Oct 20 2009

The role of advertising in determining price elasticity of demand

42 responses so far

42 Responses to “The role of advertising in determining price elasticity of demand”

1. # Alex Hanon 12 Nov 2008 at 1:17 am

   I’d say the main reason has to do with available substitutes. Labatt, another Canadian beer is an almost perfect substitute for Molson. This advertisement however has made the product unique Labatt is no longer a perfect substiture. In other words there isn’t another Canadian beef company with a humorous and patriotic advertisement like Molson. Therefore, consumers will not be so responsive to a price change in Molton, because there is only one Molton beer which promotes Canada so well.
   Firms will try to make their products more inelastic using advertisements for instance, so that they are ensured a decent quantity demanded regardless of their set price.

   Another GREAT example of advertisement which makes a product more inelastic are movies… I watched QUANTUM OF SOLACE on friday… And I have to say, I can’t get the Aston Martin DBSor the OMEGA seamaster or the Tom Ford suits out of my mind. I don’t think there’s a substitute for James Bond’s Car, watch or suit….
   In fact I think this example really demonstrates how much advertisements can influence elasticity. The elasticity of demand for Omegas, Tom Ford clothes and Aston Martins become inelastic for me even if they are total LUXURY GOODS.

2. # Theresa Mehlon 12 Nov 2008 at 3:47 am

   I agree to alex: The closeness of substitutes is a determinant of price elasticity of demand. The commercial made the Molson beer something speacial. It is showing that it can give you something it’s substitutes cannot give you. People who like the commercial will buy Melson, even at a higher price because they are buying something special with it (represented in the commercial). Therefor the determinand of substitues is eliminated in this case.
   Labbot beer buyers (because of the better substitude Molson) are now losing their customers.

   All firms are interested in decreasing the price elasticity of their product, because it is fantastic if not a lot less of your product is bought at a higher price. It will increase the firms total revenue. For firms it is very importand to know about elasticity because that is how they can maximize their revenue!

3. # Jason Welkeron 12 Nov 2008 at 4:13 am

   Alex, great points! Don’t forget about that Sony Errikson smart phone or that electric Ford mini car, though!

4. # Zac Queryon 12 Nov 2008 at 4:42 am

   I agree that the factor affecting price elasticity of demand in this example concerns substitutes. I think its fair to say that in the beer market there exists many substitutes for consumers. It would seem almost impossible then, for a company to decrease its product’s elasticity. Molson Canadian Beer was able to do this though. Through their commercial, they seemingly reduced the number of substitutes by affiliating their product with Canadian nationalism, thus spurring more die-hard Canadians to buy their beer. So when Canadian beer consumers go to their local drug stores, they don’t just see a bunch of similar beers and their price tags. They see an “O Canada” beer and then all of the “others”. This affiliation makes consumers more willing to pay a higher price for the “O Canada” Molson beer, making that product more inelastic. This is in the interest of Molson because it allows them to raise their prices without incurring a drastic decline in quantity demanded. Essentially this is what all companies are attempting to accomplish in their advertising–decreasing the price elasticity of demand for their product. They are seeking to individualize their product, making it more unique in the eyes of the consumer, and thus decreasing the number of comparable substitutes in the market.

5. # Marc Lemannon 12 Nov 2008 at 7:58 am

   A successful advertising campaign can reduce consumers’ responsiveness to a change in price because they convince the consumer that they have the best product and keep them from buying substitutes even if their price increases. Molson beer enforces that it is Canadian various times, which may even lead consumers to believe that Labatt isn’t, even though it is. This is in the interest of the company, because they can charge a higher price for the beer, now that ingredients are becoming more expensive, not make any losses, and even gain market share. In Molson’s case, they associate Canadian nationalism to the beer. Other beer brands, like Stella Artois, advertise “Perfection has its price” in the US, so that consumers buy the beer at the high price, even though in Europe its elasticity is different, and the beer is sold at a much cheaper price. This makes the beer a luxury for the consumer in the US, one of the determinants that can make a consumer less negatively responsive to the higher price of Stella Artois. InBev, the owner of Stella Artois, plans to increase the prices off most of their beers by 3%, because of increasing production costs, but this should not affect their sales, since people drink more beer in times of a recession like now, and its competitors are also struggling and increasing their prices. The quantity demanded by consumers for beer as a whole will not change since it does not cost a large proportion of peoples’ incomes, and is the cheapest substitute to other alcohols, that consumers may be able to adapt over time to live without.

