What Advertising Does & Does Not
One way to understand how advertising functions is to look at its Social Utility. These are the benefits that advertising is supposed to provide society:
Advertising encourages people to act in their self-interest
While we would like to think that people would rely on their self-preservation instincts, reality seems to say otherwise. People smoke, drink, do drugs, drive too fast, don’t do their homework, don’t read the signs and wonder what went so very, very wrong.
The problem is our tendency to rationalize our behaviors. “It just seems like the right thing to do at the time” thanks to Bounded Rationality. The idea here is that the short-term memory can only handle a limited number of ideas at any one time.
In other words, the consumer decision-making process is bound by the limitations of their ability to process information and the immediacy of their current needs.
For example, students know full well that they need to study for an exam, but the attraction of going to a party overrides that need.
Advertising provides Information
This one is the most obvious. It’s the advertising that tells us what products are available, what they do, how much we can expect to pay for them, and where we might locate them.
Many ads placed in classifieds and local retail shops persuade us to make purchases based on actual benefits provided by one product over another.
Advertising supports Media
Advertisers pay a lot of money to broadcasters so that broadcasters can provide free and/or low cost programming to the public. Magazines and Newspapers would cost much more than they presently do if advertising dollars were not subsidizing those publications.
Advertising increases Competition
By providing a means for publicizing new brands, creating consumer confidence, and encouraging those consumers to try those new brands, advertising works to ensure competition in a free market.
Advertising increases Satisfaction
Satisfaction is a psychological factor. What is satisfaction? Mick Jagger couldn’t get no satisfaction. Satisfaction depends not on what the product does, but how it makes us feel.
For example, a Texas dairy increased sales 500% by marketing their product as “Moo Juice”. Children responded to the “fun factor” of drinking “Moo Juice” instead of “Milk”.
Advertising decreases Product adjustment Time
As new products are introduced to the market and older products are phased out, there is an adjustment period, during which both old and new products are available.
Duplication of products is considered to be a waste of resources, and one of the tenants of the free enterprise system is that superior products survive, which negates the inefficiency of duplication.
Is Advertising Bad?
Advertising is Wasteful
Many critics of advertising believe that it’s wasteful. So many brands vying for our attention in so many mediums is nothing more than a waste of resources, contributing nothing to consumers’ overall satisfaction.
Among many brand name products, there is virtually no physical difference between the brands. Drugs, such as aspirin, and other products such as bread, watches, and pocket calculators are the most obvious examples.
Advertising is unnecessary
Because the basis of the free market economy is Supply (the goods and services offered to the market) and demand (what people want to buy) being regulated by the “invisible hand of self interest.1
4 assumptions in calling advertising “unnecessary”
Consumer Self interest
This assumes that consumers know what products they want, and will actively seek them out. Therefore, companies do not need to promote the need for their products.
For example, people would not need to be reminded that they have bad breath to encourage them to buy Listerine.
This assumes that consumers already know what sort of products are available and where. They also have a good idea of what they cost.
For example, Warner-Lambert would not need to send out the message “Listerine Kills Germs”, since consumers already knew that.
Lots of Competition
There are enough sellers and buyers to ensure that no one company can manipulate the market by changing the number of products being supplied or demanded.
For example, if one of Listerine’s competitors decided to raise their price and accept a lower sales volume, then Warner-Lambert would simply increase their sales and drive the price back down.
Absence of Externalities
Externalities describe how one person’s buying decision affects the welfare of others, even when they do not buy the product.
This absence is the assumption that all buying and selling takes place solely between producer and consumer. People buy Listerine for their personal well being.
For example, when people buy Listerine, the people around them will no longer be subjected to their “Simple Chronic Halitosis”.
Does advertising create the needs it seeks to fulfill?
According to John Kenneth Galbraith, advertising has created what he refers to as the Dependence Effect. This asserts that consumer’s needs depend upon selling efforts for the products that fill them. If there were no products, there would be no needs, and no one would be any worse off.
Essentially, Galbraith is saying that even though we have access to a wider variety of products than ever before, we are not any happier than we were 50 years ago. We definitely have more needs, and they must have been created somewhere. His argument asserts that advertising has created these needs artificially.
Looking at the conventional model of advertising, the goal is to take the consumer from an initial level of satisfaction to a greater level of satisfaction. Galbraith claims we have failed.
However, looking at society as a whole, it could be argued that we live longer, are generally healthier, have a host of labor saving devices, have more leisure time, and are freer to pursue higher levels of personal fulfillment than ever before.
Advertising simply evolves along with society. As society becomes more complex, advertising becomes more sophisticated (or does it?).