Advertisement or Promotional Elasticity of Sales
The expansion of demand by means of advertisement and other promotional efforts may be measured by advertising elasticity of demand also called promotional elasticity. The concept of advertisement elasticity is useful in determining the optimum level of advertisement expenditure. The promotional elasticity measures the responsiveness of demand to changes in advertising or other promotional expenses. The formula for its measurement is as given below:
Here stands for advertising elasticity. ‘S’ stands for sales and ‘A’ stands for advertising outlays.
Factors affecting Advertising Elasticity
- The level of total sales
In the initial stages of sale of a product, particularly of one which is newly introduced in the market, the advertisement elasticity is greater than unity. As sales increase, the elasticity decreases. For instance after the potential market is supplied, the function of advertisement is to create additional demand by attracting more consumers to the product, particularly those who are slow in adjusting their consumption expenditure to provide for new commodities. Therefore, demand decreases at the rate lower than the rate of increase in advertisement expenditure.
2. Cumulative affect of past advertisement
In case expenditure incurred on advertisement in the initial stages is not adequate enough to be effective, elasticity may be very low. But over time, additional doses of advertisement expenditure may have a cumulative effect on the promotion of sales and advertising elasticity may increase.
3. Advertisement by rivals
In the highly competitive market, the effectiveness of advertisement by a firm is also determined by the relative effectiveness of advertisement by the rival.
4. Other factors
Advertisement elasticity is also affected by other factors affecting the demand for a product, e.g.
- Change in product’s price
- Consumer’s income
- Growth of substitutes and their prices