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PAGE ONE Economics ® TEACHER EDITION Middle School Version Page One Economics® is an informative accessible essay on timely economic issues. The Teacher Edition provides the essay; student questions with answers; and additional lesson ideas for classroom, extra credit, or makeup assignments. National Standards and Benchmarks (see page 12) April 2017 Advertising: Dollars and Decisions Jeannette N. Bennett, Senior Economic Education Specialist PAGE ONE Economics ® Advertising: Dollars and Decisions Jeannette N. Bennett, Senior Economic Education Specialist GLOSSARY Advertising: Communication used by businesses to persuade consumers to buy a good or service. “Mass demand has been created almost entirely through the development of advertising.” —Calvin Coolidge, October 27, 19261 Choice: A decision made between two or more possibilities or alternatives. Consumers: People who buy goods and services to satisfy their wants. Decisionmaking: Deciding among choices (alternatives or options). Demand: The quantity of a good or service that buyers are willing and able to buy at all possible prices during a certain time period. Price: The amount of money, determined by the interaction of buyers and sellers, that a buyer must pay to acquire a good, service, or resource. Profit: The amount of revenue that remains after a business pays the costs of producing a good or service. Spend: To use some or all of your income to buy things you want now. Introduction Having dollars in your pocket is one thing; keeping them there is another. Businesses want you to spend your money on the goods and services they sell. In fact, consumers see or hear as many as 4,000 to 10,000 advertisements each day!2 This advertising is designed to increase or create demand for products and influence consumers’ choices about spending. Through persuasion, some of the money in your pocket is spent because of advertising. Advertising Benefits Advertising benefits both buyers and sellers. First, it provides information to consumers about new products available and gives reasons to buy and use the advertised goods or services. Also, it provides information on the prices of goods or services. This information helps consumers know where a product can be bought at the lowest price. Advertising pays for much of the cost of newspapers, magazines, television, radio, the Internet, and other media. Because of this, consumers pay less to use these services. And finally, advertising increases the demand for goods and services. It helps businesses increase their sales. The Purpose of Advertising Advertisements, or ads, may be designed to convince consumers to stay with well-known brands. They may also be designed to introduce a new brand. Using slogans, logos, jingles, unique packaging, and designs creates “brand personality” and familiarity with products. For example, even before they can read, most children recognize the McDonald’s golden arches. This influences their tastes and preferences and increases the demand for McDonald’s products. Advertising can help keep current customers and influence other consumers to switch brands. April 2017 Federal Reserve Bank of St. Louis | research.stlouisfed.org PAGE ONE Economics® Types of Advertising Federal Reserve Bank of St. Louis | research.stlouisfed.org 2 Figure 1 Ads are used to deliver a message to consumers. Some ads are only in print format with or without pictures. Others are commercials that may include audio only or audio and visuals. Commercials are usually between 10 and 60 seconds long.3 An infomercial is a very long commercial—sometimes 30 minutes long. It tells about a product, and sometimes there is a special offer to purchase the product right away. Advertising as a Business Advertising is a business and industry in itself. In fact, there are careers and job opportunities in advertising. People have jobs to design and create ads. They pay attention to details, color, words, design, and appearance, as well as the media type(s) to be used. Advertising agencies work hard to present products most favorably. Researchers collect responses from consumer test groups to pretest ads and fine-tune them to the smallest details before they are released. Advertising Timeline In the United States, Benjamin Franklin advanced advertising in the mid-1700s. Franklin was the publisher of the Pennsylvania Gazette. He created a way to lower the paper’s cost by selling newspaper ads. The idea was not successful at first because Franklin could not convince other businesses to buy ads. He tried a different approach and began to advertise one of his own inventions—the Franklin stove. The sales of the stove boomed. Other businesses noticed and began to buy ads in the Pennsylvania