Download The Power of Advertising - Business-TES

The Power of Advertising
The Theory
Advertising and Shifting demand
We can look at advertising from a range of perspectives. The most obvious thing about
advertising is that it is designed to encourage us to buy more of a product or service. In
essence what it aims to do is to shift the demand curve to the right. In addition to shifting
the demand curve, the aim of advertising might be to reduce the price elasticity of
demand for the product or service concerned.
The diagram below illustrates how this might work. In reducing the price elasticity, there
is an increase in consumer loyalty and the consumer becomes less subject to substitutes
that may be available and less responsive to changes in price.
The effect on demand of a successful advertising campaign - the demand curve shifts to
the right, indicating that more is demanded at each price.
In this example, the firm has managed to not only shift demand to the right but to reduce the price
elasticity of demand. This is indicated by the change in the slope throughout the new demand curve
D1. If the business was able to do this and then decided to increase price, it would be able to benefit
from increased revenue, assuming that the price elasticity of demand was now inelastic. (NB: this is
a general expression of a principle - a more detailed analysis would reveal more about the nature of
elasticity of demand along a demand curve).
Other Purposes of Advertising
Adverts come in many shapes and sizes but the effect of them can
be hard to determine. Copyright: Jenny W, from stock.xhcng.
Of course, that is just one explanation for advertising.
Advertising might, in the case of the Scottish
Executive, be designed to try to provide information.
This information, however, is meant to be acted upon
and so we can conclude that the main point of advertising is to try to change our
behaviour in some way.
This change in behaviour may be to modify the way we consume alcohol or how we
communicate with other people about alcohol.
It might be equally used by a company to try and convince us in some way that there are
advantages to being associated with product x rather than product y.
It might be to alert us to some form of change in the way that a product is being offered
or has changed.
There has been a recent spate of adverts for a new product by Gillette: the Gillette
'Fusion'. Gillette has now released a shaver that has five blades (how many additional
blades will continue to be added to these things?) - the adverts are designed to provide
information about the new product but is it also trying to persuade us to buy the product?
To an extent, yes, but Sutherland and Sylvester (2000) argue that it is largely a myth that
adverts are designed to persuade us to buy products or services. They point out the
following:
Advertising influences the order in which we evoke or notice the alternatives we consider.
This does not feel like persuasion and it is not. It is nevertheless effective. Instead of
persuasion and other major effects we should look for 'feathers', or minor effects. These
can tip the balance when alternative brands are otherwise equal and, through repetition,
can grow imperceptibly by small increments over time.
Source: Sutherland, M. & Sylvester, A.K. (2000) Advertising and the Mind of the
Consumer: What Works, What Doesn't, and Why. (St Leonards, New South Wales, Allen
and Unwin)
They liken the effect of advertising as being the same as watching someone grow up. You
know that they are growing but the day-to-day changes in the individual are
imperceptible. If you have not seen someone for some time, however, you do tend to
notice the difference in their height, shape, features and so on. So it is with many
advertising campaigns. The primary aim, they argue, is to generate a series of small
effects, which ultimately influence our behaviour and may cause us to view differently the
products or the brands that we choose, especially in a crowded market place with a large
amount of competition.
In a crowded market place, advertisers have to compete for space - the costs of doing so
are often significant, especially in high profile places such as Times Square in New York.
Each year, billions of pounds are spent across the world on advertising. If advertising
really didn't work, would business spend this amount of money?
The Psychology of Advertising
An MRI scan of the head. With this technology, brain activity can be
monitored as a result of differential blood flows to different parts of
the brain associated with different activities. Could such technology
open up our understanding of how advertising works? Copyright:
Max Brown, from stock.xchng.
Exactly how adverts work,
therefore, is not easy to
quantify. Sutherland and
Sylvester suggest that many involved in the advertising
industry do not really understand why some adverts seem to
work and others don't work anything like as well. It has long
been recognised that psychology has a lot to do with
advertising. With our understanding of the way the brain
works revolutionised by the developments afforded by
magnetic resonance imaging (MRI) scans, it was not long
before the advertising industry looked at this technology and its potential for improving
the focus and efficiency of advertising.
In essence, this technique looks at the response of the brain to different images and
messages. Using MRI techniques, the areas of the brain that respond to different stimuli
can be identified. The field developed as a result of work carried out by a neuroscientist
called Read Montague. Montague is Professor in the Department of Neuroscience at
Baylor College of Medicine in Houston, Texas. He gave a group of individuals Pepsi and
Coke to taste and asked them to state which they preferred. The results were 50:50 for
the two products.
