In a statement to Gillette’s shareholders, Chairman and CEO James Kilts indicate
ID: 1199372 • Letter: I
Question
In a statement to Gillette’s shareholders, Chairman and CEO James Kilts indicated, “Despite several new product launches, Gillette’s advertising-to-sales declined dramatically . . . to 7 percent last year. Gillette’s advertising spending, in fact, is one of the lowest in our peer group of consumer product companies.”
If the elasticity of demand for Gillette’s consumer products is similar to other firms in its peer group (which averages -5), what is Gillette’s advertising elasticity? Round your answer to 2 decimal places.
________
Is Gillette’s demand more or less responsive to advertising than other firms in its peer group?
A. It responds the same.
B. More responsive
C. Less responsive
Explanation / Answer
Advertising elastisity is measure of an advertising campaign's effectiveness in generating new sales.
It is calculated= Eda= Percentage change in quantity demanded / percentage change in advertising expenditure.
Beacuse as the Chairman indicated that gillette' advertising expenditure 7% decreasing last year ,but its elasticity of demand is simillar to its peer group .it means advertising elastisity is Less then unitary.