Gazette. After this, Franklin was able to produce his paper at a lower cost, sell his newspaper at a lower price, and earn a profit.4 SOURCE: Richter, Felix. “50 Years of Growth Wiped Out in a Decade.” statista.com, September 17, 2012; https://www.statista.com/chart/612/newspaper-advertising-revenue-from-1950-to-2012/, accessed March 21, 2017. Used by permission. visions in the United States.8 In 2004, more than 98 percent of American households had a television and the average home had more than two.9 In 2016, on average, American adults watched about 5 hours of television per day.10 Television reaches a large number of consumers at the same time—and of course, the networks are filled with commercials. In 2015, the Fox News Channel had the most commercials of all networks overall with almost 17 minutes of each hour devoted to commercials. The CBS television network had almost 14½ minutes, while ABC and NBC had almost 14 minutes per hour.11 Radio broadcasting began on a large scale in the 1920s. The Golden Age of Radio began around 1925. In 1926 there were plans for radios to be in 26 million American homes.7 The radio changed advertising by adding sound. This included voice, music, and jingles. On average, there are 38 ads airing every minute over national television networks. Research and data are used by advertisers to target the “right people” in the most effective way. Some considerations include timing (when to run an ad) and the length of the ad. For example, data from 2013 reveal that 125 million people watch television on Sunday. This number is more than on any other day of the week. In this same year, the number of 15-second ads increased to 44 percent of all ads and were equally effective as longer ads.12 Information on changes in the makeup of the population is important as well. For example, are there more retired people who watch the news? Are there more young people who use computers? When television became popular, there began to be fewer print ads (Figure 1). In 1992, there were 201 million tele- Beginning in the 1990s, the Internet and computers began to add more change to advertising. In fact, the By the late 1800s, long, wordy ads were used less often and more catchy phrases or slogans were used.5 This helped consumers remember the product better. For example, Ivory soap was marketed by Proctor and Gamble as the “soap that floats.”6 PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org Figure 2 3 Common Advertising Techniques • Gimmick—Uses clever ideas or devices • Glittering generalities—Presents luxury, wealth, and glamour • Bandwagon—Gives the impression that everybody is buying and using the product • Testimonial—Well-known or famous person shares information about the product • Just plain folks—Presents product as traditional, old-fashioned, and “homey” • Humor—Aims to be funny or amusing • Statistical approach—Uses numbers and facts to convince • Expert approach—Uses a person who is or acts like a professional in the area SOURCE: Richter, Felix. “Money Follows Eyeballs – Mobile Ad Boom Continues.” Statistics Portal, December 6, 2016; https://www.statista.com/chart/5096/ worldwide-ad-spending-growth-by-medium/. Used by permission. Common Advertising Venues TelevisionTelephone Radio Mail BillboardsNewspapers MagazinesInternet Email Mobile devices world’s largest advertiser, Procter & Gamble, has begun shifting more to digital advertising. The company believes online ads are becoming a better way to advertise than using all TV or print ads.13 Today, smartphones and mobile devices are being used for advertising. It is predicted that by 2019 advertising on mobile devices will reach $160 billion and become the second-largest advertising medium, while television will retain the number one spot.14 (See Figure 2 for estimated changes in ad spending.) Advertising Targets Advertisers determine the target audience and their interests. For example, targeted groups may be children, families, consumers who think about careful spending, consumers who think about health, consumers who like sports, older or retired consumers, or working consumers. SOURCE: Dale, Larry R. “Economics for the Elementary Grades.” Curriculum guide, Arkansas State University, 1992, p. 139. In each case, ads are designed to fit the particular consumer group and influence its choices. The method of delivering the ad is also important. For example, ads for beauty products are more effective in a women’s magazine rather than on the radio (see the “Common Adver tising Venues” boxed insert). Advertising Techniques Some ads provide basic information such as price, size, and quantity. Sometimes brand labels and the packaging itself can serve as an ad. For example, a tube of toothpaste is not labeled simply “toothpaste.” It may include the brand name and some descriptions such as “New and Improved,” “Fresh Tasting,” “Helps Prevent Cavities,” or “Whitening.” And adding cartoon characters and bright cheerful colors on cereal boxes can influence children’s tastes and preferences. Such designs can create greater demand for a certain cereal by children. Most ads use one or a combination of techniques to influence consumer spending and persuade consumers of the value of the product (see the “Common Advertising Techniques” boxed insert). But in all cases, the tastes and preferences of consumers are considered in an effort to affect decisionmaking. Advertising Pricing The first official paid television commercial in the United States was broadcast in 1941. It was a short and simple ad for a watch and was shown before a baseball game PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org 4 Figure 3 Figure 4 SOURCE: Loesche, Dyfe. “Nearly 1 in 4 Super Bowl Fans Watch for TV Commercials.” statista.com, February 5, 2016; https://www.statista.com/chart/4325/reasonsto-watch-super-bowl/, accessed March 21, 2017. Used by permission. SOURCE: Richter, Felix. “Super Bowl Ad Prices Doubled in a Decade.” statista. com, January 16, 2017; https://www.statista.com/chart/826/super-bowl-tvadvertising-in-the-united-states/, accessed March 21, 2017. Used by permission. in New York. The total price for the ad was less than $10. Since that time, the cost of advertising has increased dramatically. Conclusion The advertising industry now generates tens of billions of dollars per year. In 2016, national TV commercials cost, on average, around $8,000 for a 30-second spot.15 Pricing of advertising depends on several things. The price may be set because of the size of the print ad or length of time of the radio or TV commercial. Prices can vary widely by publication or program and can depend on how many people will see it. The Super Bowl is an example of expensive advertising. Since 2010, the Super Bowl has been the most-watched TV broadcast of each year. About 114 million viewers watched the 2015 Super Bowl. And many people watch the game just to see the commercials (Figure 3). With such a large number of viewers, the price of Super Bowl advertising continues to increase (Figure 4). The price of a 30-second commercial for the first Super Bowl in 1967 was $42,000 and increased to over $1 million in 1995. By 2015, the price had risen to $4.5 million. In 2016, the price was $5 million, or $166,666 per second.16 For the 2017 Super Bowl, advertisers paid $5.02 million for a 30-second commercial.17 The purpose of advertising has stayed the same over time: to create demand for products by influencing consumer tastes and preferences. However, advertising strategies and methods have changed and will continue to do so. Ben Franklin would be amazed with today’s ads. Mark Twain said, “Many a small thing has been made large by the right kind of advertising.” Finding the “right kind” of advertising is a challenge for both advertisers and consumers. Advertising must change as the population and technology changes. And consumers must use the “right kind” of decisionmaking. As a consumer, it is your responsibility to think carefully about ads so you can keep more dollars in your pocket. n PAGE ONE Economics® Notes 1 Coolidge, Calvin. Address Before the American Association of Advertising Agencies. Washington, DC., October 27, 1926; http://www.presidency.ucsb.edu/ws/?pid=412. 2 Marshall, Ron. “How Many Ads Do You See in One Day?” Red Crow Marketing. September 10, 2015; http://www.redcrowmarketing.com/2015/09/10/many-ads-see-one-day/. 3 Martin, Amie. “What Are the Differences Between Advertisements and Commercials?” Houston Chronicle, 2017; http://smallbusiness.chron.com/differences-between-advertisements-commercials-10353.html. 4 Bennett, Jeannette. “Ben Franklin: Highlighting the Printer.” Lesson plan, Federal Reserve Bank of St. Louis, 2012, pp.14-15; https://www.stlouisfed.org/~/ media/Education/Lessons/pdf/Ben-Franklin-Highlighting-the-Printer.pdf. 5 O’Barr, William M. “A Brief History of Advertising in America.” Advertising & Society Review, 2005, 6(3); https://muse.jhu.edu/article/193868. Federal Reserve Bank of St. Louis | research.stlouisfed.org 5 12 “Advertising & Audiences: State of the Media.” Nielsen Company, May 2014; http://www.nielsen.com/content/dam/nielsenglobal/jp/docs/report/2014/ Nielsen_Advertising_and_%20Audiences%20Report-FINAL.pdf. 13 O’Reilly, Lara. “These Are the 10 Companies That Spend the Most on Advertising.” Business Insider, July 6, 2015; http://www.businessinsider.com/10biggest-advertising-spenders-in-the-us-2015-7/#1-procter-and-gamble-adspend-down-42-to-46-billion-the-cpg-giant-is-also-the-worlds-largest-advertiseralthough-this-spring-the-companys-cfo-revealed-a-plan-to-cut-spend-on-adagencies-by-up-to-500-million-the-company-is-also-shifting-huge-amounts-ofits-budget-to-digital-advertising-because-it-believes-online-ads-deliver-a-higher-return-on-investment-than-tv-or-print-one-of-its-most-popular-campaignsof-last-year-was-its-always-likeagirl-spot-which-has-been-viewed-on-youtubemore-than-58-million-times-10. 