6. # Rob Schenckon 13 Nov 2008 at 4:47 pm

   This agitates a simple question: why does advertising work in the first place? Noting the fact that consumers are extremely gullible, advertising raises awareness that the product exists, and that the product is in some way different and often times, better that it’s competitor’s close substitute. If there is a lack of substitutes, obviously the advertisement will simply raise awareness of the product (although it will include all the gimmicks that other advertisements have, to make their product look better than it really is); however, this usually isn’t the case. The sheer reality of competitor’s products is that they’re virtually the same product, with perhaps, a little differentiation. For example, take chocolate from two different major brands- most consumers wouldn’t be able to tell the difference between the two, and yet, many consumers would buy the more expensive chocolate, even though they are the same. Why? This seems incredibly irrational. Advertising establishes a brand for the product, and this brand creates an incentive for the consumer to buy the advertiser’s product because the product is “luxurious”, or is made from the “highest quality cocoa”, and so forth. Advertising and brands lead consumers to think they’re getting more than they are from another product that is often a less expensive close substitute.

   The beer commercial is a perfect example of this, branding Molson beer as the “true Canadian’s beer- all real Canadians drink Molson beer”. The consumer is now willing to pay more for the same product they can get for less from another brand because they feel that they are getting more, and getting a unique product. As they think they’re getting a better product, they’re willing to pay more; thus, consumer’s elasticity for the price of the beer becomes less elastic as they are suddenly willing to pay more.

   Successful advertising works by differentiating a product from another, thereby increasing its value to consumers, which results in an increase in demand for the product, as well as more inelastic demand. Advertising simply manipulates consumers into buying a certain product and paying more for it.

7. # Nicholas Burnhamon 16 Nov 2008 at 9:53 pm

   “Every little helps”
   People are faced with catch 22s more often than they notice. When choosing between two perfectly good beers even the slightest subconscious factor can sway the decision. What advertisements try to do is associate a product with another thought or feeling. The trick is giving off a vibe that the most people will appreciate.
   Either way, where would the economy be without advertisements? If you think about it, not knowing anything about the products in front of me would greatly influence what i buy. When i go to the store and i scan the shelves i only tend to notice the goods i’ve seen before. It takes a conscious effort to search for something i know nothing about. The job of advertising, i suppose, is to put a product into that field of vision, so that it has a better chance of getting bought.

8. # Benji Rosenon 17 Nov 2008 at 9:27 pm

   As stated above the fact that Molson Canadian Beer advertise like this is to work at the factor of elasticity which is how the product is affected by substitutes. By making the advertisement it gives the beer that cutting edge over the opposing beer competing for that market. Every year there are only a certain amount of people drinking beer in canada, that “cake” is competed for by the different beer companies. The fact that molsens share went up 3% led to its compeditor/substitute loosing out in the market. In the position they were in before they produced the advertisement, they probably couldnt change their prices much due to the competition being tight. But as they become more popular in contrast to the opposition (substitute) their product becomes less elastic. This means that they can now up the price and not feel the consequences. Now with their quantity demanded much higher, they can recalculate their PED and if its bigger then one, then its not economically viable to change the price since they will loose revenue, but if the PED is less than one then its worth increasing the price because the demand will go down a lower percentage then the price went up resulting in a big increase in their revenue. This knowledge is vital for a company to have, in order to know how to set their prices.

9. # Dimitri Da Ponteon 18 Nov 2008 at 2:31 am

   An advertisement’s goal is that of promoting the product to render it unique and ‘better’ in the eyes of the consumer, in the same way a lower price, in some instances, makes the product more appealing. The producer is trying to differentiate his product from everyone else’s. Advertisement tries to guarantee that there are no perfect substitutes for his product in the eye of the customer, because if there are no substitutes the product becomes much more inelastic and the consumer much less sensitive to the change in price. This advertisement is particularly effective in as much as it brings forth nationalistic feelings which are usually very powerful: being part of a nation usually makes people proud and this advertisement plays on those feelings. Drinking Molton’s beer, if you are Canadian, will make you proud and eventually bring you much more utility than if it was a normal beer because it made you feel good about yourself about being part of a ‘great country.’

