High costs may inhibit the entry of new competitors in industries that spend heavily on advertising. In some markets, the original brands probably benefit greatly from this barrier. However, the investments needed for plants, machinery, and labor are of far greater significance. These are typically the real barriers to entry, not advertising.
Advertising by big companies often has only a limited effect on small businesses because a single advertiser is rarely large enough to dominate the whole country. Regional oil companies, for example, compete very successfully with national oil companies on the local level. In fact, the freedom to advertise encourages more sellers to enter the market. And we’ve all seen non-advertised store brands of food compete very effectively with nationally advertised brands on the same grocery shelves.
The fifth is effect on consumer demand. Many social and economic forces, including technological advances, the population’s educational level, increases in population and income, and revolutionary changes in lifestyle, are more significant. For example, the demand for CD players, cellular phones, and personal computers expanded at a tremendous rate, thanks in part to advertising but more to favorable market conditions. At the same time, advertising hasn’t reversed declining sales of such items as hats, fur coats, and manual typewriters.
Advertising can help get new products off the ground by giving more people more “complete information,” thereby stimulating primary demand—demand for the entire product class. In declining markets, when the only information people want is price information, advertising can influence selective demand - demand for a particular brand. But the only effect it will have on primary demand is to slow the rate of decline.
The sixth is effect on consumer choice. For manufacturers, the best way to beat the competition is to make their product different. For example, look at the long list of car models, sizes, colors, and features designed to attract different buyers. And grocery shelves may carry more than 100 different brands of breakfast cereals—something for everybody.
The freedom to advertise encourages businesses to create new brands and improve old ones. When one brand reaches market dominance, smaller brands may disappear for a time. But the moment a better product comes along and is advertised skillfully, the dominant brand loses out to the newer, better product. Once again, the freedom to advertise promotes the existence of more sellers, and that gives consumers wider choices.
The seventh is effect on the business cycle. The relationship between advertising and gross domestic product has long been debated. John Kenneth Galbraith, a perennial critic of advertising, concedes that, by helping to maintain the flow of consumer demand (encouraging more buyers), advertising helps sustain employment and income. But he maintains that, despite declines in the value of the dollar, the U.S. trade deficit persists because advertising and marketing activities create consumer preference for certain foreign products.
Advertising costs less for the consumer than most people think. The cost of a bottle of Coke includes about a penny for advertising. And the $20,000 price tag on a new car usually includes a manufacturer’s advertising cost of less than $400.
To the economy as a whole, the importance of advertising may best be demonstrated by the abundance principle. This states that in an economy that produces more goods and services than can be consumed, advertising serves two important purposes: It keeps consumers informed of their alternatives (complete information), and it allows companies to compete more effectively for consumer dollars (self - interest).
Advertising stimulates a healthy economy. It also helps create financially healthy consumers who are more informed, better educated, and more demanding.1
2. The social impact of advertising
Advertising gets criticized frequently, for both what it is and what it isn’t. Many of the criticisms focus on the style of advertising, saying it’s deceptive or manipulative. Collectively we might refer to these as short-term manipulative arguments. Other criticisms focus on the social or environmental impact of advertising. These are long-term macro arguments.
The social aspect of advertising typically involves two principles: complete information and absence of externalities. In fact, social issue debates can be seen as instances where advertising tends to violate one or more of these basic economic principles. We can examine many issues from these two perspectives. Some of the most important are deception and manipulation in advertising, the effect of advertising on our value system, commercial clutter, stereotypes, and offensiveness.
One of the most common short-term arguments about advertising is that it is so frequently deceptive.
For advertising to be effective, consumers must have confidence in it. So any kind of deception not only detracts from the complete information principle of free enterprise but also risks being self-defeating. Even meaningless (but legal) puffery might be taken literally and therefore become deceptive.
The fact is that advertising, by its very nature, is not complete information. It is biased in favor of the advertiser and the brand. People expect advertisers to be proud of their products and probably don’t mind if they puff them a little. But when advertisers cross the line between simply giving their point of view and creating false expectations, that’s when people begin to object.
