But it was not until advertising became popular in America that advertising technology developed rapidly. Kellogg first advocated the use of healthy foods to treat digestive tract diseases, and the company soon realized that it could sell healthy foods such as breakfast cereals through advertisements. 19 13, the first truly national modern advertising campaign began with the first American mixed cigarette camel brand, and cigarette manufacturers continued to be one of the biggest innovators in the advertising industry.
In the United States, all walks of life spend more than $65 billion on advertising every year. For many people, this huge amount represents a waste of social resources. Recently, however, many researchers have begun to show that advertising does consume social resources, but at the same time, under certain conditions, it can eventually lead to lower the total price of consumers.
How is that possible? After all, any industry should be profitable. If the advertising expenses are added to the production expenses, the profits will eventually be allocated to the higher prices charged to consumers. This logic is still correct, but it ignores a key element called competition. As we will see in this chapter, advertisements in some industries have led to the price drop, because they have made the business competition in this industry more intense.
In the retail industry, there is a thing called price increase, which is the percentage that retailers ask consumers to increase the wholesale price, also called distribution gross profit. Think about the toy industry. According to a researcher, the gross profit of distribution in the 1950s was almost 50%. By the early 1970s, the gross profit margin had dropped to 33%, which was not caused by the change of retailers' thinking-they did not become less interested in profits. On the contrary, the toy industry began to advertise intensively, especially on TV.
Until 1950s, the American toy industry was still an advertising-free market. However, from 65438 to 0955, martel Company in California began to promote toy submachine guns in Mickey Mouse Club performances. So before Christmas, martel toy submachine guns were snapped up from retailers' shelves. Since then, toys have been closely linked with TV advertisements.
Almost at the same time, the retail industry developed a revolutionary feature-discount stores. 1960, the total sales of discount stores was $2 billion. After 10, their sales were almost $30 billion. Businessmen who gave discounts found an interesting thing: a large number of advertised toys turn around very quickly, and these toys can be sold at a value far lower than the suggested price, while businessmen who gave discounts can still make a profit.
For example, at Christmas, if a toy worth $5 is advertised for $2.99, it will attract a large number of customers. In the early 1970s, discount stores accounted for 30% of toy retail sales, and the average gross profit of their toy departments or counters was only 26%. Obviously, traditional retailers also have to compete by reducing prices. In fact, goods with brand names and advertisements are easier to compare and shop with each other, thus strengthening the competition among retailers.
Let's consider another industry that is prohibited from advertising by law in some States: glasses and optician's vision test. Many states have banned any advertising of these products or services, which directly affects consumers to a great extent. A customer must spend more time and resources to find out the different prices of the same product or service provided in his or her geographical area. In other words, the total price of glasses will be composed of the purchase price, the time and transportation cost of obtaining glasses, and the cost of knowledge or information about where to obtain such glasses.
The more consumers know about the price changes of an industry, the smaller the price changes from one optician to another. There is a hypothesis that advertising increases customers' understanding of price changes in a certain industry, thus reducing price changes in a given regional market. Moreover, the only way for a seller who sells books with more profits is to provide such glasses to a large number of customers from a relatively large geographical area and obtain information at a lower price. If advertising is banned, sellers with small profits but quick turnover may not survive.
Lee Benham completed a study on the influence of advertising on the price of glasses. His data came from 1963. At that time, about three-quarters of states had laws prohibiting advertising. Benham provided two sets of results. First of all, he compared the personal situation in the restricted state and the unrestricted state, and found that in the restricted state, the individual paid an average of $6.7 more for each pair of glasses than in the unrestricted state. In the same year, he also compared the strictest and least stringent states. Texas and the District of Columbia have few restrictions, while North Carolina has imposed extensive restrictions for many years.
This comparison shows the average price difference between glasses-the range even reaches $65,438 +09.5. Benham pointed out that although this may be an overestimation, it does reflect some price difference. What we see is that in most States where advertising is allowed, larger enterprises or chain enterprises advertise more than other enterprises, thus keeping prices at a low level.