10. # Maren Rackebrandton 18 Nov 2008 at 4:16 am

    I think that this is a very powerful commercial. As Dimitri said the Canadians get the feeling that they are a part of something bigger when they drink this beer. Molson Canadian beer wants to grab the attention of the people and does that by representing their culture and land which makes the people proud of their country. So maybe because it probably ran up and down on Canadian television the people started to buy more of it, because they thought if they would be seen by somebody drinking it than that person would see the pride and closeness to the country.
    This commercial would have a different impact if it was shown in a different country, not necessarily in a bad way though. Maybe even some people from other countries who saw this commercial might think that this beer must be something good because it represents who the Canadians are and that they’re proud of it. So personally I think that if people from other countries would see this they might would like to also try this beer.

11. # Amit Zaidenbergon 18 Nov 2008 at 4:29 am

    I agree with many of Alex’s points a good advertisement campaign can reduce consumers response to change by making the product seem like more of a necessity and make it seem like there is no substitute as good. Molson would like to decrease the price elasticity of demand so more people will buy their beer even if the price changes.

12. # Helene Gleitzon 18 Nov 2008 at 4:16 pm

    I agree with Alex as well, since advertising changes our tastes and preferences, which is one of the determinants of demand. The Molson campaign makes it seem like it is the only TRUE Canadian beer, something that cannot be substituted. Labatt ,however, is a perfect substitute, yet the advertising is done so well that is doesn’t seem as good.
    Molson wants to advertise its beer in order to make it inelastic, because their product can be very well subsituted by Labatt’s. So even if the price of Molson goes up, people will keep buying it because they want “quality” and are willing to pay a higher price for a true canadian beer.
    I agree that it would have a different impact in another country or continent. For example, if shown in Europe, sales of Molson beer would not change very much.

13. # Gabrielon 18 Nov 2008 at 11:27 pm

    This commercial appeals to the viewer by making him think there are no other substitutes for Molson’s beer and making them think that it is the true Canadian beer. According to the data, this commercial completely worked since it increased their shares in the beer market by 3% and decreased the shares of the other Canadian beer, Labatt, by 3%. This is due to the fact that Molson made consumers more inelastic, therefore, if the price of Molson went up, consumers would buy it anyway. Before the commercial, since Labatt was almost a perfect substitute, if Molson increased the price, consumers would buy Labatt instead.
    It is in the interest of Molson to decrease the price elasticity of demand because this means that consumers will not be sensitive to price change, and even if the price went up, they would still buy it.

14. # Daniel Edmondson 19 Nov 2008 at 1:50 am

    How can advertisement make a PED more inelastic as in the case of Molson vs. Labatt beer? SPLAT… S: The advertiesment above makes two very similar products very different. It appeals to the patriotism of a Canadian. P: I couldn’t find the prices on the web but I assume they are similar so the proportion of income should not have a big influence in this situation. L: Beer is clearly not a necessity. A: To the people to whom beer would be addictive no advertisment would change any decision. T: Unless there is a big supply of Labatt beer in the cellar time should not matter to change to Molson beer. Concluding, the substitue aspect of PED is the most important factor in this situation. Probably the only way advertisment can influence SPLAT is via the substitutes.
    Having lived in the US between 2000 and 2006 I know that appealing to patriotism would also work there. However, I wonder wether appealing to patriotism would work in Germany or Belgium……
    It is of intrest for a firm like Molson to decrease the price elasticity of demand for a product because it increases their Total Revenue. An increase in price with a low PED effects the quantity of demand to a lesser degree.

15. # Aleya Thakur-Weigoldon 19 Nov 2008 at 2:11 am

    I also agree with Alex and Amit. The whole point of advertising is to make it seem like the good is more of a necesity or a lifestyle than a luxury and necesities cause the product to be more inelastic. Once the consumer believes that he/she really needs the good or that there are no comparable substitues for it, the advertising achieved exactly what it wanted. People will start to only buy that one product which will create huge increases in profit for the companies. This is how advertising can influence the price elasticity of demand.

