- Promotional spending refers to any marketing efforts aimed at increasing product awareness, interest, and sales through various channels such as advertising, discounts, coupons, and loyalty programs.
- The effect of promotional spending on the elasticity of demand varies depending on the type of elasticity, product characteristics, and promotional strategies.
- Therefore, it is essential for marketers and business managers to understand the implications of promotional spending on each type of elasticity to optimize their marketing mix and pricing strategies.
Price Elasticity of Demand (PED):
- PED measures the responsiveness of quantity demanded to a change in price.
- If a product has a high PED, a small change in price can result in a significant change in demand, and vice versa.
- Promotional spending that reduces the price of a product can increase the quantity demanded and hence, the total revenue if the PED is elastic.
- However, if the PED is inelastic, reducing the price may not lead to a significant increase in demand, and the revenue may decline due to the increased cost of promotion.
- Therefore, a business manager should consider the PED of a product before deciding on the promotional spending and pricing strategies.
Income Elasticity of Demand (YED):
- YED measures the responsiveness of quantity demanded to a change in consumers’ income.
- If a product has a high YED, an increase in consumers’ income can result in a significant increase in demand, and vice versa.
- Promotional spending that increases the perceived value or quality of a product can increase the YED by attracting consumers with higher income and preference for quality products.
- However, if the product is inferior or has a low YED, increasing the promotional spending may not lead to a significant increase in demand, and the revenue may decline due to the increased cost of promotion.
- Therefore, a business manager should consider the YED of a product and the target market’s income level and preferences before deciding on the promotional spending and pricing strategies.
Cross Elasticity of Demand (XED):
- XED measures the responsiveness of quantity demanded of one product to a change in the price of another related product.
- If two products have a high XED, a change in the price of one product can result in a significant change in the demand for the other product.
- Promotional spending that creates a bundle offer or complementary products can increase the XED by encouraging consumers to purchase both products simultaneously.
- However, if two products have a low XED or are substitutes, increasing the promotional spending on one product may not lead to a significant increase in demand for the other product.
- Therefore, a business manager should consider the XED between related products before deciding on the promotional spending and pricing strategies.
Conclusion:
- Promotional spending can affect the elasticity of demand in different ways, depending on the type of elasticity, product characteristics, and promotional strategies.
- Therefore, a business manager should consider the implications of promotional spending on each type of elasticity before deciding on the marketing mix and pricing strategies to maximize revenue and profit.
