In a statement to Gillette’s shareholders, Chairman and CEO James Kilts indicate

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 7.5 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 -3), what is Gillette’s advertising elasticity?

Round your answer to 2 decimal places.

Explanation / Answer

Advertising elasticity of demand = Elasticity of demand x (Advertising / Sales)

= - 3 x 0.075

= - 0.225

= - 0.23

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