Chapter Six How a cute puppy sent Budweiser sales skyrocketing Chapter Eleven How advertisers know you’re watching their ads Chapter Sixteen Four advertisers who spend more money on sponsorship than Nike ADVERTISING A R E N S | W E I G O L D 3e HOW COKE USED ADVERTISING TO BECOME ONE OF THE WORLD’S MOST VALUABLE BRANDS Chapter One is Motivation is Momentum is Moving Forward is McGraw-Hill advertising Michael F Weigold William F Arens 3e advertising, third edition CHIEF PRODUCT OFFICER, SVP PRODUCTS & MARKETS     G SCOTT VIRKLER VICE PRESIDENT, GENERAL MANAGER, PRODUCTS & MARKETS     MICHAEL RYAN      VICE PRESIDENT, CONTENT DESIGN & DELIVERY     BETSY WHALEN MANAGING DIRECTOR     SUSAN GOUIJNSTOOK BRAND MANAGER     MEREDITH FOSSEL DIRECTOR, PRODUCT DEVELOPMENT     MEGHAN CAMPBELL LEAD PRODUCT DEVELOPER     KELLY DELSO   PRODUCT DEVELOPER     KELLY I PEKELDER MARKETING MANAGER     ELIZABETH SCHONAGEN DIRECTOR OF DIGITAL CONTENT     KRISTY DEKAT DIGITAL PRODUCT ANALYST     KERRY SHANAHAN DIRECTOR, CONTENT DESIGN & DELIVERY     TERRI SCHIESL PROGRAM MANAGER     MARY CONZACHI CONTENT PROJECT MANAGERS     KERI JOHNSON, KAREN JOZEFOWICZ, SUSAN TRENTACOSTI BUYER     LAURA FULLER DESIGN     EGZON SHAQIRI CONTENT LICENSING SPECIALISTS     ANN MARIE JANNETTE, SHANNON MANDERSCHEID COVER IMAGE â SHUTTERSTOCK/TISCHENKO IRINA COMPOSITOR APTARAđ, INC PRINTER     LSC COMMUNICATIONS M: ADVERTISING, THIRD EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2018 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2015, 2012 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper LMN 21 20 19 18 17 16 ISBN 978-1-259-81594-2 MHID 1-259-81594-3 All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Names: Arens, William F., editor | Schaefer, David H., editor | Weigold, Michael F., 1958- editor Title: M : advertising / William F Arens, David H Schaefer, Michael F Weigold Description: Third Edition | Dubuque : McGraw-Hill Education, [2018] | Revised edition of M : advertising, 2015 Identifiers: LCCN 2016052117| ISBN 9781259815942 (alk paper) | ISBN 1259815943 (alk paper) Subjects: LCSH: Advertising Classification: LCC HF5821 M13 2018 | DDC 657—dc23 LC record available at https://lccn.loc.gov/2016052117 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites mheducation.com/highered contents brief part one AN INTRODUCTION TO ADVERTISING chapter The Evolution of Advertising  chapter The Environment of Advertising  26 chapter The Business of Advertising  56 part two UNDERSTANDING THE TARGET AUDIENCE chapter 4 Targeting and the Marketing Mix 86 chapter 5 Communication and Consumer Behavior 116 part three THE PLANNING PROCESS chapter Account Planning and Research  142 chapter 7 Marketing, Advertising, and IMC Planning 166 part four THE CREATIVE PROCESS chapter Creating Ads: Strategy and Process  190 chapter Creative Execution: Art and Copy  212 © Brand X Pictures/PunchStock RF chapter 12 Digital Interactive Media  290 chapter 13 Out-of-Home, Direct-Mail, and Promotional Products 312 part six INTEGRATING MARKETING COMMUNICATIONS ELEMENTS REACHING THE TARGET AUDIENCE chapter 14 Media Planning and Buying  336 chapter 15 IMC: Direct Marketing, Personal Selling, Packaging, and Sales Promotion  362 chapter 16 IMC: Public Relations, Sponsorship, and Corporate Advertising  392 chapter 10 Print Advertising  240 chapter 11 Broadcast, Cable, Digital, and Satellite Media: Television and Radio  264 Endnotes 414 Index 430 part five   iii contents part one  ADVERTISING AN INTRODUCTION TO CHAPTER 1 THE EVOLUTION OF ADVERTISING 2 WHAT IS ADVERTISING?  THE ROLE OF ADVERTISING IN BUSINESS  What Is Marketing?  Advertising and the Marketing Process  ECONOMICS: THE GROWING NEED FOR ADVERTISING 9 Principles of Free-Market Economics  Functions and Effects of Advertising in a Free Economy  10 THE EVOLUTION OF ADVERTISING AS AN ECONOMIC TOOL  12 Early Advertising  12 The Industrial Age and the Birth of Agencies  14 The Golden Age of Advertising  16 The Postindustrial Age  17 The Global Interactive Age: Looking at the Twenty-First Century  19 SOCIETY AND ETHICS: THE EFFECTS OF ADVERTISING  23 MY AD CAMPAIGN 1–A  OVERVIEW 6 MY AD CAMPAIGN 1–B  TOOLS FOR TEAMWORK  20 CHAPTER 2 THE ENVIRONMENT OF ADVERTISING 26 THE MANY CONTROVERSIES ABOUT ADVERTISING  29 THE ECONOMIC IMPACT OF ADVERTISING  30 Effect on the Value of Products  31 Effect on Prices  32 Effect on Competition  32 Effect on Consumers and Businesses  32 The Abundance Principle: The Economic Impact of Advertising in Perspective  33 THE SOCIAL IMPACT OF ADVERTISING  34 Deception in Advertising  34 Subliminal Advertising  35 Advertising and Our Values  36 The Proliferation of Advertising  36 Stereotypes in Advertising  37 Offensive Advertising  37 The Social Impact of Advertising in Perspective  38 SOCIAL RESPONSIBILITY AND ADVERTISING ETHICS 39 Advertisers’ Social Responsibility  39 Ethics of Advertising  40 CURRENT REGULATORY ISSUES AFFECTING U.S ADVERTISERS 41 Freedom of Commercial Speech  41 Tobacco Advertising  42 Advertising to Children  42 Consumer Privacy  43 © Don Farrall/Getty Images RF iv FEDERAL REGULATION OF ADVERTISING IN THE UNITED STATES 44 The Federal Trade Commission  45 The Food and Drug Administration  47 The Federal Communications Commission  49 The Patent and Trademark Office and the Library of Congress 49 STATE AND LOCAL REGULATION  50 NONGOVERNMENT REGULATION  50 The Better Business Bureau  51 The Advertising Self-Regulatory Council  51 Regulation by the Media  52 Regulation by Consumer Groups  52 Self-Regulation by Advertisers and Ad Agencies  53 GOVERNMENT RESTRAINTS ON INTERNATIONAL ADVERTISERS 54 THE ETHICAL AND LEGAL ASPECTS OF ADVERTISING IN PERSPECTIVE  54 ETHICAL ISSUES  TRUTH IN ADVERTISING: FLUFFING AND PUFFING  35 MY AD CAMPAIGN 2  YOUR CAMPAIGN ASSIGNMENT 40 CHAPTER 3 THE BUSINESS OF ADVERTISING 56 MY AD CAMPAIGN 3–B  CREATING LOCAL ADVERTISING 63 ETHICAL ISSUES  IS RONALD MCDONALD BAD FOR KIDS? ARE PARENTS?  