14 Richter, Felix. “Money Follows Eyeballs—Mobile Ad Boom Continues.” December 6, 2016; https://www.statista.com/chart/5096/worldwide-ad-spending-growth-by-medium/. 6 “Ivory Soap.” Ohio History Central, http://www.ohiohistorycentral.org/w/Ivory_Soap, Accessed February 12, 2017. 15 Rodriguez, Ashley. “Watch: The First TV Commercial, Which Aired 75 Years Ago Today.” Quartz, July 1, 2016; https://qz.com/721431/watch-the-first-tv-commercial-which-aired-75-years-ago-today/. 7 Federal Reserve Bank of St. Louis. “Turn Your Radio On.” Lesson 5 in The Great Depression curriculum; https://www.stlouisfed.org/~/media/Files/PDFs/GreatDepression/the-great-depression-lesson-5.pdf. 16 Schwartz, Nick. “Stunning Infographic Charts the Skyrocketing Cost of a Super Bowl Ad.” USA Today Sports, February 6, 2016; http://ftw.usatoday.com/2016/02/how-much-does-super-bowl-ad-cost. 8 17 Duffy, Thomas. “Super Bowl Ads 2017: Latest Info on Cost of 2017 Super Bowl Commercials.” Bleacher Report, February 5, 2017; http://bleacherreport.com/ articles/2691154-super-bowl-ads-2017-latest-info-on-cost-of-2017-super-bowlcommercials. datesandevents.org. “Television Invention Timeline.” http://www.datesandevents.org/events-timelines/08-television-invention-timeline.htm, accessed February 24, 2017. 9 University of Texas at Austin. “Television History—A Timeline, 1878-2005.” https://tarltonapps.law.utexas.edu/exhibits/mason_&_associates/documents/ timeline.pdf, accessed February 24, 2017. 10 Koblin, John. “How Much Do We Love TV? Let Us Count the Ways.” New York Times, June 30, 2016; https://www.nytimes.com/2016/07/01/business/media/ nielsen-survey-media-viewing.html?_r=0. 11 Friedman, Wayne. “Fox Television Network, Fox News Highest In Commercial Clutter.” May 20, 2016; http://www.mediapost.com/publications/article/276342/ fox-television-network-fox-news-highest-in-commer.html. Please visit our website and archives http://research.stlouisfed.org/pageone-economics/ for more information and resources. © 2017, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System. PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org 6 Name___________________________________ Period_______ Federal Reserve Bank of St. Louis Page One Economics ®: “Advertising: Dollars and Decisions” After reading the article, complete the following: 1. Refer to each topic in the table below. Does the article address or provide information on the topic? Write yes or no in the second column. If the answer is yes, write the title of the section of the article that provides information and evidence for your answer. Topic Yes or No Section title A. Income of advertising designer B. First advertising with sound C. Best colors to use for product packaging D. Newspaper print advertising revenue for 2000 E. Hours Americans watch TV F. The best advertising technique to use G. Super Bowl advertising revenue for 2016 H. TV network with the most viewers I. World’s largest advertiser J. Ways to create “brand personality” K. Packaging serving as advertisement L. Misleading information in advertisements 2. List three ways in which advertising benefits consumers. 3. It is a consumer’s responsibility to think about and analyze ads. Give two reasons this is important. PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org 7 4. Ads are designed to target specific groups of consumers. If you were advertising the products in the table below, what group(s) of consumers would you target? Product Possible target audience(s) Dolls Large outdoor tents Disposable diapers Hardwood flooring Dog collars and leashes 5. Businesses spend many dollars on advertising. What is their incentive to advertise? 6. On average, about how many minutes of each hour are devoted to news topics on the Fox News Channel? 