Business Intelligence and FMCG Glossary: #promotionalelasticity
What is promotional elasticity?
To evaluate the effect of a promotion on the sales of a product, it is necessary to do so from a “baseline” sales level. The baseline sales is the quantity of products that would have sold in the absence of any promotional action. This quantity is not fixed but varies according to the time of year (product seasonality) or extraordinary events that took place during the promotion period (soccer World Cup, local festival, etc.).
Incremental sales compared to baseline define promotional elasticity, i.e., the greater or lesser impact of the promotional event on consumer demand.
The level of this elasticity can be influenced by the characteristics of the promotion in terms of:
- Offer: price reduction, gift promotion, other.
- Level of shoppers’ commitment: need to buy a larger quantity of products to benefit from the offer (3×2, 5+1 …).
- Advertising: folders, posters, other media.
- Visibility in store: presence on gondola heads, island, central aisle or on the contrary only on shelves.
To effectively assess promotional elasticity, all these parameters must be considered to isolate which one is the determining factor in the outcome of the promotion.