.
An advertising elasticity could be defined as the percentage change in quantity demanded for a percentage change in advertising. Advertising might be measured by expenditure. Advertising elasticity may be measured by the following formula
An advertising elasticity could be defined as the percentage change in quantity demanded for a percentage change in advertising. Advertising might be measured by expenditure. Advertising elasticity may be measured by the following formula
eA = ∆S/∆ A.A/S
Where
S = sales, DS= increase in sales; A = initial advertisement outlay, DA = increased advertising outlay The advertising elasticity of sales varies between zero and infinity. If advertising elasticity is zero, sales do not respond to the advertising expenditure. Promotional elasticity coefficient greater than zero but less than 1 (eA>0<1) indicates that sales increase less than proportionate to the increase in advertisement expenditure. The coefficient of equal to 1 means proportionate increase in sales to the increase in expenditure on advertisement. If eA > 1 it interprets that sales increase at a higher rate than the rate of increase of advertisement expenditure.
Determining Factors of Advertisement Elasticity1. The level of sales: The advertising elasticity of sales, particularly in case of products newly introduced into the market, is greater than unity. Sales increase more than proportionately with the increase in advertisement expenditure. As sales increase elasticity begins to decrease. Now the advertisement is done to create new customers to the product. Therefore, demand now increases less than proportionately to increase in advertisement.
2. Competitive Advertising: The advertising elasticity of a firm will depend not only on the advertisement expenditure incurred by the firm for its product but also on the effectiveness of the competitive advertising by the rival firms.
3. Cumulative effect of past advertisement: In the initial stages the advertisement outlay is not adequate enough to be effective. Therefore, the elasticity may be very low. But in later stages as the cumulative effect of advertisement gather, the advertising elasticity may increase over time.
S = sales, DS= increase in sales; A = initial advertisement outlay, DA = increased advertising outlay The advertising elasticity of sales varies between zero and infinity. If advertising elasticity is zero, sales do not respond to the advertising expenditure. Promotional elasticity coefficient greater than zero but less than 1 (eA>0<1) indicates that sales increase less than proportionate to the increase in advertisement expenditure. The coefficient of equal to 1 means proportionate increase in sales to the increase in expenditure on advertisement. If eA > 1 it interprets that sales increase at a higher rate than the rate of increase of advertisement expenditure.
Determining Factors of Advertisement Elasticity1. The level of sales: The advertising elasticity of sales, particularly in case of products newly introduced into the market, is greater than unity. Sales increase more than proportionately with the increase in advertisement expenditure. As sales increase elasticity begins to decrease. Now the advertisement is done to create new customers to the product. Therefore, demand now increases less than proportionately to increase in advertisement.
2. Competitive Advertising: The advertising elasticity of a firm will depend not only on the advertisement expenditure incurred by the firm for its product but also on the effectiveness of the competitive advertising by the rival firms.
3. Cumulative effect of past advertisement: In the initial stages the advertisement outlay is not adequate enough to be effective. Therefore, the elasticity may be very low. But in later stages as the cumulative effect of advertisement gather, the advertising elasticity may increase over time.
Change in product’s price, consumer’s income, increase in the number of substitutes and their prices are other factors that influence the advertising elasticity of a product
No comments:
Post a Comment