16. # Jonathan Ranstrandon 19 Nov 2008 at 2:27 am

    I think Alex, Amit, and Aleya bring up some really good points. By associating the Molson Beer brand with desired values, such as Canadian patriotism, and so on, that could potentially make the product “better” in the consumer’s eyes. While I’m sure Labatt beer is a perfectly good substitute for Molson beer, consumers now had a higher opinion of Molson beer and probably felt more patriotic in buying Molson beer. Thus, Labatt beer was probably no longer an equally good substitute in the eyes of the consumer, so the demand would become slightly more inelastic.
    Amit also said that the advertising campaign could make Molson beer somewhat of a necessity in some consumers eyes. I think this is certainly true – for example, some consumers surely bought Molson beer because they began to see it as a necessity, especially to be associated with the Canadian nationalism. I think it would be in the interest of the beer company to make the demand for its product more inelastic, so that the quantity demanded would be more stable despite price changes, especially increases.

17. # Rohan Ron 20 Nov 2008 at 1:46 am

    A successful advert like this can change a consumers responsiveness to the change in price of beer just like Molson beer because it evokes the aspect of patriotism. Labatt beer would have been a perfect substitute but because this add campaign appealed to the true canandians and this might have changed their responsiveness the prices. However if this was beer was sold in the US then no one would buy it because of its appeal to canadian citizens. I agree with jonathan and amit when they said it would be in the best interest of the beer company to make the demand more inelastic so that a big change in price would not affect the quantity demanded that much.

18. # Sabrina Walshon 20 Nov 2008 at 6:07 pm

    1. A successful advertisement can turn the advertised product into a necessity to the consumer. So the consumer feels as though there is no substitute for the product. For example with Molson’s beer, there is no substitute to Molson’s beer to a ‘true” Canadian consumer because Molson’s is THE Canadian beer. In this way the advertisers are making Molson’s beer more inelastic so the consumer mainly purchases it, and even with slight increases in price the consumer will still feel that it’s still worth buying.
    2. As stated in answer one. If Molson’s decreases price elasticity the consumer is more willing to purchase only Molson’s and less of the substitutes, so as the price rises the consumers will still be willing to buy Molson’s.

19. # celineon 21 Nov 2008 at 7:32 pm

    As mentioned above advertising has a lot to do with the subconscience. Advertisers always aim for twi things to make an ad effective, Fear and Desier. the consumer desires a beer that is just as good ad as the one he is used to but at a cheaper price. It is a sunbstitute and therefore it is elastic. Untill the firm was able to make the custumor “loyal” to his product the consumer will change to a cheaper, just as good, good.

20. # Simon Strongon 26 Nov 2008 at 3:19 am

    Since Canadian beer has been covered so well i’ll relate my answer to a different brand. Take for example Pot Noodle, which is owned by Unilever. Pot Noodle ads are always the funniest, the latest string of Pot Noodle ads were based around the fact that the Pot Noodle factory is in Wales, and with mining being a history welsh occupation they decided to play on that. Not only did these humorous ads make laughs but it is also brand recognition. Companies need advertising so that when consumers are shopping and they see this brand they saw on the telly, or heard on the radio, or read in the paper, they know what it is and think that they’ll try it. If they like it then they also then subconsciously create a brand loyalty meaning that they will probably now stay loyal to the brand even if the price goes up by a tiny margin. This loyalty to a product is basically another way of putting; How elastic/inelastic a consumer is to a price change in x good. The producers need this loyalty because if consumers are more loyal then producers can increase prices and maximize their revenues.

21. # Mike Wilkeson 05 Dec 2008 at 4:45 am

    1. How can a successful advertising campaign reduce consumers’ responsiveness to changes in price of a good like Molson beer?
    2. Why is it in the interest of a firm like Molson to decrease the price elasticity of demand for its product?

    It is in the interest of all firms to decrease the price elasticity of their product, if a firm has customers who will still buy their product even with a significant price rise then they will be maximizing products. All companies aim to advertise their product to be the best out of all their competitors. The best example of a company with a fantastic marketing campaign would be of course apple. They have made their products appear sleek, sexy, desirable, so much so that i rarely hear people refer to mp3 players as mp3 players but rather ipods.

