How does advertising affect demand elasticity?

1 Types of advertising

Advertising can be classified into two broad categories: informative and persuasive. Informative advertising provides factual information about the features, benefits, or prices of a product or service. It can increase demand elasticity by making consumers more aware of the alternatives and substitutes available in the market. For example, if a car company advertises the fuel efficiency, safety, and reliability of its models, it can make consumers more sensitive to the price differences between its cars and those of its competitors. Persuasive advertising, on the other hand, appeals to the emotions, values, or desires of consumers. It can decrease demand elasticity by creating brand loyalty, differentiation, or image. For example, if a soft drink company advertises the happiness, fun, and social status associated with its product, it can make consumers less willing to switch to other brands or products.

2 Purposes of advertising

Advertising can also have different purposes depending on the stage of the product life cycle, the market structure, and the competitive strategy of the firm. Advertising can have three main purposes: introduction, expansion, or maintenance. Introduction advertising aims to create awareness and interest in a new product or service. It can increase demand elasticity by attracting potential customers who are not yet loyal to any brand or product. For example, if a smartphone company advertises the innovative features and functions of its new model, it can make consumers more curious and willing to try it out. Expansion advertising aims to increase the market share and sales of an existing product or service. It can decrease demand elasticity by reinforcing the existing preferences and satisfaction of customers. For example, if a shampoo company advertises the positive feedback and testimonials of its users, it can make consumers more confident and loyal to its product. Maintenance advertising aims to retain the market share and sales of a mature product or service. It can also decrease demand elasticity by reminding customers of the benefits and values of the product or service. For example, if a toothpaste company advertises the health and hygiene benefits of its product, it can make consumers less likely to switch to other brands or products.

3 Effects of advertising

Advertising can have different effects on demand elasticity depending on the nature and intensity of the advertisement. Advertising can have three main effects: informative, complementary, or competitive. Informative advertising can either increase or decrease demand elasticity depending on whether it makes consumers more or less sensitive to the price, quality, or availability of the product or service. For example, if a restaurant advertises its low prices, it can increase demand elasticity by making consumers more responsive to price changes. However, if it advertises its high quality, it can decrease demand elasticity by making consumers less responsive to price changes. Complementary advertising can increase demand elasticity by increasing the demand for complementary goods or services. For example, if a movie theater advertises its popcorn and drinks, it can increase the demand for movie tickets, which are complementary to popcorn and drinks. Competitive advertising can decrease demand elasticity by decreasing the demand for substitute goods or services. For example, if a coffee shop advertises its superior taste and service, it can decrease the demand for tea, which is a substitute for coffee.

Advertising is a complex and dynamic phenomenon that can have various impacts on demand elasticity. By understanding the types, purposes, and effects of advertising, you can better analyze how advertising influences consumer behavior and market outcomes.