Price Elasticity of Demand as a Tool for Planning of Successful Promotional Discounts

Abstract

Purpose of the article: The article is based on the theory of price elasticity of demand. The theory brings the possibility of practical use in promotional discounts planning. Therefore the article is trying to utilize price elasticity of demand as a tool for planning of successful promotional discounts. Due to the shopping behavior of Czech customers, the topic is very current. More than 40 presents of the whole purchases in the Czech Republic are purchased in promotional discounts. Methodology/methods: The general procedure of the price elasticity analysis is based on secondary data which come from scientific works done by other researchers in the area. The second and most important data source are the real date on sales, purchase and sales prices and their changes before during and after the discount action, that comes from the company materials of one Czech retail chain. The price elasticity of demand was calculated as arc price elasticity. As the main criteria for evaluation of discount efficiency were selected changes in sales volumes as a result of promotional discounts, that are shown in the price elasticity of demand and changes in gross margin. Scientific aim: The study is aimed at Czech food retail. The objective of this paper is a proposal of the rules for promotional discounts planning, which are based on the knowledge of price elasticity of demand. Findings: Among the products whose value of the price elasticity of demand is the smallest, are included the products such bread, salami, sausages and mineral water, which can be considered as normal part of consumers’ diet. Conclusions: The most important rules for the choice of products in promotional discount can be characterized as high level of price elasticity, wide variety of products without close substitutes and new products for which will be subsequently analyzed price elasticity of demand.