79 MY AD CAMPAIGN 3–C  AGENCY REVIEW  81 MY AD CAMPAIGN 3–D  WAYS TO BE A BETTER CLIENT 84 part two  UNDERSTANDING THE TARGET AUDIENCE CHAPTER 4 TARGETING AND THE MARKETING MIX  86 THE LARGER MARKETING CONTEXT OF ADVERTISING 89 Customer Needs and Product Utility  89 Exchanges: The Purpose of Marketing and Advertising 90 THE MARKET SEGMENTATION PROCESS  91 Types of Markets  91 Segmenting the Consumer Market: Finding the Right Niche  92 Segmenting Business and Government Markets: Understanding Organizational Buying Behavior  100 Aggregating Market Segments  101 THE ADVERTISING INDUSTRY  59 The Organizations in Advertising  59 The People in Advertising  59 THE ADVERTISERS (CLIENTS)  59 Local Advertising  59 Regional and National Advertisers  64 Transnational Advertisers  67 Media around the World  69 THE ADVERTISING AGENCY  70 Types of Agencies  71 WHAT PEOPLE IN AN AGENCY DO  73 How Agencies Are Structured  76 How Agencies Are Compensated  77 The In-House Agency  78 THE CLIENT–AGENCY RELATIONSHIP  80 How Agencies Get Clients  80 Factors Affecting the Client–Agency Relationship  80 THE SUPPLIERS IN ADVERTISING  82 Art Studios and Web Designers  82 Printers and Related Specialists  82 Film and Video Houses  82 Research Companies  83 THE MEDIA OF ADVERTISING  83 CURRENT TRENDS  83 MY AD CAMPAIGN 3–A  UNDERSTANDING YOUR CLIENT 61 © McGraw-Hill Companies, Inc./Mark Dierker, photographer   v THE TARGET MARKETING PROCESS  104 Target Market Selection  104 The Marketing Mix: A Strategy for Matching Products to Markets 105 ADVERTISING AND THE PRODUCT ELEMENT  106 Product Life Cycles  106 Product Classifications  107 Product Positioning  107 Product Differentiation  108 Product Branding  109 The Role of Branding  110 Product Packaging  111 ADVERTISING AND THE PRICE ELEMENT  111 Key Factors Influencing Price  111 ADVERTISING AND THE DISTRIBUTION (PLACE) ELEMENT 112 Direct Distribution  112 Indirect Distribution  112 Vertical Marketing Systems: The Growth of Franchising  114 ADVERTISING AND THE PROMOTION (COMMUNICATION) ELEMENT 115 THE MARKETING MIX IN PERSPECTIVE  115 ETHICAL ISSUES  BRAND NICHING MAY CAUSE BRAND SWITCHING 96 MY AD CAMPAIGN 4  SEGMENTING THE AUDIENCE 103 CHAPTER 5 COMMUNICATION AND CONSUMER BEHAVIOR 116 COMMUNICATION: WHAT MAKES ADVERTISING UNIQUE 118 The Human Communication Process  118 Applying the Communication Process to Advertising  119 CONSUMER BEHAVIOR: THE KEY TO ADVERTISING STRATEGY 121 The Importance of Knowing the Consumer  121 The Consumer Decision Process: An Overview  121 PSYCHOLOGICAL PROCESSES IN CONSUMER BEHAVIOR 123 The Consumer Perception Process  123 Learning, Persuasion, and the Role of Involvement in the Ways That Consumers Process Information  125 The Consumer Motivation Process  130 INTERPERSONAL INFLUENCES ON CONSUMER BEHAVIOR 132 Family Influence  132 Societal Influence  132 Cultural and Subcultural Influence  134 THE PURCHASE DECISION AND POSTPURCHASE EVALUATION 137 DIFFERENT RESPONSES FROM DIFFERENT PRODUCTS 139 ETHICAL ISSUES  IS IT MARKETING OR IS IT EXPLOITATION? 136 MY AD CAMPAIGN 5  UNDERSTANDING WHAT CONSUMERS LOOK FOR IN A PRODUCT  138 part three  PROCESS THE PLANNING CHAPTER 6 ACCOUNT PLANNING AND RESEARCH 142 THE ACCOUNT PLANNER AS CONSUMER ADVOCATE 144 © Ingram Publishing RF vi  THE NEED FOR RESEARCH IN MARKETING AND ADVERTISING 145 What Is Marketing Research?  146 What Is Advertising Research?  146 Advertising Strategy Research  147 Creative Concept Research  149 Pretesting and Posttesting  150 STEPS IN THE RESEARCH PROCESS  151 Step 1: Analyzing the Situation and Defining the Problem 151 Step 2: Conducting Secondary Research  152 Step 3: Establishing Research Objectives  153 Step 4: Conducting Primary Research  154 Step 5: Interpreting and Reporting the Findings  160 IMPORTANT ISSUES IN ADVERTISING RESEARCH  161 Considerations in Conducting Primary Quantitative Research 161 Collecting Primary Data in International Markets  165 MY AD CAMPAIGN 6–A  RESEARCH 153 MY AD CAMPAIGN 6–B  METHODS FOR PRETESTING ADS 158 MY AD CAMPAIGN 6–C  METHODS FOR POSTTESTING ADS 159 MY AD CAMPAIGN 6–D  DEVELOPING AN EFFECTIVE QUESTIONNAIRE 164 CHAPTER 7 MARKETING, ADVERTISING, AND IMC PLANNING  166 THE MARKETING PLAN  168 The Importance of Marketing Planning  168 The Effect of the Marketing Plan on IMC  169 Top-Down Marketing Plans  169 Bottom-Up Marketing: How Small Companies Plan  175 THE IMPORTANCE OF RELATIONSHIP MARKETING  175 The Importance of Relationships  176 Levels of Relationships  176 USING IMC TO MAKE RELATIONSHIPS WORK  178 IMC: The Concept and the Process  179 The Dimensions of IMC  181 The IMC Approach to Marketing and Advertising Planning 181 The Importance of IMC to Advertising  182 part four  THE CREATIVE PROCESS CHAPTER 8 CREATING ADS: STRATEGY AND PROCESS 190 THE CREATIVE TEAM: ORIGINATORS OF ADVERTISING CREATIVITY 192 CREATING GREAT ADVERTISING  193 The Resonance Dimension  194 The Relevance Dimension  195 FORMULATING CREATIVE STRATEGY: THE KEY TO GREAT ADVERTISING 195 Writing the Creative Strategy  195 Elements of Message Strategy  197 HOW CREATIVITY ENHANCES ADVERTISING  198 What Is Creativity?  