The Subliminal Advertising Myth. Wilson Bryan Key promotes the notion that, to seduce consumers, advertisers intentionally create ads with sexual messages hidden in the illustrations just below the limen - or the threshold of perception. He calls this subliminal advertising. His premise is that by embedding dirty words in the ice cubes in a liquor ad, for instance, advertisers can somehow make us want to buy the product.
The Effect of Advertising on Our Value System. A related long-term argument, often voiced by certain professional critics—sociologists, journalists, consumer advocates, and government regulators—is that advertising degrades people’s value systems by promoting a hedonistic, materialistic way of life. Advertising, they say, encourages us to buy more cars, more CDs, more clothing, and more junk we don’t need. It is destroying the essence of our “citizen democracy,” replacing it with a self-oriented consumer democracy.
Critics claim advertising manipulates us into buying things by playing on our emotions and promising greater status, social acceptance, and sex appeal. It causes people to take up harmful habits, makes poor kids buy $170 sneakers, and tempts ordinary people to buy useless products in the vain attempt to emulate celebrity endorsers. Again, they claim advertising is so powerful consumers are helpless to defend themselves against it.
The Proliferation of Advertising. One of the most common long-term complaints about advertising is that there’s just too much of it. With so many products competing for attention (more than 30,000 in the average supermarket), advertisers themselves worry about the negative impact of excessive advertising.
While the clutter problem is irksome to viewers and advertisers alike, most people tolerate it as the price for free TV, freedom of the press, and a high standard of living. However, with the proliferation of new media choices, this externality is only likely to get worse. Virtually every popular website is cluttered with advertising banners, and our e-mail boxes are flooded with advertising messages on a daily basis. While the Federal Communications Commission exercises no jurisdiction over the Internet, it did consider reinstating commercial time limits on television. But, as of now, the only limits currently in force relate to TV programming aimed at children 12 and under - advertising may not exceed 10.5 minutes per hour on weekends and 12 minutes per hour on weekdays.
The Use of Stereotypes in Advertising. Advertising has long been criticized for insensitivity to minorities, women, immigrants, the disabled, the elderly, and a myriad of other groups—that is, for not being “politically correct.” This long-term argument also addresses externalities because the very presence of advertising affects the nature of our culture and environment, even when we do not want it. This is ironic, because marketing and advertising practitioners are supposed to be professional students of the communication process and consumer behavior. But, in fact, they sometimes lose touch with the very people they’re trying to reach.
All too often, women are still not represented accurately. And the minimal use of minorities in mainstream ads, both local and national, still smacks of tokenism. Observers hope that with increasing numbers of women and minorities joining the ranks of marketing and advertising professionals, and with continuing academic studies of minority and sex-role stereotyping, greater attention will be focused on these issues.
Offensiveness in Advertising. Offensiveness is another short-term style argument that also speaks to externalities. People don’t want their children exposed to messages that they deem immoral, offensive, or strictly adult-oriented.
Taste, of course, is highly subjective: What is bad taste to some is perfectly acceptable to others. And tastes change. What is considered offensive today may not be so tomorrow. Taste is also geographic. A shockingly bloody ad for a small surfwear company in Sydney, Australia, showed a gutted shark lying on a dock.2
3. Regulatory aspects of advertising
The Issue of Advertising to Children. Advertising to children presents different challenges. Kids aren’t sophisticated consumers. Their conceptions of self, time, and money are immature. As a result, they know very little about their desires, needs, and preferences—or how to use economic resources rationally to satisfy them. And the nature of children’s conceptual ability makes it likely that child-oriented advertising can lead to false beliefs or highly improbable product expectations.
While most children and parents are still joint consumers, more and more children are becoming sole decision makers. To protect them, and their parents, both critics and defenders agree that advertisers should not intentionally deceive children. The central issue is how far advertisers should go to ensure that children are not misled by their ads.
In the area of television advertising, the government and consumer groups play an important role at both the national and international level to ensure that adequate consumer protection for children is maintained and strengthened where necessary.
Consumer Privacy. The second major regulatory issue facing advertisers is privacy. Today, most advertisers know it’s illegal to use a person’s likeness in an ad without the individual’s permission.
Now, with the increased use of fax machines, cell phones, and the Internet, all of which can be used for advertising directly to prospects, the issue of privacy rights is again in the news. This time it’s over people’s right to protect their personal information. Prospective customers who find advertising faxes, telemarketing calls, and e-mails annoying and intrusive aren’t likely to buy the offending company’s products.
