The Economics of Advertising (RLE Advertising)

Frederic Taylor

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136670497
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

What is the economic justification of advertising? Is it a vital energizing force in industry, or does it represent a serious waste of money and effort? The great increase in the volume of publicity in modern times is causing people to wonder what its final outcome will be, and whether it is a development to be welcomed or regarded with suspicion.

First published in 1934.

PART ONE

ADVERTISING AND INDUSTRY AN ECONOMIC ANALYSIS

CHAPTER ONE

THE DEVELOPMENT OF ADVERTISING AND ITS SIGNIFICANCE

TODAY most of us take advertising for granted. Advertisements of one kind or another meet us at every turn, and, whether we wish it or not, they are one of the forces which mould our habits and determine our daily wants. It is difficult to realize that this outpouring of publicity is a comparatively recent development, and that fifty years ago the expenditure of a substantial portion of the national income on finding a market for goods would have been regarded as economic lunacy. Increased expenditure on advertising, however, is but a symptom of a fundamental change in the economic order; it is one of many indications that the distribution of goods is becoming of relatively greater importance, and that frequently the chief problem which confronts the business man is not how to produce but how to sell.

What are the reasons for this change of emphasis which has resulted in more and more effort being devoted to marketing as distinct from manufacturing? If this question can be answered satisfactorily the meteoric rise of advertising will be explained, and a clue will be provided to the nature of the functions of advertisement in our industrial system. Expenditure on advertising is sometimes deprecated on the ground that it represents a waste of national resources and is of no real value to the community. This criticism is no doubt partly justified, and some of the expenditure may reasonably be condemned on economic and social grounds, but if the development of advertising is regarded in its proper perspective, not as an isolated phenomenon but as one feature of a commercial revolution which has effected drastic changes in the national economic structure, it will be realized that it performs essential services to industry as it is at present organized. Whether the fundamental changes which have occurred in industry are to be welcomed, or whether further changes are to be desired which would render our modern marketing technique obsolete, are problems which are outside the scope of this book. The present study is only concerned with an analysis of the functions of advertising in the existing industrial system.

THE RISE OF MODERN MARKETING METHODS

Greater variety of production

During the past century the national income has been rapidly increasing, improved manufacturing methods have made possible a steady increase in the output of factory-made goods, and a rising standard of living has been reflected in the growth of a demand for commodities in bewildering variety. Before the Industrial Revolution there was no “problem of distribution” in the modern sense of the term; wants were few and simple, and production was carried on to meet a fairly stable and definite demand. Later, in the early days of the factory system there was a ready market for the new machine-made goods, the volume of production was still small, and, judged by modern standards, there was little variety in the goods offered. As production increased through the nineteenth century, manufacturers, looking for fresh fields to conquer, produced new articles and introduced new types, qualities, and styles in great variety. The process has continued, and today such careful attention is paid to the buyer's tastes and whims that his “wants” have increased to an astonishing extent, and he demands food, clothing, and entertainment in forms which were undreamt of in previous generations. (It is undoubtedly the growth in the variety of goods which has been largely responsible for these increased wants—when the goods were not available the wants were not felt.) The small shop, which could only offer a very limited range of articles, is being superseded by retail establishments which place an unending variety of merchandise before their customers. Rapidly changing fashions cause a demand for countless variations of shape and colour. Textile materials are dyed in more than one thousand four hundred colours; when buying shoes women may select from fifty varieties of glacé leather and a hundred of reptile skin; one London store stocks about fifty kinds of bread and as many of cheese. The tobacconist, the confectioner, the chemist, and the grocer supply an amazingly large number of brands and grades of each class of goods. One of the consequences of the variety of production which is one of the most striking features of modern industry is that in order to let the consumer know what producers can offer him a very considerable expenditure on advertising is necessary. Moreover, when methods of production and fashions in consumption are constantly changing, advertising is one of the most effective methods of correlating supply and demand.

Increased control of the market by producers

Another significant development in the past century has been the growing interest which the manufacturer has shown in the sale of his goods to the public. When domestic industry gave place to factories the producer no longer merely disposed of his goods in a local market but passed them on to a merchant who was a specialist in marketing as distinct from manufacturing, and who relieved the manufacturer of any further responsibilities as far as distribution was concerned. The present tendency in many industries is for the manufacturer to interest himself in the sale of his goods not to a wholesale merchant but to the retailer or to the final consumer; the separation of the functions of production and distribution is no longer so definite in many branches of industry as it used to be. The reasons for this far-reaching change in the organization of marketing are to be found partly in the increasing severity of competition, which has made it necessary for manufacturers to adopt more aggressive selling methods and to devote much more attention than formerly to the process of marketing, and partly in the growth of large businesses, which are able to exercise more control over the distribution of their product than would be possible for a small firm. When the manufacturer desires further control over marketing he turns to advertising as one of the most effective methods of achieving his object. With its aid he can establish contact with the retailer or the final consumer, and free himself, to some extent at least, from dependence on the wholesale distributor.

The growth of competition

With the increasing volume and variety of production, competition has become more intense in many industries and advertising has been seized upon as a most effective weapon in the struggle for markets. The use of advertising as an instrument of competition, which by its very nature is constantly in the public eye, has given rise to much of the adverse criticism to which advertising has been subjected on the grounds that it is “merely competitive and therefore wasteful.” If the growth of advertising is considered in relation to the general economic background, it will be seen that it cannot reasonably be criticized as a cause of wasteful competition; it is only a reflection of the competition which, in spite of monopolies and price-fixing agreements, still acts very largely as the governing force in business enterprise. In some directions this competition has become more severe in recent years, and advertising has been pressed into service as the most effective and the most economical method of waging the commercial war. If general approval is given to competition as the basis of industry, it is not reasonable to condemn advertising because it is competitive, although it may be maintained that some of the methods adopted by the advertiser reveal very vividly the waste which is inevitable in a competitive régime.

