Good morning, everyone. Today we’re going to talk about elasticity in marketing analysis. Elasticity is a very important concept in both business and economics because it helps us understand how customers respond to changes in price, income, and promotions. In simple words, it tells us how sensitive demand is when something changes. Businesses use elasticity to make better decisions about pricing, marketing, and forecasting sales.
Let’s start with price elasticity of demand, or PED. This measures how much the demand for a product changes when its price changes. For example, if a small change in price causes a big change in demand, we say demand is elastic. But if price changes do not affect demand much, it’s inelastic. Think about luxury chocolates. If the price goes up, many people might stop buying them because they are not essential. But with something like salt or milk, even if prices rise, people still buy about the same amount. That makes salt and milk price-inelastic.
Now, let’s look at income elasticity of demand, or YED. This measures how demand changes when people’s income changes. When income goes up, people usually buy more of certain products, especially luxuries like designer clothes or expensive phones. Those are called luxury goods, and they have a high income elasticity. On the other hand, products like instant noodles or second-hand clothes are inferior goods. When people earn more, they buy less of these. So, income elasticity helps businesses predict what customers will want as their income levels change.
Next is promotional elasticity of demand. This tells us how much demand changes when a company increases its advertising or promotional spending. If a business spends more on advertising and sales increase a lot, that means the product has a high promotional elasticity. For example, if a clothing brand runs a big sale campaign on social media and sales double, that’s a sign the promotion was effective. Businesses use this information to decide how much money to spend on marketing in the future.
Understanding elasticity helps companies make better decisions in several ways. It guides pricing strategies, because businesses can decide whether lowering prices will actually increase total revenue. For products with elastic demand, lowering prices can lead to higher sales overall. It also helps with product positioning. Knowing whether something is a necessity or a luxury helps firms target the right customers. Elasticity also supports budgeting and forecasting. It helps companies estimate how their sales might change when prices, income, or advertising budgets change.
For instance, imagine a company that sells luxury watches. They know their product is price inelastic but income elastic. That means lowering the price won’t attract many new customers, but an increase in people’s income will boost sales. So instead of cutting prices, the company might focus on premium advertising to attract wealthier customers.
However, elasticity is not perfect. There are some limitations. First, the data used to calculate elasticity might not always be accurate. Second, it assumes that all other factors stay the same, which in reality is not true. Consumer preferences change, competitors react, and the economy can shift quickly. Elasticity can also vary between markets and customer groups. For example, students and working professionals might respond differently to the same price change.
To sum up, elasticity helps businesses understand how customers respond to price, income, and promotional changes. By using these insights, companies can set smarter prices, design better marketing campaigns, and predict future sales more accurately. But they must also remember that elasticity is only one tool, and real markets are influenced by many changing