However, when he told the respondents what they were drinking, around 75% stated that
they preferred Coke. Montague found that brain activity in the medial pre-frontal cortex
also showed signs of enhanced activity. This area of the brain is associated with higher
level thinking. Montague posited that the brain was making an association with the
images and messages associated with commercials for Coke that respondents had
witnessed over the years. He also suggested that such activity might lead to consumers
preferring one product to another, even if there was other evidence to suggest that under
normal circumstances, they would not have chosen that product.
Advertising Ethics
His work has led to feverish activity on the part of the advertising industry to look deeper
into the possible links. Their efforts have been the subject of concern to some, amidst
accusations of whether using MRI scans to test responses to products, brands and
images/messages is really ethical.
Whatever the view, there is clearly a suggestion in Montague's work that advertising does
work, although in a more sophisticated and subtle manner than we might have previously
expected. As technology improves and our understanding of what makes humans 'tick'
increases, it is more likely that we will be subject to ever more subtle advertising. Maybe
the Scottish Executive deliberately planned to have their advert on 'Don't push it' next to
the advert on whisky, to make us think and create more of an association. After all, it has
triggered this particular Mind Your Business so it may have been more effective than
originally thought!
Questions
1. Use supply and demand analysis to compare the effect of a 10% increase in price
on two similar products produced by different firms, one which has been the
subject of an (assumed) successful advertising campaign, and one which has not.
2. What might be the ethical considerations in the use of new techniques such as
neuromarketing?
3. Discuss the importance of advertising to the success of a product.
4. Choose two different adverts that use different advertising media. Describe what
you think the aim of the advert is and the extent to which you think the advert will
be a success.
5. Advertising is an inefficient use of resources in business. Discuss this view with
reference to the cases highlighted in this article.
Mark Scheme
1.
The diagrams given in the 'Theory' section will give you some guide as to the way to approach this
answer. This is assuming that advertising is designed to push the demand curve to the right and also to
reduce the price elasticity of demand. Start with an assumption that both products are charging the same
price and therefore state what the revenue is likely to be if they have the same volume of sales. You can
then make some comment as to the outcome of a 10% rise in price for both products. There are many
assumptions in the answer, as suggested here, but this is part of the approach to analysis in both
economics and business.
2.
The Theory section does make some reference to this issue. Certain groups have raised their eyebrows
at the use of MRI in marketing and the whole idea of neuromarketing is something that presents some
ethical concerns. The References section below contains a number of possible sources where you will be
able to get some views on the opposing sides to the argument. It will help you to be able to understand
the differing views in developing an argument.
3.
This is a classic example of a question looking to encourage you to develop an argument and show
some evidence of the ability to be able to evaluate. The short guide to this answer is first to discuss how
advertising can be important to the success of a product. You might need to qualify what is meant by the
term 'success' in this case - 'success' for the Scottish Executive is quite different to the view of 'success'
for Whyte and Mackay, in the image in the case above. You will then need to balance this out by
commenting on some other factors that might contribute to the 'success' of a product. This could be such
diverse things as the quality of the product, cash flow management, pricing strategies and so on. Having
balanced the argument, you can then draw the answer together by offering an informed conclusion to the
answer.
4.
The aim of this question is to get you to look at some specific examples of adverts and try to apply the
knowledge covered in this article to a real example. You will have to think carefully about the adverts
chosen. In some cases, it is almost impossible to really understand what the advert is about - read
Richard Taflinger's page , especially the 'Ads we could do without' section - note the warning here. Your
role, therefore, is to try to get behind the initial impression of the advert and think like the agency who
created the advert. What is the target market? What is the message - if any? Is this part of a series of
adverts or is it 'stand alone'? etc.
5.
One argument in favour of monopolies is that they eliminate the need to advertise because there is no
competition. Money spent on advertising, it is argued, is a waste of valuable resources that could be
better used in other ways. This sentiment is at the heart of this particular question. Is advertising always
a waste of resources? The advertising industry does, after all, generate massive amounts of revenue and
in essence this helps create employment.
Your answer will have to include different aspects to it - advertising might be a waste if it has no impact
at all or does not do what was originally aimed for. Equally, advertising might be very useful if it does
change behaviour in the right way over a period of time. If the Scottish Executive is successful in its
campaign, could it be argued that it was a waste of resources? The drink-driving campaigns over many
years might, on their own, be limited in their effect but if the results of Montague are to be believed, it
may well be that such advertising has had a significant long term impact on behaviour.
You will need to consider what type of advertising is being considered, therefore, and your conclusions
about each might be rather different. You can refer to traditional forms of advertising such as informative
or persuasive, but the article here suggests that classifying advertising in this way is far too simplistic.
The increased use of advertising on the Internet is another case in point. Pop-ups might be annoying, but
do they work? If they do, are they valuable to a firm and therefore worth the money spent on generating
them?
A great deal to think about with this question and also a need to consider the plan for the answer as a
result to ensure that your argument flows and is coherent and balanced.