22. # Sarah Ebleon 22 Oct 2009 at 2:32 am

    1.How can a successful advertising campaign reduce consumers’ responsiveness to changes in price of a good like Molson beer?
    An advertising campaign creates an image of a product which makes the product popular if the campaign is successful. The more popular a product is, the more are people willing and wanting to buy it . The important thing is that the advertising campaign makes the product more attractive to consumers than the product’s subsitutes. Often, as a result, the people stick to buying only this product of this particular firm. If a firm is able to make their costumers develop a brand identity through a good advertising compaign meaining creating a popular image , the consumers will be less or even not at all responsive to a change (increase) in price.

    2.Why is it in the interest of a firm like Molson to decrease the price elasticity of demand for its product?
    A firm like Molson is interested in decreasing the price elasticity of demand for its product because this means that if they change the price, especially if they raise the price, their customers will still buy their product.

23. # Gustavo Proglhofon 22 Oct 2009 at 3:13 am

    A successful advertising campaign works in such a way that consumers are going to think of the product in a different way. The campaign is going to make the consumers feel that they are buying more than just a beer, they are indirectly buying the idea of being proud of themselves, which can be based on nationalism, or even on feelings of self-confidence and love for themselves. As a result, there will be a differentiation between the product and its substitutes and the product that is being advertised is going to look special in the eyes of consumers. Due to this, there will be a greater willingness to pay higher prices, and the responsiveness of consumers is going to decrease.

    A decrease in the responsiveness of the consumers means that the demand of a product will not change significantly comparing to a change in the price. With that, the company is going to be able to increase the price of ti product (beer), without losing its consumers. Consequently, the company is going to have an increase in its profit and be better off.

24. # Christopher Francoison 22 Oct 2009 at 3:31 am

    The advertising, whether successful or not, increases peoples awarness of the product and of its special qualities. the quality displayed here is the canadian patriotism, and what’s even better is that its shown in a funny and memorable way therefore when people go to the store and want to buy beer they will probably buy Molson beer instead of its perfect substitute: Labatt. This then gives the Molson company the ability to raise the price of there beer slightly and the consumers will not take notice since they have seen the advertisment and they all have a fixed thought that MOLSON is the beer that they should buy.

    Companies and Firms like Molson want to keep the elastisity to a minimum because they don’t want many people to stop buying their product if the price increases. Though this could backfire if the price drops and not many people change to their product and they continue haveing the same quantity demanded, but when the price rises if the firm has a low price elasticity then not many people will want to change to the substitute Labatt.

25. # Felipe Rigaudeau-Lopezon 22 Oct 2009 at 3:56 am

    1.How can a successful advertising campaign reduce consumers’ responsiveness to changes in price of a good like Molson beer?
    2.Why is it in the interest of a firm like Molson to decrease the price elasticity of demand for its product?

    I think this advert was great. It appealed to the viewer’s sense of pride and patriotism, and cleverly associated Molson Canadian with all the other common things we associate Canada with. The advert is also saying that, to be Canadian, you have to drink this beer, and this is what spurs people to buy it, which is perhaps a foolhardy trap to fall into, but the statistics show it worked.

    A successful advertising campaign has to, first of all, catch the attention of the viewer. It can’t be boring, or else why would people watch it. The advert has to appeal to things the viewer can associate him or herself to, for example, in the case of this advert, patriotism and familiar things that are typically associated with Canada. An advert can also use wit and humor to sway a crowd, play on words, etc.

    Decreasing price elasticity means that as price changes, the reaction of the consumer will decrease, in that the percentage change in quantity demanded will decrease. A more inelastic market for this product means that there is less fear of a strong and radical change in consumers if the price changes, which means that the company will make more money than before, if a price change were to occur.

26. # Silvia Dieteron 22 Oct 2009 at 4:49 am

    Advertising campaigns have to promote their products interesting and as something special. Advertisers have to make up an image which attracts consumers. They have to be able to identify themselves with the product. Also, the more interesting a product is being promoted the more people are willing to buy it. Therefore the popularity of the product rises and more people buy it. Consequently the substitutes decrease.
    In this commercial you felt like being part of something big. Hence some people might start drinking Molson’s beer because they wanted to be part of something important and overwhelming.