Large-scale production

It is perhaps in relation to the growth of large producing units that advertising is seen most clearly to be the logical outcome of modern industrial development. Large-scale selling is the natural corollary of large-scale manufacturing, and advertising is essentially a device for selling goods in quantity. When the manufacturer wished to reach a national market instead of a local one he turned to advertising, for by this means he could appeal almost to the whole population with a rapidity and thoroughness which were only limited by the size of his advertising appropriation. The rise of advertising has coincided with the growth of the large business unit.

In order, therefore, to understand the position of advertising in modern industry we must regard it as one indication of the greater emphasis which has been placed on marketing in recent times. The development of advertising is a phenomenon which is intimately associated with the growing complexity of consumption, with the desire of the producer to control his market, with the increasing severity of competition, and, finally, with the growth of the large-scale business enterprise.

CHAPTER TWO

THE FUNCTIONS OF ADVERTISING (1)

THE hundred million pounds spent annually on advertising in this country is so large a sum that it must have a very important influence for good or ill on industrial development. It may represent a force which is essential to the well-being of commerce; on the other hand, if it is not an economic asset, its magnitude is such that it may be a very serious drag on prosperity. It is quite certain that advertising is an indispensable factor in industry as it exists today; without it the organization of business would be radically diiferent. What is not certain, however, is whether on the whole it contributes to the net product of industry—whether it is an economic gain or loss. A publicity campaign may be profitable to the firm concerned without conferring a benefit on the community as a whole, and it is the purpose of this and the following three chapters to inquire how far advertising is economically justified.

Among the chief claims made in its support are that it is an effective and inexpensive method of giving information about goods and stimulating a widespread demand for them, and that it has raised the standards both of production and of consumption by compelling the producer to conform to a given quality of product and by encouraging the consumer to secure greater material comforts. It is also claimed that an advertising campaign is often instrumental in increasing the efficiency of the advertiser, that it is a valuable means of stabilizing demand, and, further, that it has brought goods within the reach of a wide public by enabling the manufacturer to produce on a large scale at low cost.

On the other hand, it is sometimes objected that advertising raises prices, is wasteful both because of its essential uncertainty and the inefficiency with which it is actually conducted, and that it does not give adequate or reliable information about goods. Moreover, the moralist sometimes criticizes advertising on the ground that its cumulative effect is to place too great an emphasis on the material side of life, and that it appeals to those instincts which from the point of view of society it is not desirable to foster.

The Claims made for Advertising

(1) “ADVERTISING IS A MEANS OF GIVING INFORMATION ABOUT GOODS AND SERVICES”

It is often stated that the primary function of advertising is to furnish information about commodities to potential buyers. It is certainly true that without it we should not be able to learn as much as we do now of what industry can offer us. The rapid increase in the variety of commodities available for consumption has necessitated the development of a new technique for informing the public of their existence. There may be many defects in the way in which this technique is used —there is no reason to suppose that the advertiser always follows a policy which conforms to public needs—but the practice of advertising has at least made people aware of the multitude of goods and services which have been produced for them by modern industry. Apart from its utility to the consumer, some form of advertisement may be regarded as an indispensable feature of specialized business, as the co-ordination of economic activities by the distribution of suitable information to the industrialist is obviously an essential condition of specialization. Technical advertising which serves directly to link up the various sections of industry is, however, small in amount compared with the great volume of publicity which has the final consumer as its objective.

Through the medium of the Press, posters, and leaflets, a new article can be brought to the notice of millions of persons in a few weeks or even a few days. Without the help of advertising producers would have been unable to sell the new types of goods which are constandy appearing. Today the consumer demands endless variety and novelty in the goods he purchases. Foodstuffs are more varied than ever before; when buying clothing, furniture, or a car, newness of design is one of the first considerations. It is largely through advertisements that the consumer has learnt of the existence of the things which he now demands. There are, no doubt, many articles which have such definite advantages that they would have been sold without the help of advertising. Vacuum cleaners, safety razors, and wireless sets would have found their way into the home eventually without modern methods of sales promotion; but the process would have been very much slower and perhaps more costly, as the advantages of large-scale production would not have been enjoyed so soon.

Some of the most striking examples of informative advertising are provided by the various co-operative associations which are interested in increasing the demand for the commodity as a whole without distinction of brand or firm. The British Commercial Gas Association, the Cement Marketing Board, the Rubber Growers' Association, and the Electrical Development Association have succeeded in substantially increasing the utility of a product by making its various applications more widely known. Expert advice on highly technical problems as well as very simple ones has been placed at the disposal of users, and the consumer has found the services of much value. In addition, a great many other industries have distributed information through co-operative associations, including the Tomato Growers' Association, the Vinegar Brewers' Federation, the Plywood Development Association, the Plate Glass Utilities Bureau, the National Society for the Preservation of Property (by the use of paint and varnish!), and the Paint Marketing Council.

Is advertising used to inform or to persuade?

Although much advertising is of value as a source of information for the buyer, it is evident that the object of a large volume of publicity is not to inform but to persuade. When the public are already familiar with the name of a commodity and its advertised virtues, continued expenditure on advertising is intended to “persuade” people who ha...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Dedication
• Acknowledgment
• Table of Contents
• Part One Advertising and Industry—An Economic Analysis
• Part Two Advertising and the Community
• Part Three The Scope and Development of Advertising—A Statistical Survey
• Appendix One The Scope of an Economic Analysis of Advertising
• Appendix Two The History of Press and Poster Advertising
• Index