7. The title of this article is “Advertising: Dollars and Decisions.” Explain how this title summarizes the contents of the article. PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org 8 Teacher’s Guide Federal Reserve Bank of St. Louis Page One Economics ®: “Advertising: Dollars and Decisions” After reading the article, complete the following: 1. Refer to each topic in the table below. Does the article address or provide information on the topic? Write yes or no in the second column. If the answer is yes, write the title of the section of the article that provides information and evidence for your answer. Topic Yes or No Section title A. Income of advertising designer No B. First advertising with sound Yes C. Best colors to use for product packaging No D. Newspaper print advertising revenue for 2000 Yes Advertising Timeline E. Hours Americans watch TV Yes Advertising Timeline F. The best advertising technique to use No G. Super Bowl advertising revenue for 2016 Yes H. TV network with the most viewers No I. World’s largest advertiser Yes Advertising Timeline J. Ways to create “brand personality” Yes Purpose of Advertising K. Packaging serving as advertisement Yes Advertising Techniques L. Misleading information in advertisements No Advertising Timeline Advertising Pricing (Figure 4) 2. List three ways in which advertising benefits consumers. • Provides information about new products • Gives reasons to buy or use the advertised products • Provides information about prices so consumers can compare prices among sellers • Consumers pay less for newspapers, magazines, television, radio, the Internet, and other media because advertising pays for much of the cost. 3. It is a consumer’s responsibility to think about and analyze ads. Give two reasons this is important. Answers will vary but may include the following: • Ads can be misleading by using techniques that play on emotion. Examples: using famous people to endorse products, showing the product in a glamorous way, or giving the impression that everybody is using the product • Ads can influence consumers to buy things they really don’t want. • Ads can make products seem better than they really are. • Ads can influence consumers to spend dollars they don’t need to spend. PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org 9 4. Ads are designed to target specific groups of consumers. If you were advertising the products in the table below, what group(s) of consumers would you target? Product Possible target audience(s) Dolls Young girls (or adults buying for girls) Large outdoor tents Families, Scout troops, campers Disposable diapers Parents of infants and young children Hardwood flooring Homeowners, landlords Dog collars and leashes Dog owners 5. Businesses spend many dollars on advertising. What is their incentive to advertise? Ads can create demand for a good or service and increase businesses’ sales and profits. 6. On average, about how many minutes of each hour are devoted to news topics on the Fox News Channel? 60 minutes in one hour – 17 minutes of commercials = 43 minutes of actual news 7. The title of this article is “Advertising: Dollars and Decisions.” Explain how this title summarizes the contents of the article. Answers will vary but may include the following: • Advertising is about dollars. Businesses pay money to advertise so they will earn more money from increased sales. Consumers spend dollars when they buy the advertised products. • Advertising is about decisions. Advertisers make decisions on the techniques and venues to use and how much money to spend. Consumers make decisions about what products to buy with their dollars. PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org 10 Extension Activity Instruct the students to construct a chart with headings and columns like the one shown below and to add as many rows as needed. Explain that they are to select any 30-minute television program and record on the chart information about each ad aired during that program. They are to summarize their findings and include the following: • How many commercials were shown in the program? • What advertising techniques were used the most? • What target audience was identified the most? Name of program: Product advertised Target audience(s) Advertising technique(s) used PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org 11 Additional Resources Econ Lowdown® of the Federal Reserve Bank of St. Louis provides numerous economic education resources for teachers to use with their students. These free resources include lesson plans, videos, online modules, interactive whiteboard lessons, and podcasts. They are available at https://www.stlouisfed.org/education. The resources listed below from Econ Lowdown can be integrated with the content in this article. To register your students for one or more of our online courses, on the Econ Lowdown website (linked above), click the “TEACHERS” button to create or access your account and visit the Instructor Management Panel. Making Personal Finance Decisions Curriculum Unit The Making Personal Finance Decisions curriculum teaches valuable personal finance lessons grounded in economic theory. The curriculum is divided into 10 themed units, with each unit containing two lessons. The 20 individual lessons use a variety of teaching strategies designed to engage students in the learning process and equip them