By advertising we mean the activities by which visual or oral messages are addressed to selected respondents with a view to induce them to buy the product, services or ideas. Advertising makes the respondents familiar with the qualities of the new product introduced in the market by the firm.
In case of existing goods or services, advertising aims at (a) shifting the demand curve to the right, and (b) reducing the elasticity of demand. It will increase or maintain the demand of the product.
However, advertising has a cost and involves payments to persons involved in it. The cost of advertising forms the part of costs of sales and increases the sale price of the product or service.
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The following are salient features of advertising-sales relationship:
1. Other things like price, quality, channel of distribution, and other determinants affecting sales, remaining the same, there is a direct relationship between extent of advertising and volume of sales. Thus, the sales are likely to increase, if expenditure on advertising is increased.
2. A certain amount of sale is possible even when there is no advertising.
3. There is a positive correlation between the amount spent on advertising and amount of sale. Upto a point, an increase in advertising will lead to a more than proportionate increase in sales.
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Beyond this point, the increase in sales is less than proportionate. Beyond saturation point, there is no increase in sales irrespective of amount spent on advertisement.
Advertising elasticity of demand:
The expansion of demand by means of advertisement and other promotional efforts can be measured by advertising elasticity of demand also called promotional elasticity.
The promotional elasticity measures the responsiveness of demand to change in advertising or other promotional expenses. The formula for its measurement is given below:
Ea = Proportionate change in sales / Proportionate change in Advertisement expenditure
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Q2-Q1/ Q2+Q1 / A2-A1 / A2+A1
Where Q and A stand for sales and advertisement outlay respectively.
The basic purpose of advertising is to create demand by information and persuasion and at times by the efforts made to change people’s taste. There is little doubt that advertisement very often succeeds in its attempt
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