Advertising As Information[1]

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Information about Advertising As Information[1]
Education

Published on October 15, 2008

Author: maddy3

Source: slideshare.net

ADVERTISING AS INFORMATION PHILLIP NELSON JOURNAL OF POLITICAL ECONOMY, 1974 VASUTA KALRA 58 A, PGP1

One of the functions of Advertising is to provide Information to customers

One of the functions of Advertising is to provide Information to customers

WHY INFORMATION? Producers advertise to sell more and more of their product This puts power in the hands of consumers over producers Hence, advertisers provide information to consumers that would appeal to them Nature of the power that consumers have, depends on the type of product being advertised

Producers advertise to sell more and more of their product

This puts power in the hands of consumers over producers

Hence, advertisers provide information to consumers that would appeal to them

Nature of the power that consumers have, depends on the type of product being advertised

NATURE OF PRODUCT

SEARCH QUALITIES Consumer can determine prior to purchase Through inspection e.g. shape, size, colour Here consumer has maximum market power over the content of advertising Facts are verifiable at point of purchase Customer may not buy if he feels the advertisements misled him

Consumer can determine prior to purchase

Through inspection

e.g. shape, size, colour

Here consumer has maximum market power over the content of advertising

Facts are verifiable at point of purchase

Customer may not buy if he feels the advertisements misled him

EXPERIENCE QUALITIES Consumer cannot determine prior to purchase Through experience while using the product Aims to relate the Brand to a function e.g. taste, durability Consumer power over market is relatively lower Facts not verifiable at point of purchase Major control they have here is whether they repurchase the brand or not

Consumer cannot determine prior to purchase

Through experience while using the product

Aims to relate the Brand to a function

e.g. taste, durability

Consumer power over market is relatively lower

Facts not verifiable at point of purchase

Major control they have here is whether they repurchase the brand or not

ACCORDING TO NELSON Advertising increases the probability of a consumer’s remembering the name of a brand Brands which provide the highest utility have the highest incentive to advertise Advertising increases as sales increase

Advertising increases the probability of a consumer’s remembering the name of a brand

Brands which provide the highest utility have the highest incentive to advertise

Advertising increases as sales increase

MARGINAL REVENUE OF ADVERTISING TO PRODUCER To maximize profits, producers advertise to a point where: Marginal revenue of advertising = Marginal cost of advertising

To maximize profits, producers advertise to a point where:

Marginal revenue of advertising = Marginal cost of advertising

STIGLER’S THEORY

NELSON’S MODEL Probability of leaving the market is independent of the number of advertising messages that a consumer knows The number of messages forgotten about a brand is directly proportional to the number of messages known about the brand Assumption: The rate at which consumers confront an advertising message is constant for all consumers

Probability of leaving the market is independent of the number of advertising messages that a consumer knows

The number of messages forgotten about a brand is directly proportional to the number of messages known about the brand

Assumption:

The rate at which consumers confront an advertising message is constant for all consumers

SEARCH & EXPERIENCE QUALITIES Marginal revenue behaviour is different for Search and Experience qualities For search qualities, Advertising will increase sales only when it gives information to consumers that they did not have before Firms advertising experience qualities will advertise MORE than firms advertising search qualities when both advertise

Marginal revenue behaviour is different for Search and Experience qualities

For search qualities, Advertising will increase sales only when it gives information to consumers that they did not have before

Firms advertising experience qualities will advertise MORE than firms advertising search qualities when both advertise

MARGINAL REVENUE OF ADVERTISING TO THE CONSUMER Consumer decision, in the quest for information, is a central determinant of behaviour of advertising This depends on Marginal revenue Marginal revenue > time cost to consumer to view the advertisement This determines the amount and type of advertisement a brand will use.

Consumer decision, in the quest for information, is a central determinant of behaviour of advertising

This depends on Marginal revenue

Marginal revenue > time cost to consumer to view the advertisement

This determines the amount and type of advertisement a brand will use.

Marginal revenue of information to the consumer for a good is the expected improvement in his utility as a result of using this information in his sampling of brands of this good Experience goods – customers use “soft” information for evaluation Search goods – “hard” or “soft” information Hard information has greater value to the customer than soft value Therefore, Marginal Revenue of advertisements to the consumer will be greater for search goods than for experience goods.

Marginal revenue of information to the consumer for a good is the expected improvement in his utility as a result of using this information in his sampling of brands of this good

Experience goods – customers use “soft” information for evaluation

Search goods – “hard” or “soft” information

Hard information has greater value to the customer than soft value

Therefore, Marginal Revenue of advertisements to the consumer will be greater for search goods than for experience goods.

MARGINAL REVENUE OF ADVERTISING IN DIFFERENT MEDIA Positive relationship between the marginal revenue to consumer for an ad and the number of times he can see it Newspapers & magazines: consumers can look at the advertisements as many times as they want Advertisements in newspapers and magazines will provide higher marginal revenue to consumer than those in television or radio

Positive relationship between the marginal revenue to consumer for an ad and the number of times he can see it

Newspapers & magazines: consumers can look at the advertisements as many times as they want

Advertisements in newspapers and magazines will provide higher marginal revenue to consumer than those in television or radio

DECEPTIVE ADVERTISING Providing misleading information to consumers Projecting the utility of the goods as being higher than what it really is Some qualities cannot be successfully conveyed by advertising e.g. “charm” of an apartment, ambience of a place. Here advertisers are tempted to exaggerate Ranks Different players in the same product category claim to be holding the same rank based on different surveys Claims may not be genuine – confusion for consumers

Providing misleading information to consumers

Projecting the utility of the goods as being higher than what it really is

Some qualities cannot be successfully conveyed by advertising e.g. “charm” of an apartment, ambience of a place.

Here advertisers are tempted to exaggerate

Ranks

Different players in the same product category claim to be holding the same rank based on different surveys

Claims may not be genuine – confusion for consumers

COSTS OF DECEPTIVE ADVERTISING Monetary loss Time cost Energy cost Decline in credibility for future advertisements No repurchase of brand No customer loyalty Loss of sales TO CONSUMERS TO PRODUCERS

Monetary loss

Time cost

Energy cost

Decline in credibility for future advertisements

No repurchase of brand

No customer loyalty

Loss of sales

TO CONSUMERS

TO PRODUCERS

ALTERNATIVE SOURCES OF INFORMATION Through samples Recommendations of family, friends, consumer magazines Used more for goods with low frequency of purchase (durables) Consumers tend to trust these sources more than they trust the information given through advertisements

Through samples

Recommendations of family, friends, consumer magazines

Used more for goods with low frequency of purchase (durables)

Consumers tend to trust these sources more than they trust the information given through advertisements

CONCLUSIONS OF STUDY Consumers believe that the more a brand advertises, the better buy it is They are more likely to try out brands which are more heavily advertised Vice – versa: Advertising increases as sales increase Heavily advertised brands are more likely to provide a lower Price (per unit of the utility of the brand)

Consumers believe that the more a brand advertises, the better buy it is

They are more likely to try out brands which are more heavily advertised

Vice – versa: Advertising increases as sales increase

Heavily advertised brands are more likely to provide a lower Price (per unit of the utility of the brand)

 

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