    A firm like Molson is interested in decreasing the price elasticity of demand for its product because no matter if there is a change in price; most of the consumers will continue buying their product.

27. # Lara Fuhrmannon 23 Oct 2009 at 1:33 am

    1.How can a successful advertising campaign reduce consumers’ responsiveness to changes in price of a good like Molson beer?

    The advertising campaign wasn’t showing the beer or how you need it. It was showing the most unelastic good in the world, which is free time or our senses and what we want. Now everybody thinks the beer producers are for freedom and love and all the things canada is connected with. Very clever, because to be like or be a canadian you have to drink this beer to show that your also for that.

    2.Why is it in the interest of a firm like Molson to decrease the price elasticity of demand for its product?

    It is in interest for the firm, because for a product to be popular and for the quantity demanded to be high, the product has to be highly inelastic. If the product was elastic a change in price would cause a big effect in quantity demanded, so n order for the firm to be more save, if they would have to go up with the price the product has to be highly unresponsive.

28. # Hannaon 24 Oct 2009 at 9:30 pm

    If an advertising campaign is successful, it means that the consumers’ liking of that product increases after viewing the advertisement. It will also cause the product to be memorable to the consumers, which is one reason why they would end up buying the Molson beer instead of the Labatt beer. When the consumers’ liking of the product increases, their demand for that product also increases, which means that they will still want to buy the product even if the price changes. If consumers are still willing to pay for a product even though the price changes, it means that they are not responsive to that change. A good way for producers to make their products more elastic is by advertising, as they did in the Canadian commercial. The commercial’s biggest influence on the people was probably that they felt more patriotic towards their country, which might be the reason why some of the consumers substituted the Labatt beer with the Molson Canadian beer. The overall effect was that the Molson Canadian beer became more elastic, while the Labatt beer became slightly more inelastic.

    It is in the interest of a firm like Molson to decrease the price elasticity of demand for its product because that means that they are able to sell their product at a higher price without losing customers. The consumers would still be willing to pay the price of the good, even if the price went up, because their demand is so high.

29. # Daniel Graberon 25 Oct 2009 at 7:07 pm

    A successful advertising campaign will affect the determinants of PED. In the case of Molson beer, the advertisement made the beer seem unique and patriotic. To a certain extent, it even made it seem like buying the beer was a necessity. By doing so, the amount of perfect substitutes for molten beer was reduced. Now, Labatt beer does not contain that “uniqueness and nationalist” feel that Molson beer does. Consequently, if the price if Molson beer increases, consumers will be less responsive to the change in price because it cannot easily be substituted by another brand beer.

    By creating this advertisement, Molson greatly increased their costs. However, they were clearly hoping that the advertisement would eventually lead to more profit. As the market for molten beer becomes more inelastic, consumers will be less responsive to a change in price. For instance, if the price of the beer increases, there won’t be a significant change in the quantity demanded. As a result, Molson will be able to sell the same amount of beer (maybe a little les) for a higher price; this leads to a greater profit.

30. # Melanie Beilkeon 26 Oct 2009 at 12:50 am

    When a product has been successfully advertised, they will always have an advantage in comparison to all the other substitute products. The advertisement made the canadian beer seem better than any other beer. The beer company Molson believes in peace, not in policing, grabbing the audiences and consumers attention towards the Molson beer. Immediately the consumers first thought of the Molson beer is connected with positive aspects.

    The advertiser “Joe” clearly said in the end of the ad. that he is Canadian, trying to get at least Canadian consumers to buy the Molson beer, only then they can be considered of being Canadian as well. However, the advertisement had a great impact on the way consumers thought and changed their taste by promoting their product the way they did. By the end of the ad. the Molson beer clearly got more inelastic than it was before. Consumers will not react negatively as the price of the Molson beer might increase, since it has been extremely glorified. The Molson beer company will make more profit, due to the video.

31. # Jakeb Stunzon 28 Oct 2009 at 2:30 pm

    When the product is advertised it needs to separate itself from every other product in a market in order for customers to not respond to a raise in price. It needs to become less elastic or inelastic if the business is expecting rises in prices.