198 The Role of Creativity in Advertising  199 Understanding Creative Thinking  200 THE CREATIVE PROCESS  201 THE EXPLORER ROLE: GATHERING INFORMATION  201 Develop an Insight Outlook  202 Know the Objective  202 Brainstorm 202 THE ARTIST ROLE: DEVELOPING AND IMPLEMENTING THE BIG IDEA  202 Task 1: Develop the Big Idea  202 Task 2: Implement the Big Idea  205 The Creative Pyramid: A Guide to Formulating Copy and Art  206 THE JUDGE ROLE: DECISION TIME  209 THE WARRIOR ROLE: OVERCOMING SETBACKS AND OBSTACLES 209 MY AD CAMPAIGN 8  THE CREATIVE BRIEF  196 ETHICAL ISSUES  DOES SEX APPEAL?  208 THE ADVERTISING PLAN  182 Reviewing the Marketing Plan  182 Setting Advertising Objectives  182 Determining the Advertising Strategy  185 Allocating Funds for Advertising  186 Methods of Allocating Funds  188 MY AD CAMPAIGN 7–A  DEVELOPING THE SITUATION ANALYSIS  170 MY AD CAMPAIGN 7–B  DEVELOPING A BRAND STRATEGY 174 ETHICAL ISSUES  A WAR OF COMPARISONS  177 MY AD CAMPAIGN 7–C  THE SWOT ANALYSIS  178 MY AD CAMPAIGN 7–D  DEVELOPING ADVERTISING OBJECTIVES 187 MY AD CAMPAIGN 7–E  WAYS TO SET ADVERTISING BUDGETS 189 © Ingram Publishing/SuperStock RF   vii CHAPTER 9 CREATIVE EXECUTION: ART AND COPY 212 DELIVERING ON THE BIG IDEA: THE VISUAL AND THE VERBAL 215 MY AD CAMPAIGN 9–D  DESIGN PRINCIPLES  226 ETHICAL ISSUES  IMITATION, PLAGIARISM, OR FLATTERY? 227 MY AD CAMPAIGN 9–E  WRITING EFFECTIVE COPY  229 THE ART OF CREATING PRINT ADVERTISING  215 Designing the Print Ad  215 The Use of Layouts  215 Advertising Design and Production: The Creative and Approval Process  215 Principles of Design: Which Design Formats Work Best  218 The Use of Visuals in Print Advertising  222 MY AD CAMPAIGN 9–F  CREATING EFFECTIVE RADIO COMMERCIALS 232 PRODUCING GREAT COPY IN PRINT ADVERTISING  224 Headlines 224 Subheads 227 Body Copy  228 Slogans 230 Seals, Logos, and Signatures  231 AUDIENCE CREATING GREAT COPY IN ELECTRONIC MEDIA  232 Writing Radio Copy  232 Writing Television Copy  232 THE ROLE OF ART IN RADIO AND TV ADVERTISING  234 Developing the Artistic Concept for Commercials 234 Formats for Radio and TV Commercials  234 Outlining a TV Commercial  237 WRITING FOR THE WEB  238 MY AD CAMPAIGN 9–A  PRODUCT FACTS FOR CREATIVES 216 MY AD CAMPAIGN 9–B  CREATING GREAT HEADLINES AND COPY  223 MY AD CAMPAIGN 9–C  DETERMINING THE CHIEF FOCUS FOR VISUALS  225 MY AD CAMPAIGN 9–G  CREATING EFFECTIVE TV COMMERCIALS 235 part five  REACHING THE TARGET CHAPTER 10  PRINT ADVERTISING  240 SELECTING MEDIA  242 PRINT MEDIA  242 USING MAGAZINES IN THE MEDIA MIX  243 The Pros and Cons of Magazine Advertising  243 Special Possibilities with Magazines  243 HOW MAGAZINES ARE CATEGORIZED  246 BUYING MAGAZINE SPACE  248 Understanding Magazine Circulation  248 Reading Rate Cards  250 USING NEWSPAPERS IN THE MEDIA MIX  252 Who Uses Newspapers?  253 The Pros and Cons of Newspaper Advertising  253 How Newspapers Are Categorized  253 Types of Newspaper Advertising  255 HOW ADVERTISERS BUY NEWSPAPER SPACE  256 Understanding Readership and Circulation  256 Co-ops and Networks  260 Insertion Orders and Tearsheets  261 PRINT MEDIA AND NEW TECHNOLOGIES  261 MY AD CAMPAIGN 10–A  THE PROS AND CONS OF MAGAZINE ADVERTISING  244 MY AD CAMPAIGN 10–B  THE PROS AND CONS OF NEWSPAPER ADVERTISING  254 ETHICAL ISSUES  WHAT’S AT STAKE WITH SWEEPSTAKES? 257 MY AD CAMPAIGN 10–C  PLANNING AND EVALUATING PRINT MEDIA  260 CHAPTER 11 BROADCAST, CABLE, DIGITAL, AND SATELLITE MEDIA: TELEVISION AND RADIO 264 Source: Jessica Spengler, Flickr viii  THE MEDIUM OF TELEVISION  266 Broadcast TV  267 Cable TV  267 Satellite TV  268 TV Audience Trends  268 The Impact of Social Media and Streaming  271 The Use of Television in IMC  272 Types of TV Advertising  273 Video Alternatives to TV Commercials  276 Viral Marketing  307 Programmatic Advertising  308 Mobile-Specific Advertising  308 TV AUDIENCE MEASUREMENT  278 Rating Services  278 Cable Ratings  279 Defining Television Markets  279 Dayparts 280 Audience Measurements  280 Gross Rating Points  282 PROBLEMS WITH DIGITAL INTERACTIVE AS AN ADVERTISING MEDIUM  308 BUYING TELEVISION TIME  282 Selecting Programs for Buys  282 Negotiating Prices  282 CHAPTER 13 OUT OF HOME, DIRECT-MAIL, AND PROMOTIONAL PRODUCTS  312 THE MEDIUM OF RADIO  283 Who Uses Radio?  283 The Use of Radio in IMC  284 Radio Programming and Audiences  284 Satellite Radio and Portable Music Devices  285 OUT-OF-HOME ADVERTISING  315 Standardization of the Outdoor Advertising Business  316 Types of Outdoor Advertising  317 USING THE DIGITAL INTERACTIVE IN IMC  309 ETHICAL ISSUES  IT’S NOT ALWAYS NICE TO SHARE  301 MY AD CAMPAIGN 12  USING FACEBOOK AND GOOGLE  310 BUYING RADIO TIME  286 Types of Radio Advertising  286 Radio Terminology  286 MY AD CAMPAIGN 11–A  PLANNING AND BUYING TV AND RADIO  268 MY AD CAMPAIGN 11–B  THE PROS AND CONS OF BROADCAST TV ADVERTISING  270 MY AD CAMPAIGN 11–C  THE PROS AND CONS OF CABLE TV ADVERTISING  275 ETHICAL ISSUES  ADVERTISING TO CHILDREN: CHILD’S PLAY? 281 MY AD CAMPAIGN 11–D  THE PROS AND CONS OF RADIO ADVERTISING 287 CHAPTER 12 DIGITAL INTERACTIVE MEDIA  290 THE EVOLUTION OF DIGITAL INTERACTIVE MEDIA  292 The Internet  293 The Web  294 Digital Interactive Today  295 MEASURING THE