Question

The advertiser wants to push her product's demand curve (LO2) a) to the right and make it more elastic b) to the right and make it less elastic c) to the left and make it more elastic d) to the left and make it less elastic

Short answer

To shift the demand curve to the right and make it more elastic, the advertiser should focus on increasing the demand for the product by highlighting its unique features and value additions while also making consumers more price-sensitive by emphasizing the availability of alternatives. To shift the demand curve to the right and make it less elastic, the advertiser should still increase the product's demand but aim to make consumers perceive it as having no close substitutes, making them less sensitive to price changes. To shift the demand curve to the left and make it more elastic, the advertiser should decrease the product's demand emphasizing the presence of alternatives. Finally, to shift the demand curve to the left and make it less elastic, the advertiser should decrease the demand while stressing that the product has no true substitutes, making consumers less sensitive to price changes.

Step-by-step solution

Shifting the demand curve to the right

To shift the demand curve to the right, the advertiser has to increase the demand for the product. This can be achieved by advertising the product's unique features, value additions and competitive advantages.

Making it more elastic

To make the demand more elastic, the advertisement should aim to make consumers more price-sensitive. This means convincing consumers that they have other options and alternatives to consider if the price of the product rises. However, the product's uniqueness shown in advertising should remain its core value. #b) To the right and make it less elastic#

Shifting the demand curve to the right

As in the first instance, shifting the demand curve to the right requires increasing the product's demand. This can be done through effective advertising.

Making it less elastic

To make the demand less elastic, consumers should perceive the product as unique with no close substitutes. The advertisement should aim to root the perception that there are no real alternatives to the product, hence making consumers less sensitive to price changes. #c) To the left and make it more elastic#

Shifting the demand curve to the left

To shift the demand curve to the left, the advertiser has to decrease the demand for the product. This might not be a regular strategy but could happen, as an example, when a new, improved product is being introduced.

Making it more elastic

In order to make the demand more elastic, the advertiser would typically highlight the presence of alternatives to the product. This will make the consumers more price-sensitive. #d) To the left and make it less elastic#

Shifting the demand curve to the left

As before, shifting the demand curve to the left implies a decrease in the product's demand.

Making it less elastic

To make the demand less elastic, the advertiser would have to stress that the product has no true substitutes, thus making consumers less sensitive to price changes. Such a strategy might be used if the company is intending to phase out the product gradually.

Key concepts

Elasticity

Elasticity is a key economic concept that measures how sensitive the quantity demanded of a product is to a change in price. If a product is elastic, it means that consumers are very responsive to price changes. When the price rises, the demand drops significantly, and when the price decreases, the demand increases notably. Products that are considered luxury items or have many substitutes often fall into this category.
In contrast, inelastic products have demand that is not significantly affected by price changes. This means that even if the price goes up or down, the quantity demanded remains relatively stable. Essential goods, such as insulin for diabetics, are good examples of inelastic products because they are necessary for consumers regardless of price.
Elasticity is important for advertisers because it affects how pricing strategies influence consumer buying decisions. By understanding elasticity, businesses can better predict the impact of pricing changes and adjust their advertising strategies accordingly to optimize demand.

Advertising Strategy

An effective advertising strategy involves promoting a product in a way that shifts its demand curve, either by increasing the overall demand or influencing consumers' price sensitivity. Advertisers use several techniques to achieve these goals:

• Highlighting Unique Features: By showcasing what makes the product stand out, advertisers can boost demand and reduce elasticity by making it seem irreplaceable.
• Creating Brand Loyalty: Encouraging emotional connections with the brand will lead to a stable customer base that values the product over competitors, thus making demand less elastic.
• Emphasizing Value: Demonstrating the product's benefits and cost-effectiveness can help attract more price-sensitive consumers, thus making demand more elastic.

Using these strategies effectively can either broaden the market of a product or narrow it to a dedicated consumer base, depending on the desired outcome. The choice of strategy should align with the business's overall objectives for market positioning and price tolerance.

Price Sensitivity

Price sensitivity refers to the extent to which the price of a product affects consumers' purchasing behaviors. Higher price sensitivity means consumers are more likely to react to price changes, making them more likely to switch to alternative products if the price increases. Lower price sensitivity means that consumers are less likely to change their purchasing habits despite price variations.
Understanding the price sensitivity of a product is crucial for advertisers and businesses when formulating marketing and pricing strategies. To increase price sensitivity, advertisers might highlight the availability of substitutes, which encourages consumers to compare and opt for cheaper alternatives if prices rise. Conversely, to decrease price sensitivity, they focus on building qualities such as brand trust and loyalty, emphasizing that their product can only be substituted at a loss of satisfaction or quality.
Incorporating knowledge of price sensitivity into advertising strategies can help businesses effectively manage their pricing decisions and maintain market share regardless of economic conditions.