Internet users worry about people they don’t know, and even businesses they do know, getting personal information about them. And their concern is not without reason. Many websites create profiles of their visitors to get data such as e-mail addresses, clothing sizes, or favorite books. Some sites also track users’ surfing habits, usually without their knowledge, to better target ads for products.
To create these user profiles, websites use tiny software programs, called cookies, that keep a log of where people click, allowing sites to track customers’ Web-surfing habits. The cookies are placed on people’s computers when they first visit a site or use some feature like a personalized news service or a shopping cart.
And the last one that is the most important I think regulation by the Media. Almost all media review ads and reject material they regard as objectionable, even if it isn’t deceptive. Many people think the media are more effective regulators than the government.
Television. Of all media, the TV networks conduct the strictest review. Advertisers must submit all commercials intended for a network or affiliated station to its broadcast standards department. Many commercials (in script or storyboard form) are returned with suggestions for changes or greater substantiation. Some ads are rejected outright if they violate network policies.
Radio. Radio networks, unlike TV networks, supply only a small percentage of their affiliates’ programming, so they have little or no say in what their affiliates advertise. A radio station is also less likely to return a script or tape for changes.
Magazines. National magazines monitor all advertising, especially by new advertisers and for new products. Newer publications eager to sell space may not be so vigilant, but established magazines, are highly scrupulous. Many magazines will not accept advertising for certain types of products. Some magazines test every product before accepting the advertising.
Newspapers. Newspapers also monitor and review advertising. Larger newspapers have clearance staffs who read every ad submitted; most smaller newspapers rely on the advertising manager, sales personnel, or proofreaders.
Some newspapers require advertisers who claim “the lowest price in town” to include a promise to meet or beat any price readers find elsewhere within 30 days.3
Conclusion
As one of the most visible activities of business, advertising is both lauded and criticized for the role it plays in selling products and influencing society.
Some controversy surrounds advertising’s role in the economy. To debate advertising’s economic effects, we employ the four basic assumptions of free-enterprise economics: self-interest, many buyers and sellers, complete information, and absence of externalities. The economic impact of advertising can be likened to the opening shot in billiards - a chain reaction that affects the company as well as its competitors, customers, and the business community. On a broader scale, advertising is often considered the trigger on a country’s mass-distribution system, enabling manufacturers to produce the products people want in high volume, at low prices, with standardized quality. People may argue, though, about how advertising adds value to products, affects prices, encourages or discourages competition, promotes consumer demand, narrows or widens consumer choice, and affects business cycles.
Although controversy surrounds some of these economic issues, few dispute the abundance principle: in an economy that produces more goods and services than can be consumed, advertising gives consumers more complete information about the choices available to them, encourages more sellers to compete more effectively, and thereby serves the self-interest of both consumers and marketers.
Social criticisms of advertising may be short-term manipulative arguments or long-term macro arguments. While the economic aspect of advertising focuses on the free-enterprise principles of self-interest and many buyers and sellers, the social aspect typically involves the concepts of complete information and externalities. Critics say advertising is deceptive; it manipulates people into buying unneeded products, it makes our society too materialistic, and there’s just too much of it.
Proponents admit that advertising is sometimes misused. However, they point out that despite its problems, advertising offers many social benefits. It encourages the development of new products and speeds their acceptance. It fosters employment, gives consumers and businesses a wider variety of product choices, and helps keep prices down by encouraging mass production. It stimulates healthy competition among companies and raises the overall standard of living.
In short, while advertising can be criticized for giving less than complete information and for creating some unwanted externalities, it also contributes to the free enterprise system by encouraging many buyers and sellers to participate in the process, thereby serving the self-interest of all. Under growing pressure from consumers, special-interest groups, and government regulation, advertisers developed higher standards of ethical conduct and social responsibility.
The federal and state courts are involved in several advertising issues, including First Amendment protection of commercial speech, and infringements on the right to privacy. Advertising is regulated by federal, state, and local government agencies, business-monitoring organizations, the media, consumer groups, and the advertising industry itself. All of these groups encourage advertisers to give more complete information to consumers and eliminate any externalities in the process.