DIGITAL AUDIENCE  297 How People Access Digital Media  298 How People Use Digital Media  298 Media Planning Tools  298 The Promise of Enhanced Tracking  299 Seeking Standardization  300 OUT-OF-HOME MEDIA  318 BUYING OUTDOOR ADVERTISING  319 Regulation of Outdoor Advertising  321 TRANSIT ADVERTISING  323 Types of Transit Advertising  324 Buying Transit Advertising  325 OTHER OUT-OF-HOME MEDIA  326 Cinema Advertising  326 ATMs 326 Mobile Billboards  327 Digital Signage  327 Mall Advertising  327 Augmented Reality  328 Guerrilla Marketing  328 DIRECT-MAIL ADVERTISING: THE ADDRESSABLE MEDIUM 328 Types of Direct-Mail Advertising  329 Using Direct Mail in the Media Mix  331 COMPONENTS OF DIRECT-MAIL ADVERTISING  332 PROMOTIONAL PRODUCTS  334 MY AD CAMPAIGN 13–A  THE PROS AND CONS OF OOH ADVERTISING  316 ETHICAL ISSUES  DOES SPILLOVER NEED MOPPING UP?  322 MY AD CAMPAIGN 13–B  THE PROS AND CONS OF TRANSIT ADVERTISING 323 MY AD CAMPAIGN 13–C  THE PROS AND CONS OF DIRECTMAIL ADVERTISING  331 BUYING TIME AND SPACE IN DIGITAL INTERACTIVE  302 Pricing Methods  302 The Cost of Targeting  303 Stretching Out the Dollars  303 TYPES OF DIGITAL INTERACTIVE ADVERTISING  304 Search Advertising  304 AdWords 305 AdSense 306 Display Advertising  306 Sponsorships and Added-Value Packages 306 E-Mail Advertising  307 part six  INTEGRATING MARKETING COMMUNICATIONS ELEMENTS CHAPTER 14 MEDIA PLANNING AND BUYING 336 MEDIA PLANNING: INTEGRATING SCIENCE WITH CREATIVITY IN ADVERTISING  339  The Challenge 339 Source: Complete Merchandise, Flickr   ix sales promotion  A direct inducement offering extra incentives all along the marketing route—from manufacturers through distribution channels to customers—to accelerate the movement of the product from the producer to the consumer But then the bubble burst In 2001, the combination of a mild recession, the collapse of the stock market, and the bust of the dotcoms all contributed to a record decline in advertising activity On September 11 of that year, terrorists attacked the United States and suddenly all marketing and advertising seemed to stop—not just in the United States, but also around the world.21 Spending in the United States declined 6.5 percent to $231 billion, and overseas spending dropped 8.6 percent to $210 billion.22 The recession of the early 90s slammed the advertising industry with over 13,500 layoffs However, specialists in small, regional creative shops were able to snatch away some large accounts during this period and produce ads for established corporations This Coca-Cola ad came from the clever minds at Creative Artists Agency in Hollywood (a talent agency) © The Advertising Archives As the 1990s unfolded, the traditional advertising industry found itself threatened on all sides and suffering from ­overpopulation.18 Clients demanded better results from their promotional dollars; small, imaginative, upstart agencies competed for (and won) some big accounts; TV viewers appeared immune to conventional commercials; and an abundance of new media technologies promised to reinvent A year later, though, the economy seemed to be turning around and marketers were again starting to spend money on advertising By 2005, U.S advertising expenditures had reached $264 billion, more than completely recovering from the 2001 decline.23 But hardly anybody thought the problems were over Technology, evolving lifestyles, new fears over security, and the rising cost of reaching consumers had already changed the advertising business forever With the explosion of the Internet, we had entered a new electronic frontier—what Tom Cuniff, VP/creative director at Lord, Dentsu & Partners, called “the second creative revolution.”24 The Global Interactive Age: Looking at the Twenty-First Century In the new millennium, the rest of the world has in many respects caught up to North America, thanks to improved eco- Technology, evolving lifestyles, new fears over security, and the rising cost of reaching consumers had already changed the advertising business forever advertising In three short years, the advertising agency business lost over 13,500 jobs Major clients such as Coca-Cola defected from the big agencies, giving various portions of their business to specialists in small, regional creative shops and media-buying services But the setback went far beyond the agency business Throughout the media world, newspapers, magazines, and TV networks all lost advertising dollars About 40 magazines went out of business during the two-year slump.19 By the mid-1990s, U.S marketers had begun shifting dollars back from sales promotion to advertising to rebuild value in their brands In 1994, ad budgets surged ahead by 8.1 percent to $150 billion nationally And throughout the rest of the 1990s, ad spending increased about percent every year until the year 2000, when U.S advertisers spent $247.5 billion, a whopping 11.3 percent increase over the previous year.20 nomic ­conditions and a desire for expansion Recent estimates of worldwide advertising expenditures outside the United States exceed $400 billion per year At present over half of the world’s media spending is occurring in 10 emerging ­markets The importance of advertising in individual countries depends on the country’s level of development and national attitude toward promotion Typically, advertising expenditures are higher in countries with higher personal incomes As Exhibit 1–4 shows, the top 10 worldwide a­ dvertisers are based in many ­different countries Although the Communist countries once condemned advertising as an evil of capitalism, eastern European countries now encourage private enterprise and realize the benefits of advertising And the United States now looks west to find its biggest economic rival In 2010, China overcame Germany and became the third largest market for media spending By 2015 China CHAPTER 1  |  What Is Advertising?  