We can notice here that banning advertising will tend to benefit the largest enterprises in a certain industry. After all, these biggest enterprises have the most excellent products, and these products are their own advertisements. For example, if the FTC bans advertising on all types and brands of cars, GM will definitely have an advantage over Honda. Can you imagine how hard it would be for Honda to launch its own car to compete with GM if it couldn't advertise in TV, newspapers and magazines?
Advertising bans have also had a far-reaching impact on other industries. 1976, in response to the chief medical inspector's response that smoking may cause lung cancer, Congress decided to ban cigarette advertisements on TV. It is pointed out that TV viewers should not be provided with advertisements of harmful or dangerous products. The result of this ban is just the opposite of the expected effect. The lack of cigarette advertisements on TV has caused two prominent phenomena, both of which have led to possible increased health problems.
Before banning cigarette advertisements on TV, the American Cancer Society and anti-smoking political lobbyists successfully forced TV stations to broadcast anti-smoking advertisements for free. According to the fairness guidelines issued by the Federal Communications Commission, TV networks should broadcast two sides of this matter (it seems that every argument has only two sides). So, if TV networks accept the income from cigarette advertising, according to another point of view, these TV stations must also accept the non-smoking advertising (and it is free). So before 1976, every TV network had several advertisements against smoking every day. However, after banning cigarette TV advertisements, TV networks are no longer obliged to broadcast free anti-smoking advertisements according to fair rules. As a result, the number of anti-smoking advertisements has been greatly reduced, but such advertisements have achieved results, especially among women and teenagers. Because since the ban on cigarette advertising, the proportion of women and teenagers smoking has increased, which may be a coincidence, but it may not be.
Another phenomenon that may lead to the increase of public health hazards in the United States comes from the fact that TV advertising is a powerful and perhaps the only most effective means to introduce new cigarette brands to the market. Once people smoke a certain brand of cigarettes, it is difficult for them to change or understand the new brand; But this is exactly what TV advertisements do-let them know about the brands available. Professor Ben Klein found that since the ban on advertising cigarettes on TV, the number of new cigarettes with low tar and nicotine content has dropped by 42%. Probably it is beneficial for smokers to switch to cigarette brands with low tar and nicotine content, because they reduce the probability of people suffering from lung disease in the future. Therefore, banning such advertisements leads consumers to stick to the old brands of cigarettes they smoke, and these old brands may have higher tar and nicotine content and are more harmful to health.
In a completely monopolized world with identical products, advertising is really useless. But when we talk about advertising, are we implying a monopoly world? Not necessarily. Even a complete monopolist needs to list his business name in the yellow pages of the phone book and put up a signboard in the street to let people know its existence. When we start from that point, we usually see the types of advertisements, obviously not talking about complete monopolists, but about enterprises selling differentiated products.
Here we enter the field of monopolistic competition or oligopoly: that is, in this field, a large number of sellers are marketing slightly different products, such as toothpaste and soap; Or a few sellers, such as automobile manufacturing. Advertising seems to be related to this market structure, but it is not entirely clear whether advertising allows enterprises in these market structures to have greater monopoly power. Indeed, this can be demonstrated. The evidence cited above can support the possibility that advertising is necessary for the existence of competition because it is spent on the monopoly power of some enterprises.
It is true that a large number of advertising brands may be related to more monopoly power, not less. After all, those enterprises that successfully promote their own brands will get a large number of obedient consumers, and these consumers would rather "take the initiative" than "take the initiative". If we compare the market share of brand projects in a large number of advertising industries with that in a few advertising industries, we will find that the empirical evidence does not seem to support this statement.
According to the above assumptions, we should find that a large number of brand projects in the advertising industry have maintained a constant share in the market. In fact, this shows that the market share of industries that advertise a lot, such as cosmetics and toiletries, is not as stable as that of industries that advertise little, such as food. Therefore, the result of high-level advertising is the introduction of new products with high frequency. This seems to be the case with cigarettes, cosmetics and breakfast cereals. Then advertising may lead to the reduction of the amount of monopoly power caused by brands, rather than increasing this power.