32. # Jacob Edwardson 28 Oct 2009 at 2:58 pm

    As soon as a product is commercialized at a large scale (nation wide), it’s required that it attracts customers, in order to succeed in the market. It can attract customers thanks to it’s quality or maybe by the way it’s commercialized. And when the commercialization succeeds, it can increase the quantity demanded for it, so consequently it will increase it’s quantity supplied. And when something is as successful as this, consumers will buy it and be more careless about it’s price. So if the price for Molson’s beer increases went from $2 to $2.50 people will still buy in quite a high amount. But if it had not been advertised, and it’s price would have increased the same way, customers would switch to a substitute.
    So thanks to the success of the commercial, the Molson beer company have increased their popularity and fidelity with their customers. And thanks to that new born link they have made their product more inelastic. Which means that they made their product feel like a necessity to their consumers and, if they change their price, the consumers would still purchase the product in a similar amount.

33. # Elviraon 28 Oct 2009 at 5:25 pm

    It is obvious that when a product was successfully advertised, consumers will take interest in it rather than other substitute products. In the case of Molson beer, the advertisement inspired an increase of patriotic zeal of Canadian. The spokesman, Joe, exclaimed his name was Joe, he was an Canadian at the end of the advertisement. He also said Canada believes in peace not in policing, which obviously struck a chord with his audiences. It probably made consumer to buy goods and show willingness. Thus, even though the price of Molson beer increases, the quantity demanded will be less responsive to the change in price.
    The interest of a firm such as Molson is to make more profits. By decreasing the price elasticity of its products, there were not so many products left. People were willing and showed their interest to buy it. So Molson still can get high revenue.

34. # Einar Lon 28 Oct 2009 at 7:06 pm

    If you increase the price of a product like beer were there are so many substitutes, people would simply buy beer from another company. If one product is advertised in a way so that it distinguish it self from other products in a positive way, then the quantity demanded would increase. Soon people would become loyal to this brand of beer and would care little if the price increased 10%. The product is now more inelastic since the quantity demanded would change little if there was a price change.

35. # Asukaon 28 Oct 2009 at 8:14 pm

    Most of the time advertising campaigns fail to impress consumers as it is difficult to fulfill everyone’s wants when there are different people with individual lifestyles or tastes. Furthermore products such as beer are likely to have many competitors, which in this case is Labatt. This is known as a substitute and it tends to make the product elastic. This is because consumers can easily switch to another brand or substitute when a certain product’s price goes up and so increases consumers’ responsiveness. Therefore it is a huge accomplishment for a firm like Molson beer to have a successful advert as it means that it stands out more than its substitutes and its use of a patriotic theme makes it more unique. Successful means effective and so this indicates that the advert had created a lot of loyal consumers who are less responsive to changes in price of Molson beer.

    Decreasing the price elasticity of demand for a product means that the product will be able to stay stable in the competitive market despite the changes to its price. Firms like Molson would prefer this kind of situation because it will ensure a firm position in the market and it is an advantage to the long run operation of the business.

36. # Hang Baion 28 Oct 2009 at 8:21 pm

    Although money spent on advertising could cost a lot, the firms would like to do advertising for their products. The reason for this is that advertising, especially a successful one can be seen as a powerful tool used to influence customers to purchase or to attract the potential customers to purchase their products instead of the substitute products. As a result, the firm would able to maximize the profit which is their interest. In this case, I had to say this advertising is successful. Firstly, it is patriotic and with a sense of humor, so it is able to attract customers pay an attention on it. Secondly, it conveys to the consumers that their product is better than other substitute products, so customers willing to purchase this product rather than others, and the QD of Molson Canadian beer will be increased. Therefore, Substitutes are the factors that affect the price elasticity of demand for a product. Consequently, it decreased the price elasticity of demand for Molson Canadian beer, which means reduce customers’ responsiveness to change in price of a good like Molson beer.

37. # Oh Sang hoonon 28 Oct 2009 at 10:17 pm

    Advertising is important thing to promote their products interesting. And advertisers have to make them special to attract the consumers. Also, advertising leads consumers to buy products. So, popularity of the products (QD) would increase and quantity supplied would increase as well.
    And by creating this advertisement, Molson increased their costs successfully and they would get more profits. As the Molson beer becomes inelastic, consumers will be less responsive to change in price. For example, if the price of this product increases, amount of quantity demanded would be similar. Consequently, Molson is able to sell their products to same amount of beer with higher prices which leads to profits.