19 Tools for Teamwork [1–B] Advertising agencies look for at least three qualities in the people they hire: talent, knowledge, and the ability to work well with others If you are working on your campaign in a group, you’ll find those qualities—­ especially the third—to be important as well Your campaign assignment may be the first time you’ve worked on a group project If so, you’ll discover that working in a team is very different from doing a project on your own First, you will need to coordinate everything that you That means each person must create schedules that accommodate not only his or her own obligations, but those of the group Second, you will be sharing work Tools that help you share documents, calendars, and other files will help you produce better work and it faster Third, you should consider the importance of leadership in a group Your group will usually perform better if someone is formally appointed as leader, at least in the sense of organizing meetings, maintaining a calendar, and keeping track of what has to be done Finally, everyone is accountable Talk to your professor about whether he or she expects peer evaluations or some other means to assess differences in group ­member effort and performance Many Internet tools are now available to help improve the coordination of teams Best of all, they are free The ones I prefer are those created by Google because they are easy to use, powerful, and integrated (both with each other and with mobile devices) If you would prefer not to use a Google product, I’ve tried to find equivalents where possible Staying Connected E-mail, of course, remains an essential tool Your school e-mail may work fine, or Gmail (www.gmail.com) is an excellent free mail service that you will most likely never fill up (which means you never have to delete e-mails and your inbox never gets too full) You can use “labels” to quickly identify mail from people in your group And with “contacts” you can set up groups of e-mail addresses to message easily and quickly Use “tasks” to create a to-do list right in your e-mail list and link e-mail invitations to your Google calendar Other free e-mail services are available as well Creating Documents Google Docs (http://docs.google.com) offers a free suite of simple yet powerful document creation tools that includes programs for documents, spreadsheets, presentations, forms, and templates Best of all it is easy to share some or all of the documents you create with others and edit them simultaneously So if a group member is working on a creative brief, he or she can share it immediately with everyone else for edits and comments If you would prefer a non-Google solution, surpassed former number two, Japan.25 Some estimates suggest the Chinese economy has already equaled that of America.26 The explosion of new technologies in the last decade has ­affected advertising considerably In the late 90s and early 2000s, cable transformed television from the most widespread of mass media to a more specialized, narrowcasting 20  PART 1  |  An Introduction to Advertising Microsoft and ­Apple’s office suites are more collaborative than ever and offer more advanced formatting and functions tools (www.google com/docs/about/) Staying Organized Many people find that calendars and to-do lists are essential Google has an excellent calendar program (www.google.com/calendar) that everyone in the team can edit You can also sync the calendar with mobile devices As I indicated before, Google’s “task” program is built into gmail A more powerful program that is not quite as simple to use is Zoho Project (www.zoho.com/projects/) Conducting Research Powerful tools for doing research are also available for free on the Web For secondary research purposes it is great to have a program that ­allows you to copy and store documents, Web pages, photos, charts, and other kinds of information A powerful and popular program is Evernote (www.evernote.com) Your group may also find itself collecting primary data If you need to administer a survey, consider a useful component of Google docs called “forms.” With forms you can easily create a Webbased survey and have your data recorded in a Google spreadsheet as it comes in A non-Google program that does the same thing is Survey­ Monkey (www.surveymonkey.com) Working Well and Staying Accountable Learning to adapt to group projects is not easy for everyone Knowing what to expect and developing the skills to work well with others is ­essential For guidance, consider these thoughts from experts: • Brian Tracy: www.myarticlearchive.com/articles/6/079.htm • Susan Heathfield: http://humanresources.about.com/od/ workrelationships/a/play_well.htm • Arnold Anderson: http://smallbusiness.chron.com/characteristics-­ effective-teamwork-691.html If you volunteer to be a team leader (or are appointed one), some helpful tips can be found here: • Stephen Covey: www.stephencovey.com/blog/?p=6 • Jack Welch, former CEO of GE: www.youtube.com/watch?v=l5GryYk5hV8 If you are doing peer evaluations in your class, your professor will likely have a form that you should use These types of forms can be found throughout the Web Some examples include these: • www.uky.edu/SocialWork/crp/files/Samplepeerevaluationform.pdf • http://chnm.gmu.edu/7tah/unitdocs/unit10/lesson5/peereval.pdf medium.27 Now fast Internet service is empowering an even more revolutionary change, TV on demand through channels like Hulu, Netflix, Amazon Prime, HBO on D ­ emand, and YouTube Viewers are finding it convenient and preferable to watch what they want, when they want, through cable cutting.  