Video Elasticity of Demand and Cross Elasticity of Demand.
Model Parameters
This dashboard depicts Elasticities and Cross Elasticities. The spin buttons at the top of the table allow you to switch from discount price, to display and co-op advertising.
Elasticity refers to the degree of responsiveness of one variable to another. So for instance, price elasticity of demand is a measure of the responsiveness of demand (i.e. sales quantity) to a change in price.
In the table, the elasticities are placed along the diagonals and shaded beige. For instance, the discount price elasticity of demand for Koko Krunch is −3.2. This implies that a 10% reduction in the item’s price will result in a 32% increase in sales.
The table also depicts the cross discount elasticities. It tells us that a 10% discount in the price of Koko Krunch will result in 8% drop in the sales volume of Milo. Similarly a 10% discount in the price of Milo will result in 3% reduction in sales of Koko Krunch.
The notes at the bottom of this dashboard provide more details about these coefficients.
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Model Parameters — Elasticities and Cross Elasticities
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Discount Price: Elasticity of Demand and Cross Elasticity of Demand
Elasticity of Demand and Cross Elasticity of Demand
Elasticity refers to the degree of responsiveness of one variable to another.
Price elasticity
of demand is a measure of the responsiveness of demand (sales quantity) to a change in
price, and it is determined by the following equation:
In the context of in-store promotions, the relevant parameter is discount price elasticity.
The impact on sales due to a temporary price reduction (price discount) is much greater than
that due to a permanent reduction in price.
Cross price discount elasticity is a measure of the responsiveness of sales quantity of a product to a
(temporary) change in price of another product:
The notion of elasticity of demand, applies similarly for elements of promotions including displays
and co-operative advertising. Display elasticity for instance is the percentage change in sales volume due
to the incidence of in-store displays. Similarly co-operative advertising elasticity is the percentage change
in sales volume due to the incidence of co-operative advertising.
In the discount price elasticity table the elasticities are placed along the diagonals (shaded beige).
For instance, the discount price elasticity of demand for Koko Krunch is −3.2. This implies that
a 10% reduction in the item’s price will result in 32% increase in sales.
The table also depicts the cross discount elasticities. It tells us that a 10% discount in the price of
Koko Krunch will result in 8% drop in the sales volume of Milo. Similarly a 10% discount in the price
of Milo will result in 3% reduction in sales of Koko Krunch.
Display and feature elasticities are positive. The incidence of a regular display for Koko Krunch will result
in 12.4% increase for Koko Krunch and 2.6% decrease for Milo. And the incidence of a regular feature
for Koko Krunch will result in 5.8% increase for Koko Krunch and 1.4% decrease for Milo.
The impact of endcap displays is 50% greater than that for regular displays, and the impact of special
displays is 100% greater. In other words, a special display of Koko Krunch will result in 2 × 12.4%
increase in the brand’s sales.
The impact of large features is 50% greater than that for regular features.