# Discount Elasticity — Promotions Response Modelling

#### Exhibit 27.11   Discount elasticity — an illustration.

Price elasticity (discount elasticity) is a measure of the responsiveness of sales quantity demanded to a (temporary) change in price, and it is determined by the following equation:

$$\epsilon = \frac{\delta Q}{\delta P} × \frac{P}{Q},$$

If ε > 1, demand is elastic. Any dip in price due to a price-off promotion is offset by a disproportionately large increase in sales volume. On the other hand, if ε < 1, demand is inelastic, a dip in price will result in a decrease in revenue.

Discount elasticity is essentially the price elasticity due to a temporary price reduction. Since consumers are much more sensitive to a discounted price promotion than a regular price reduction, the discount elasticity is a lot greater than the price elasticity.

Exhibit 27.11 provides an illustration of discount elasticity. The SKUs in this chart, with discount elasticity of less than 1 (such as B, M and P) will experience a decline in revenue (sales value) when promoted. Items such as these with low elasticity tend to possess high brand equity and can command a price premium. Discounting these products will result in the loss of revenue and profit.

Price promotions should be considered in the context of discount elasticities as well as the SKU’s profit margin. Low margin products need to be highly elastic to retain profitability when promoted.

Previous     Next

Note: To find content on MarketingMind type the acronym ‘MM’ followed by your query into the search bar. For example, if you enter ‘mm consumer analytics’ into Chrome’s search bar, relevant pages from MarketingMind will appear in Google’s result pages.

### Promotions Evaluation

Automated online solution for analysis of promotions.

### What they SHOULD TEACH at Business Schools

Is marketing education fluffy too?

### Experiential Learning via Simulators | Best Way to Train Marketers

Marketing simulators impart much needed combat experiences, equipping practitioners with the skills to succeed in the consumer market battleground. They combine theory with practice, linking the classroom with the consumer marketplace.

### Online Apps for training on Promotions

The Plannogrammer is an experiential learning facility for category managers, trade marketers, and retailers in consumer markets. Ideally suited for hybrid learning programmes, Plannogrammer imparts hands-on training in the planning and evaluation of promotions and merchandising.

It supports a collection of simulation and analysis platforms such as Promotions and Space Planner for optimizing space and promotions, Plannogram for populating shelves and merchandising, a Due To Analysis dashboard that decomposes brand sales into the factors driving sales, and a Promotion Evaluator to evaluate the volume, value and profit impact of promotion plans.