than offset by the negative impact of decreasing efficiency. We define the ratio of the impact due to the change in efficiency to the impact due to the change in promotion as the arc elasticity of promotional efficiency to promotion, (i.e., Eea= %∆MROI/%∆A).When the two impacts are equal, then the profit does not change and this occurs when changes are very small and the profit is at a maximum. When the profit is at a maximum, then the ratio of the two opposite and equal impacts is equal to -1 (i.e., = Eea= -1). From a diagnostic point of view, if a firm has MROI elasticity between 0 and -1, then promotional expenditure should be increased in order to increase profits. If the firm has a MROI elasticity smaller than -1 (i.e., Eea<-1) then a reduction in promotional expenditure will increase profitability. Figure 4: Relative Impact of Changes on the Change in Profit
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