All the above arguments should not be interpreted as indicating that there is no problem in the advertising industry, and fraudulent advertising has undoubtedly been a dilemma. Competitive market theory predicts that those advertisers who participate in fraudulent publicity will eventually be forced to quit their business. But how long will it take? What preventive measures can be taken to restrain advertisements and avoid excessive misleading communication in society? This is an important question that decision makers must answer.
Another area of concern relates to children's advertising. The United States Federal Trade Commission (FTC) is seeking to ban some forms of TV advertisements directed at the children's market, especially cartoon programs on Saturday and Sunday mornings, which raises the issue of consumer sovereignty. Do we regard five-year-olds as consumers who have the ability to make the right choices? Or in other words, do we regard their parents as sovereign consumers who have the ability to guide their children to make consumption decisions in an appropriate way? Some members of FTC have given negative answers to these two questions, so they hope to impose greater restrictions on children's advertisements, especially on TV.
Advertisements seem to add information about quality and price. Several studies show that in some states where advertising for certain products (such as glasses) is not allowed, the price change is much larger than that in states where advertising for these products is allowed. When advertising is banned, it is beneficial to the biggest companies in the industry, because their products are their own advertisements. Besides, when potential competitors enter industries where advertising is prohibited, they will have a hard time. Extensive advertising usually appears in a less competitive market structure. However, the argument that advertising creates monopoly power has not been proved. Even in a less competitive environment, fraudulent advertising should only be a temporary phenomenon.
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Advertising economy
All successful operations are based on having a high return on capital. This often requires huge profits, that is, a large and sustainable price difference must be maintained between the price and cost (all costs) of your product. To do this, you must make your customers willing to accept your products at a price far higher than the cost, which is far lower than any of your competitors. If you are not absolutely sure, it is useless to please customers temporarily.
All business success is based on microeconomics, that is, profit equals price minus cost times sales. Unless you can find a very successful and unique operator formula method, and all your competitors can't catch up, you can't gain a sustainable competitive advantage.
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I have studied advertising in many subjects, among which communication and marketing are the most prominent. But I personally think that the role of psychology and economics should not be below them. The economic study of advertising is carried out in industrial organizations, because advertising is a major aspect of non-price competition (Tirole (1988)). In most places of modern industrial organizations, the ratio of experience to theory is very low, and advertising is an exception. In advertising, there are not only a large number of theoretical studies, but also a large number of empirical studies. The reason is that it is relatively easy to obtain advertising data, especially at the enterprise level in the industry.
In industrial organizations, the starting point of theoretical analysis of advertising is the understanding of the role of advertising, that is, whether advertising is persuading and fooling consumers or providing consumers with valuable information, because the two will lead to diametrically opposite policy suggestions. Bagwell summarized three viewpoints: persuasive viewpoint, informative viewpoint and supplementary viewpoint. Among them, the first two have great influence. In fact, no one viewpoint can destroy other viewpoints, because the effectiveness of different viewpoints depends on the specific product type. The final conclusion of many scholars is: concrete analysis of specific problems!
On the basis of determining the role of advertising, related research mainly focuses on the relationship between advertising and other variables, such as advertising and price, advertising and quality, advertising and entry barriers. Therefore, it can be said that if you understand advertising, you will understand the whole industrial histology, not only the methods, but also the categories (of course, the internal relationship of the whole industrial histology is very close, so you can do it from other places).
It is worth mentioning that there is little research on the normative theory of industrial organization in China, especially the theoretical and economic analysis of advertising, which is almost blank. There are only three domestic works I have found (so called for the time being), of which only Zhang's Practical Course of Advertising Economics can be doubled. Although it is not very in-depth, it is still relatively standardized, including a wide range of content, which can be used to inspire ideas. There are even fewer documents worth reading, which are simply not worth mentioning. Let's go to several periodicals we talked about in China to find out about the situation. As for the thesis, the only one I found through Wanfang that studied advertising purely from the perspective of economics was written by a graduate student in Wang Junhao. Ironically, several articles written by an advertiser named Wen Yang claiming to rebuild economics from the perspective of advertising (information, media) have been widely circulated. See a big communication book and regard it as a representative of studying advertising from the perspective of economics! In contrast, the research abroad is much richer, as can be seen from the review document of Bagwell 170.