38. # Vic Chenon 29 Oct 2009 at 12:15 am

    The purpose of a commercial is to make more profits from the product that is being advertised. In order to let the product succeed in the market through a commercial, it is necessary that it attracts the customers. If you raise the price of a product without advertising it, there are so many substitutes out there in the market, allowing the customers switching to a substitute at a competitive price. However, if the commercial succeeds, it increases the demand of the product, and consequently, the quantity supplied will increase as well. Moreover, sometimes the increase in price of the product is negligible when the commercial succeeds, that is, when they change their price, the customers would still buy the product.

39. # Noraon 31 Oct 2009 at 4:50 pm

    The elasticity of demand for Molson beer is affected by one of the determinants of demand. With this influential advertisement, the Molson Company reduced the number of substitutes, by making their product unique and to some extent non-interchangeable. For consumers, the Molson beer is now attached to national pride and to a differentiation from the USA. Labatt beer, which before this commercial was probably in perfect competition to Molson’s, no longer sells the same product to consumers as this idea of nationalism is not tied to it. This is why consumers prefer to buy Molson’s beer and, due to fewer substitutes, are less responsive to a change in price.

    It is in Molson’s interest to decrease the price elasticity of demand because this means that consumers are less responsive to a change in price of the beer. This means that Molson can increase the price without the quantity demanded decreasing by much. Probably in the case of Molson’s beer, the company can increase the price and the quantity demanded will decrease by a smaller proportion than the price increase (PED of the beer is inelastic) and so Molson makes more revenue.

40. # Grace Forsython 04 Nov 2009 at 4:19 am

    Advertising is an important thing for producers; an effective advertisement campaign can bring the company more consumers than before. An advertising campaign could make the difference between someone buying that product or a substitute for that product. This advertisement was very influential on the consumers and the advertisement made Milson Beer seem unique and different to its substitutes. It is a very patriotic advert and makes it seem as if buying this product would be supporting Canada and almost makes it seem like a necessity that comes with being Canadian. This causes more consumers to be less responsive to a change in the price due to the fewer substitutes.

    It is in the interest for a firm like Molson to decrease their price elasticity of demand as it will enable them to charge the consumer more for the product. Even though there would be an initial high cost in order to produce the advertisement it reduces the number of substitutes for the product and creates a less elastic product. If the product is less elastic it means that Molson would be able to increase the price of the beer and increase their total revenue; this however can only work if there is still a relatively high demand for the product even at the new raised price. In order to achieve this they have to make sure the quantity demanded does not deacrease my more than the price was increased by. In this case Molson managed to increase its share in the beer market by 3% which was taken almost directly away from a rival company (substitute), Labatt, that lost 3%.

41. # Sophieon 06 Nov 2009 at 5:05 am

    Evidently through advertising many people are influenced on not only what they should be spending their money on, but also how much of their money they should be spending on it. The company can reduce its consumers’ response to a change of price of their beer by convincing them that their beer is not only the best beer in the world, but that even if you dont normally drink beer, you should for sure start to do so now. Furthermore, since beer is a ‘cheap’ product, meaning that it does not take up very much of a consumer’s income, then it is not a very big deal for a consumer to buy a can of beer as opposed to a new car. What the advertising campaign has done here is make the beer seem very tempting for people to buy, and therefore, people are stupid enough to believe things such as advertisements and go ahead and purchase the good.
    A firm is interested in keeping the price elasticity of demand of their product low, meaning that they want to keep it inelastic, because that way they know that if the price of their beer were to increase or decrease, they would not lose too many of their costumers. Furthermore, if the company were to be taxed by the government, then they also know that they can lay off most of their tax burden on the consumers because they will still be willing to purchase the product.

42. # Jonon 18 Nov 2009 at 3:34 am

    If advertising is so effective in enticing the consumer or reducing the price elasticity, then why is it counter-cyclical? That is, why do producers in the aggregate reduce advertising during recessions and other economic downturns?

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