RE: The potential of banner ads

From: Greg Merrill <merrill_at_sasm.com>
Date: Mon 14 May 2001 14:47:51 -0500

JOHN GASKILL <jg_at_info-central-usa.com> WROTE:

>Oil companies learned during the gas wars of the
>1960's that gasoline was actually price elastic,
>that is, when the price is lower, people use more
>of it (the "quantity demanded increases").

TO WHICH ALEX CHUDNOVSKY <alexc_at_jungle.com> REPLIED:

> Ok, I must admit my Economics course was quite a few \
> years ago from now (and I often skipped it in favour of
> CS related disciplines), but I am pretty sure that
> Gasoline (petrol) is one of the examples of NOT elastic
> products. Despite price hikes consumers do not stop
> using it. That's why all governments love to tax the
> hell out of it -- it guaranteed cashflow.

Finally something I can comment on! (Considering i'm not
too confident of my marketing knowledge)

Gasoline is an elastic product. To what extent depends
upon the user, tax rate, substitution effects, blah
blah blah.

Look at the riots and blockades in England last year
when Petrol prices skyrocketed from the combination
of high raw gas prices and massive gas taxes. I'm
personally sensitive to $2.00 gas and altered my driving
patterns when it got close to that price.

I can't give you a formula for gas price elasticity but
it is elastic, just not very. Almost everything has
elastic pricing, (just to what extent) except for
maybe oxygen.

Elasticity is dependent upon many factors, one being
how easy is it to replace the product with another.
It's difficult for a consumer to replace high prices
with another product, except for public transportation,
carpooling, purchasing a more fuel efficient car. Thus
the price has to get high before people start to switch
en masse.

This actually ties in extremely well with banners ads
and the advertising business in general. Banner prices
are going to be extremely elastic in the future as the
quantitative clarity increases (You know precisely how
much bang you are getting for your $$$)

Not only will banners be competitive amongst different
web sites, networks,etc. but against other advertising
mediums as well. Naturally one will attempt (I'm guessing
here) to still reach the customers via several different
channels, but the easier you can compare relative products,
the more elastic the price will be amongst them.

Greg Merrill
merrill_at_sasm.com



Received on Mon May 14 2001 - 14:47:51 CDT