with the knowledge and skills necessary to make informed personal finance decisions. https://www.stlouisfed.org/education/making-personal-finance-decisions-curriculum-unit The Art of Decisionmaking Online Course for Teachers and Students If you look at what psychologists consider to be high-level stressors, you’ll find a list of about 40 life events. We have no control over many of these events, but for more than half, we do. So much of our stress and success in life depends on the decisions we make. In this short course, students learn the economic underpinnings of the need to make decisions, why every decision bears a cost, and how to make informed decisions. https://www.stlouisfed.org/education/the-art-of-decisionmaking-online-course-for-teachers-and-students Ben Franklin: Highlighting the Printer In this lesson, students will learn that money is an invention. They will read and analyze an essay focusing primarily on one aspect of Ben Franklin’s life—his work as a printer—and how he was an inventor and entrepreneur who also promoted the use of currency in the United States. Students will cite specific textual evidence regarding problems and solutions and will answer questions and complete a timeline. By using evidence and information gleaned from text, students will write a fictitious social media post defending the selection of Ben Franklin’s portrait for the $100 note. https://www.stlouisfed.org/~/media/Education/Lessons/pdf/Ben-Franklin-Highlighting-the-Printer.pdf PAGE ONE Economics® Federal Reserve Bank of St. Louis | research.stlouisfed.org 12 Middle School National Standards and Benchmarks Common Core State Standards Grades 6-12 Literacy in History/Social Studies, Science, and Technical Subjects • Key Ideas and Details RH.11-12.1: Cite specific textual evidence to support analysis of primary and secondary sources, connecting insights gained from specific details to an understanding of the text as a whole. RH.11-12.2: Determine the central ideas or information of a primary or secondary source; provide an accurate summary that makes clear the relationships among the key details and ideas. • Integration of Knowledge and Ideas RH.11-12.7: Integrate and evaluate multiple sources of information presented in diverse formats and media (e.g., visually, quantitatively, as well as in words) in order to address a question or solve a problem. Grades 6-12 Reading Standards for Informational Text • Key Ideas and Details RI.11-12.1: Cite strong and thorough textual evidence to support analysis of what the text says explicitly as well as inferences drawn from the text, including determining where the text leaves matters uncertain. National Standards for Financial Literacy Standard 2: Buying Goods and Services People cannot buy or make all the goods and services they want; as a result, people choose to buy some goods and services and not buy others. People can improve their economic well-being by making informed spending decisions, which entails collecting information, planning, and budgeting. • Benchmarks: Grade 4 6. People’s spending choices are influenced by prices as well as many other factors, including advertising, the spending choices of others, and peer pressure. • Benchmarks: Grade 8 1. When making choices about what to buy, consumers may choose to gather information from a variety of sources. The quality and usefulness of information provided by sources can vary greatly from source to source. While many sources provide valuable information, some sources provide information that is deliberately misleading. 2. By understanding a source’s incentives in providing information about a good or service, a consumer can better assess the quality and usefulness of the information. Voluntary National Content Standards in Economics Standard 9: Competition and Market Structure Competition among sellers usually lowers costs and prices, and encourages producers to produce what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them. • Benchmarks: Grade 8 1. Sellers compete on the basis of price, product quality, customer service, product design and variety, and advertising. 2. Competition among sellers results in lower costs and prices, higher product quality, and/or better customer service. When competition among sellers is limited, sellers have some control over the prices they set. Standard 14: Entrepreneurship Entrepreneurs take on the calculated risk of starting new businesses, either by embarking on new ventures similar to existing ones or by introducing new innovations. Entrepreneurial innovation is an important source of economic growth. • Benchmarks: Grade 4 2. Entrepreneurs and workers often are innovative. They attempt to solve problems by developing and marketing new or improved products and processes.