Advertising
Advertisements are usually classified according to whether they are informative or persuasive.
Informative advertising
As the name implies, this type of advertising is concerned with the dissemination of information about products or services, e.g. as regards availability, price or performance, and such information would be of a factual type. For instance, an advertisement for a car could focus on such things as its fuel consumption, its safety features, the time it takes to reach certain speeds, its price, the names and addresses of main dealers etc.
Persuasive advertising
The main feature of persuasive advertising is that it provides consumers with little, if any, meaningful information about the products being advertised; rather it seeks to persuade consumers to buy one particular brand of a product rather than another through a combination of ‘catchy’ jingles and appealing images.
If the advertising is successful, the images and jingles register into our consciousness and create strong brand loyalty, e.g. the lines, ‘A Mars a day helps you work, rest and play’, and ‘Coke, the real thing’ are extremely widely known, but provide consumers with absolutely no information on the sugar, fat and chemical contents of the products in question.
Often the images are sexual and are intended to lead consumers to believe that their relative attractiveness to the opposite sex will be enhanced by the consumption of the good. Many advertisements for such things as cigarettes, alcohol, cosmetics, sports cars and even ice-cream fall into this category.
Task
The next time you watch commercial television, make a note and brief summary of the advertisements which appear during your first hour of viewing.
Classify these advertisements into informative and persuasive. Which type of advertising predominates?
The following table provides a summary of the potential advantages and disadvantages of advertising to consumers, firms and the economy as a whole, although its overall impact on such factors as prices, costs, competition and resource allocation is, as with many aspects of economics, very much a matter of judgement.
| Advantages | Disadvantages | |
|---|---|---|
| For consumers | Acts as a medium of communication between buyers and sellers, provides information on product availability and facilitates wider choice | Persuasive advertising may render consumer choice irrational and destroy consumer sovereignty |
| May lead to lower prices if (a) larger sales and production levels result in economies of scale and lower unit costs and (b) the advertising is based on price competition | Through its portrayal of a fantasy, largely affluent world, it creates unnecessary wants by generating feelings of inadequacy and greed | |
| May lead to higher prices because (a) there may be higher costs, particularly if economies of scale are not achieved and (b) advertising may act as a barrier to entry of new firms and thus increase monopoly power, particularly where established firms engage in saturation advertising which cannot be matched by smaller firms | ||
| For firms | If successful, advertising will (a) shift the demand curve to the right and (b) make the demand curve more inelastic. | Lower profits if costs of production are increased without raising sufficient extra revenue, or without shifting the demand curve making demand more inelastic |
| It may enable firms to maintain their monopoly power through the creation of brand loyalty and barriers to entry | ||
| Greater profits may be earned if higher sales and output levels lead to economies of scale and lower costs | ||
| For the economy as a whole | A greater level of employment if the level of sales and production increase | Advertising may lead to a misallocation of society’s scarce resources as the pattern of production may reflect the skill of the advertisers in manipulating consumers’ tastes, rather than what consumers actually want / need. |
| Certain sectors of the economy only survive because of the revenue which advertising earns, e.g. commercial radio, newspapers and magazines | The generation of negative externalities through tasteless or unsightly advertising |
Task
As a group task, in a formal debate, discuss the following motion:
“This house believes that goods which have to be advertised ought not to be produced at all.”
Select two main speakers to support the motion and two speakers to oppose it. Other class members should prepare points either for or against the motion so that they can contribute to the proceedings when the discussion is thrown open to the ‘floor of the house’.