narrowcasting  E X H I B I T –   Top 10 global marketers (2014) Worldwide Advertising Spending ($ millions) Measured U.S Media Spending ($ millions) Advertiser Headquarters Procter & Gamble Co Cincinnati, OH $10,125 $2,919 Unilever London/Rotterdam 7,934 844 L’Oréal Clichy, France 5,264 1,474 Coca-Cola Co Atlanta, GA 3,279 409 Toyota Motor Co Toyota City, Japan 3,185 1,203 Vokswagen Wolfsburg, Germany 3,171 605 Nestle Vevey, Switzerland 2,930 703 General Motors Co Detroit 2,849 1660 Mars Inc McLean, VA 2,569 827 McDonald’s Corp Oak Brook, IL 2,494 936 Delivering programming to a specific group defined by demographics and/or program content, rather than mass appeal Usually used to describe cable networks The opposite of broadcasting cable cutting  The practice of choosing to discontinue cable service and instead watch programming on demand over Internet services such as Netflix and others Source: From “200 LEADING NATIONAL ADVERTISERS,” retrieved at http://adage.com/datacenter/datapopup.php?article_id=301575 Digital technologies have also had a huge impact Tablets, smartphones, and personal devices like the Kindle give advertisers new media for ­reaching potential customers In turn, the challenges posed by these new products are attracting a new breed of advertising professional Whereas in the past creativity emphasized writing, design, and idea generation, a new breed of creatives is as likely to be trained in coding and programming and Kik The power of social media are certainly not lost on advertisers, who are shifting big portions of their spending to engage the audiences that spend time there The growth of new media has proven massively disruptive for some traditional ones Particularly hard hit was the newspaper industry Print newspapers have seen over a decade of year-over-year ad revenue decline.29 Several high-profile papers, including the Christian Science Monitor and the Rocky Mountain News, already weakened by lower ad sales, have reduced publication schedules or, in some instances, shut down their presses completely Revenue from online publications is not replacing the dollars lost from print advertisers Perhaps the biggest new change in consumer m ­ edia habits is the pervasive use of of social ­media.28 As we discuss in Chapter 12, this is a revolutionary way for advertisers to reach consumers Facebook and YouTube are seen by over a billion users each month, connecting people as never before Snapchat proudly proclaims that “on any given day, Snapchst reaches © Comstock/Alamy Images RF Even capitalism itself has come under scrutiny, at least among young people Although capitalism is 41% of all 18 to 34 year-olds in the United States.” likely to remain the greatest influence on markets in Younger audiences, not as enamored of “traditional” social the United States for the near future, the surprising success of ­media, have embraced platforms such as Snapchat, Instagram, Bernie Sanders in campaigning for the Democratic nomination for president in 2016 has been based on the support of young adults, nearly half of whom are warm to the label socialism.30 What this means for advertising, which is often described as a tool of capitalism, remains to be seen In this 2016 election, Republican candidate Donald Trump defeated Democrat Hillary Clinton to become president of the United States Trump’s reliance on nontraditional media, ­including Twitter, contrasted with Clinton’s much heavier advertising spending This too will influence marketing ­ ­communications for years to come The trend toward consumer control over media consumption is well illustrated by Hulu For an inexpensive subscription, viewers can watch where, when, and how they want www.hulu.com/welcome? orig_referrer=https%3A%2F%2Fwww.google.com%2F Source: Hulu Advertising has come a long way from the simple sign on the bootmaker’s shop Today it is a powerful device that announces the availability and location of products, describes their quality and value, imbues brands with personality, and simultaneously defines the personalities of the people who buy them while ­entertaining us More than a reflection of society and its ­desires, CHAPTER 1  |  What Is Advertising?  