Question

In a statement to Gillette’s shareholders, its CEO indicated, "Despite several new product launches, Gillette’s advertising-to-sales declined dramatically . . . to 7.5 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 -4.5), what is Gillette’s advertising elasticity?

Answer 1

Answer: ‭0.34

Explanation:

Gillette’s advertising elasticity tells of the impact that Gillette's advertising has on its demand.

Given the details in the question, the following formula can be used;

Advertising elasticity/ -Gillette elasticity of demand = Gillette’s advertising-to-sales

Advertising elasticity/ -(-4.5) = 7.5%

Advertising elasticity = 7.5% * 4.5

= ‭0.34