References
1 Christian Arens, Michael F. Weigold, William F. Arens. Contempory advertising 11th ed.- Mc Graw – Hill Irwin, 2008, P. 57. – 62.; Sean Brierley. The Advertising Handbook. – New York, Routledge, 1995, P. 210. – 225.
2 Christian Arens, Michael F. Weigold, William F. Arens. Contempory advertising 11th ed.- Mc Graw – Hill Irwin, 2008, P. 62. – 70.; Sean Brierley. The Advertising Handbook. – New York, Routledge, 1995, P. 229. – 231.
3 Christian Arens, Michael F. Weigold, William F. Arens. Contempory advertising 11th ed.- Mc Graw – Hill Irwin, 2008, P. 89. – 91.;
Glossary
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affirmative disclosure – advertisers must make known their product’s limitations or deficiencies - apstiprināta atklāšana, izpaušana
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cease – and – desist order – may be issued by the FTC if an advertiser won’t sign a consent decree; prohibits further use of an ad – “pātraukt” un “atturēties” rīkojums
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comparative advertising – advertising that claims superiority to competitors in one or more aspects – salīdzinoša reklāma
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consent decree – a document advertisers sign, without admitting any wrongdoing, in which they agree to stop objectionable advertising – vispasaules piekrišana, vienošanās
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consumer advocates – individuals and groups who actively work to protect consumer rights, often by investigating advertising complaints received from the public and those that grow out of their own research – patērētāju aizstāvji
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consumerism – social action designed to dramatize the rights of the buying public - patērnieciskums
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cookies – small pieces of information that get stored in a computer’s Web browser when one loads certain Web sites. Cookies keep track of whether a certain user has ever visited a specific site and allows the site to give users different information according to whether or not they are repeat visitors - sīkdatne
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copyright – an exclusive right granted by the Copyright Act to authors and artists to protect their original work from being plagiarized, sold, or used by another without their express consent - autortiesības
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corrective advertising – may be required by the FTC for a period of time to explain and correct offending ads – korektīva, labojoša reklāma
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deceptive advertising – according to the FTC, any ad in which there is a misrepresentation, omission, or other practice that can mislead a significant number of reasonable consumers to their detriment – maldinoša reklāma
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endorsements or testimonials – the use of satisfied customers and celebrities to endorse a product in advertising – raksturojums, atsauksme
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ethical advertising – doing what the advertiser and the advertiser’s peers believe is morally right in a given situation – ētiska reklāma
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limen – our threshold of perception - slieksnis
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long – term macro arguments – criticisms of advertising that focus on the social or environmental impact of marketing – ilgtermiņa makro argumenti
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nonproduct facts – product claims not about the brand but about the consumer or the social context in which the consumer uses the brand – neproduktu fakti
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primary demand – consumer demand for a whole product category – primārais, galvenais pieprasījums
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privacy rights – of or pertaining to an individual’s right to prohibit personal information from being divulged to the public – tiesības uz personisko dzīvi
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puffery – exaggerated, subjective claims that can’t be proven true or false such as “the best”, “premier”, or “the only way to fly” – uzpūsta reklāma, nepelnīta uzslava
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selective demand – consumer demand for the particular advantages of one brand over another – atlasīts, izmeklēts pieprasījums
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short – term manipulative arguments – criticisms of advertising that focus on the style of advertising (e.g., that it is manipulative or deceptive) – īstermiņa vadāmie argumenti
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social responsibility – acting in accordance with what society views as best for the welfare of people in general or for a specific community of people – sociāla atbildība, saistība
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subliminal advertising – advertisements with messages (often sexual) supposedly embedded in illustrations just below the threshold of perception – neapzināta, zemapziņas reklāma
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substantiation – evidence that backs up cited survey findings or scientific studies that the FTC may request from a suspected advertising violator - pamatojums
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trademark – any word, name, symbol, device, or any combination thereof adopted and used by manufacturers or merchants to identify their goods and distinguish them from those manufactured or sold by others – preču zīme
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unfair advertising – according to the FTC, advertising that causes a consumer to be “unjustifiably injured” or that violates public policy – negodīga reklāma