21 New technology has meant new media, manifested largely on the Internet This has opened new avenues of exposure for advertisers This website for Daum shows that beautiful layout and design are not confined to the traditional medium of print Source: Daum not capital equipment or their line of products In the heated competition of the global marketplace, their most important asset is their customer and the relationship they have with that person or organization Protecting that asset has become the new marketing imperative for the twenty-first century In an effort to a better job of relationship marketing, companies are now learning that they must be consistent in both what they say and what they It’s not enough to ­produce outstanding advertising anymore They must integrate all their marketing communications with everything else they do, too That’s what integrated marketing communications really means And that is presenting exciting new challenges and o­pportunities to ­marketing and advertising professionals The distinction between content creator and content consumer is blurring with the surging popularity of social media platforms such as Snapchat, which in 2016 made it easier to share videos Source: Snapchat advertising can start and end fads, trends, and credos— sometimes all by itself.31 The endless search for competitive advantage and efficiency has made advertising’s journey in the last 100-plus years fascinating Now companies are realizing that their most important asset is check yourself ✓ What are the four identified periods in the ­history of Western civilization and what key ­developments characterized each period? Explain how one development during each ­period impacted the evolution of advertising Their most important asset is their customer and the relationship they have with that person or organization 22  PART 1  |  An Introduction to Advertising LO1-6 Describe the impact of advertising on society SOCIETY AND ETHICS: THE EFFECTS OF ADVERTISING Advertising has been a major factor in improving the standard of living in the United States and around the world By publicizing the material, social, and cultural opportunities of a free enterprise society, advertising has encouraged increased ­productivity by both management and labor With just a small amount of money, for instance, you can buy a car today It may be secondhand, but from advertising you know it’s available If you earn more money, you can buy a new car or one with more luxury features You can also make a statement about yourself as an individual with the vehicle you purchase As with many products, advertising has created a personality for each automobile make and model on the market As a free individual, you can select the product that best matches your needs and aspirations Advertising serves other social needs besides simply stimulating sales Newspapers, magazines, radio, television, and many websites all receive their primary income from advertising This facilitates freedom of the press and promotes more complete information Public service announcements also foster growth and understanding of important social issues and causes The Red Cross, Community Chest, United Way, and other noncommercial organizations receive continuous financial support and volunteer assistance due in large part to the power of advertising However, advertising is certainly not without its shortcomings Since its beginnings, the profession has had to struggle with issues of truthfulness and ethics In fact, in the early 1900s, the advertising profession was forced to mend its ethical ways Consumers suffered for years from unsubstantiated product claims, especially for patent medicines and health devices The simmering resentment finally boiled over into a full-blown consumer movement, which led to government regulation and ultimately to industry efforts at self-regulation In 1906 Congress responded to public outrage by passing the Pure Food and Drug Act to protect the public’s health and control drug advertising In 1914, it passed the Federal Trade Commission Act to protect the public from unfair business practices, including misleading and deceptive advertising These public service announcements, encouraging people to look for Energy Star ratings on computer equipment, appliances, lighting, and heating and cooling systems, are distributed by the EPA to magazines with a request to insert them in their publications Source: U.S Environmental Protection Agency Advertising practitioners themselves formed groups to improve advertising effectiveness and promote professionalism and started vigilance committees to safeguard the integrity of the industry The Association of National Advertisers (ANA), the American Advertising Federation (AAF), and the Better Business Bureau (BBB) are today’s outgrowths of those early groups These organizations are the result of a fundamental truth: the biggest opponents of unethical advertisers are advertisers who embrace ethical and truthful communication practices But in times of economic crisis, false and misleading advertising has invariably reappeared, perhaps out of CHAPTER 1  |  What Is Advertising?  23 advertiser desperation During the Depression years, several best-selling books exposed the advertising industry as an unscrupulous exploiter of consumers In a 1962 message to Congress, President Kennedy asserted, “If consumers are offered inferior products, if prices are exorbitant if the consumer is unable to choose on an informed basis, then his dollar is wasted and the national interest suffers.” In his Bill for Consumer Rights, Kennedy gave the American consumer four basic rights, including the right “to be protected against fraudulent, deceitful, or grossly misleading information, advertising, labeling, or other practices, and to be given the facts s/he needs to make an informed choice.” In the 1970s, a new American consumer movement grew out of the widespread disillusionment following the Kennedy assassination, the Vietnam War, the Watergate