Download How Advertising Works

How Advertising Works
Advertising & Media
Unit 1
Advertising and the Economy
• The United States is a market economy
– The amount and prices of goods and services are
determined by market forces
– Consumer demand is a major force in a market
economy
• Consumers can be individuals, households (groups of
individuals), businesses or governments
• anyone who uses products/services
– Advertising is focused on increasing consumer
spending
• Can stimulate spending during an economic downturn
Consumer Spending
• Considered the engine of the US economy
• The amount of money (in real dollars and as a
percent of income) consumers spend has been
increasing
• If consumers overspend, the spend more
money than they earn
– Debt
– Bankruptcy
Why Do Consumer Spend?
• Consumer behavior includes all activities
completed by the consumer
– No single theory to describe or predict consumer
behavior
• A Need is something necessary for survival
(food, shelter, clothing)
• A Want is everything else
– Advertising focuses on creating consumer Wants
Marketing and Advertising
• Marketing is the promotion and distribution of
a product
• Advertising is a subset of marketing
– Make the product standout against competition
– Create new markets for product
– Directs information to target market
• Target market can be defined by advertisers or
marketers
Advertising and Prices
• Advertising effects pricing in both directions
• Advertising costs companies money
– 1% of sales for auto and retail
– 15% of sales for consumer products
– Cost of advertising is passed along to consumer
• Effective advertising makes companies money
– Return on advertising dollars is increased sales
– Companies may lower prices to consumers
Why Are Ads Successful
• An effective advertisement will demonstrate a
benefit from the use of the product/service
– Functional benefit – the same for everyone
• Cleaner clothes, save time, whiter teeth
– Emotional benefit – more difficult to measure
• Sex appeal, satisfaction, pride, sense of belonging
Benefits of Advertising
• Educate consumers
– Reduce search time
– More informed choices
• Product prices should drop
• Supports a variety of mass media
– Advertisers pay for television programs, radio
spots, internet space, etc.
– Keep subscription prices low
Drawbacks of Advertising
• Advertising is biased
• Raises the standard of living for some, but
widens the gap between rich and poor
– Actually and by perception
• Affects the type of information available
• Can promote stereotypes
How People are Portrayed
• People in advertisements are usually attractive
– To create a desire for inclusion
• Stereotypes are used in advertising
– Preconceived and generalized portrayal of a group
of people