Advertising and Economy

1
Advertising and Economy

• Chapter 4

2
Advertising EconomyBasic Limitations (1)

• Advertising does not work in isolation other
  elements of marketing mix must be taken into
  account.
• There are other external factors that can
  influence advertising effectiveness (e.g.,
  demographic, economic, legal, regulatory,
  technological, sociocultural, etc.)

3
Advertising EconomyBasic Limitations (2)

• Analysis of economic effects of advertising
  should encompass both national advertising (by
  manufacturers) and retailer advertising.
• Consumer behavior, which is critical in
  understanding advertising effectiveness, is often
  ignored or underestimated in economic analyses.

4
Advertising Market Power (1)

• Persuasive communication tool
• Affects preference tastes.
• Differentiation leads to
• Increased brand loyalty,
• Decreased price sensitivity,
• Capable to increase price,
• More profits and higher barrier to entry
• ? Increase in Market Power.

5
Advertising Market Power (2)

• Increasing prices without losing customers
• Reduced innovations
• Is advertising a sole cause of brand loyalty
• and price insensitivity?
• Quality, Packaging, Promotions, Personal
  selling, etc.

6
Advertising Competition (1)

• Informative role of advertising
• Advertising does not influence consumer
  preference taste.
• Information
• ? stimulates competition,
• ? increases consumers price sensitivity
• ? lower prices
• ? reduce any potential monopoly power.

7
Advertising Competition (2)

• Increases buyer knowledge,
• Decreases search cost,
• Thereby reduces total costs of transacting
  business to the society.
• Facilitates entry and innovation.
• Consumers search of products extensive?
• Are they intelligent?

8
Economic Effects of Advertising- Michael Porter

• Convenience goods
• Higher product turnover, Powerful manufacturers
• Narrow trade margins, Limited information search
• Advertising is important. Pull strategy
• Non-Convenience goods
• Powerful retailers, Information from retailers
• Push strategy, Significant information search
• Advertising effects are at best situational.

9
Economic Effects of Advertising- Robert Steiner
(1)

• Dual-stage model
• Advertising Manufacturer vs. Retailer
• Unadvertised stage
• No perceived differences
• Retailer has the power to replace items.
• Manufacturers compete for shelf spaces.
• Price (for retailers) down to almost
  manufacturing cost
• Lack of retail competition ? High consumer prices

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Economic Effects of Advertising- Robert Steiner
(2)

• Advertised stage
• Product differentiation
• Manufacturers hold the power.
• No need to compete for the shelf space
• Constant (or even higher) factory prices
• Consumer prices go down due to competition
• Near-zero retail margins
• Three situations manufacture brand domination,
  Mixed regimen, and Private label domination

11
Economic Issues (1)

• Advertising effects on the economy are also
  influenced by various external factors.
• Price
• Norris National vs. Retail advertising
• Concentration
• Market power school
• TV commercials to be especially responsible
• Contradicting studies
• Norris positive relationships in consumer goods
  industries

12
Economic Issues (2)

• Primary Demand
• Demand is determined by social environmental
  factors.
• Many examples show that advertising and growth
  (or sales) are not related.
• Advertising helps increase primary demand under
  favorable conditions.
• When PLC is in Intro or Growth stage.

13
Chapter 5

• Audiences

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What is information?How each kind of
information is used in advertising?

• Rotzoll Haefner Consumer information
  functional / aestheticsymbolic

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What does No information is perfectly objective
mean?

• All communication has a motive.
• Consumers are selectively perceptive.
• In this, being unable to be objective means
  being somewhat subjective.

16
What do consumers do with the provided
information

• Consumers want
• Utility, satisfaction, confidence, support,
  justification, etc.
• Advertising can provide such supporting
  information.

17
So, confidence and satisfaction are the only
important things in advertising information?

• Accuracy

18
How consumers gather and use information?
 

• p.120, Figure 5-2.