Economics of Advertising

1. Marketing Role- marketing is a strategic process a business uses to satisfy consumer needs and wants through goods and services. Four tools of marketing called marketing mix etc.

The 'Four Ps' concept of marketing mix, as introduced by E Jerome McCarthy, developed by Philip Kotler are Price, Product, Place and Promotion. Promotion could be done through marketing communication. There are four techniques of MC- Advertising, sales promotion, PR and personal selling.

2.                  Communication Role- Advertising is a form of mass communication. Advertising both informs and transform the product by creating an image that goes beyond straight forward facts.

3.                  Economic Role- The two major schools of thought concerning the effect, market power school and market competition school.

-John, M. Rernon

According to market power school (MPS), advertising is a persuasive communication tool used by marketing to distract consumer's attention from the price of product. By featuring other positive attributes, and avoiding price, the consumer makes a decision on these various non price benefits.

In contrast, the market competition school (MCS) sees advertising as a source of information that increases consumer's price sensitivity and stimulates competition.

Charles Sandage, an advertising professor, sees the economic role of advertising as 'Helping society to achieve abundance by informing and persuading members of society with respect to product, services and ideals.

4. The societal Role- It informs us about new and improved products and teaches us how to use this innovation. It helps us compare products and features and makes informed consumer decision. It mirrors fashion and design trends and contributes for aesthetic sense. 

Is advertising wasteful?

It was the traditional concept that the consumers themselves are competitive to find out the product or service of their need. It is not necessary to advertising; it is just the waste of money and time.

But the concept has been changed. People do not have complete information about the best choice of their need without Advertising. It used to claim that advertising has proved to be a more efficient (less costly) source of information than any other sources.

1. The effects of Advertising on costs

Advertising is not the cause of high distribution costs.

2. The effects of Advertising on Department Stores

There is misconception that the larger firms like Dept. Stores has higher price than any other shops. But large firms have greater number of marketing functions than do the small one.

3. The effects of Advertising on total manufacturing costs

In many companies the large scale of operations made possible in part through advertising has resulted in reduction in manufacturing costs. But small non-advertising companies sometimes have as low production costs as large companies.

4. The effects of Advertising on Price

Advertising has the effect of slowing up the development of price competition but that it rarely succeeds in preventing price competition over long periods.

5. The effects of Advertising on quality range of Merchandise

Advertising tends to improve the quality and range of merchandise offered to consumers. Advertising and aggressive selling have led o a more rapid adoption of new major inventions than would otherwise have been possible.

6. The effects of Advertising on consumer's choice

Significant product differentiations provide satisfaction to the consumer through the advertising. But at the same time it persuades the consumer to by those items that are not immediately needed.

7. The effects of Advertising on Investments and level of national income

It is quite significant force in advancing the technology of production. It means you have to invest more to compete with other's product.

The higher is the transaction of advertising money, the higher the national income.

8. The effects of Advertising on business cycle

 More business means more advertising. Far sighted business management might be able to employ advertising effectively in launching new products to combat cyclical downswings.

Dangers of advertising

1.      There is a tendency among business to assume to readily that demand is inelastic and consequently refrain (avoid) from sufficient use of price as a competitive weapons.

2.      Consumers sometimes do not have sufficient freedom of choice to buy non-advertising goods on price basis.

3.      In some cases, because of the dominance of large advertisers there may be insufficient freedom of entry of new enterprises in to established industries.

4.      Present day advertising does not provide sufficient information to enable them to buy with full economic effectiveness.