scandals, and the sudden shortage of vital natural resources—all communicated instantly to the world via new satellite technology These issues fostered cynicism and distrust of the establishment and tradition, and gave rise to a new twist in moral consciousness On the one hand, people justified their personal irresponsibility and self-indulgence in the name of self-fulfillment On the other, they attacked corporate America’s quest for self-fulfillment (profits) in the name of social accountability 24  PART 1  |  An Introduction to Advertising Today, corporate America has generally cleaned up many of the inequities in advertising But now attention has shifted to more subtle problems of puffery, advertising to children, the advertising of legal but unhealthful products, and advertising ethics We believe ethics in advertising is such an important issue that we have included features on this topic throughout the text In short, advertising has had a pronounced effect on society as well as the economy It has also fostered a host of social attitudes and laws that have dramatically affected advertising itself We’ll take a closer look at these issues in Chapter ■ check yourself ✓ What are some of the social needs that are served by advertising in the United States? What are some of advertising’s societal shortcomings? two the environment of advertising © Image Source/Corbis RF 26 T his chapter identifies and for them? Business professors star Maria Sharapova found herself ­explains the economic, social, ­Jagdish Agrawal and Wagner Kamak- separated from a number of sponsor- ethical, and legal issues ura believe so, suggesting that celeb- ships after testing positive for a ­advertisers must consider Society rities help make ads believable, banned substance, meldonium determines what is offensive, exces- enhance ad recall, increase brand Perhaps the most notorious athlete to sive, and irresponsible; governments recognition, and ultimately influence disappoint his fans was Lance Arm- determine what is deceptive and consumers to choose an endorsed strong, winner of the Tour de France, ­unfair To be law-abiding, ethical, brand.1 So it should be no surprise the world’s most famous bicycle race, and socially responsible, advertisers that as many as one in five TV com- must understand these issues mercials features someone famous Would you be more likely to buy a But what happens when brands are watch brand if you knew that Jeff linked with celebrities who attract the Gordon or Brad Pitt wears it? Swiss wrong kind of attention? It happens luxury watchmaker TagHeuer must all the time The long list of famous think so, since it pays celebrities to individuals who have lost endorse- appear in ads Nike spends millions ment deals because of controversy on endorsement contracts and has includes Madonna (Pepsi), Kobe long partnered with Michael Jordan, Bryant (McDonald’s and Coke), Mary Derek Jeter, and Tiger Woods The Kate Olsen (milk), Kate Moss (H&M, athletes agree to wear Nike clothes Chanel, and Burberry), O.J Simpson and use Nike gear during competi- (Hertz), Charlie Sheen (Hanes), tions Many also appear in Nike ads M ichael Phelps (Kellogg), Tiger ­ Are celebrity endorsements worth Woods (Accenture, AT&T, Gatorade), the big money that companies pay and many more Most recently tennis continued on p 28 LEARNING OBJECTIVES After studying this chapter, you will be able to: LO2-1 Describe the impact of advertising on the economy LO2-2 Examine the validity of the various social criticisms of advertising LO2-3 Explain the difference between social responsibility and ethics in advertising LO2-4 Describe how government agencies regulate advertising to protect both consumers and competitors LO2-5 Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising 27 © PHOTOPQR/L’EST REPUBLICAIN/Newscom continued from p 27 and Trek B ­ icycle The loss of these endorsement deals a record seven consecutive times between 1999 and was expected to cost Lance $75 million over the next 2005 Armstrong’s popularity was once so great that cor- few years; as much as $200 million over the next porate sponsors paid him nearly $20 million in a single ­decade.3 year A cancer survivor, Armstrong also founded the Livestrong Foundation with the mission “to inspire and empower” other survivors and their families After a brief retirement, Armstrong returned to competitive racing from 2009 to 2011 Then his career began to unravel The final straw came in 2013, when Nike cut all ties with Armstrong’s Livestrong cancer charity; the foundation will stop making Livestrong apparel after 2013 Nike had stood by Tiger Woods, Kobe Bryant, Ben Roethliseberger, and Michael Jordan during lapses in morality that included be- In 2012, Armstrong was banned from cycling for life by the haviors such as infidelity, sexual misconduct, and gambling United States Anti-Doping Agency (USADA) for doping of- Nike even re-signed Michael Vick after he served jail time fenses Its report concluded that Armstrong conducted “the for his involvement in illegal dog-fighting But as shocking most sophisticated, professionalized and successful doping as some of these behaviors were, none of these athletes program that sport has ever seen.” In January 2013, he admitted to doping in a television interview with Oprah Winfrey stood accused of cheating their sports.4 Companies understand that they take a risk when they as- In the wake of the USADA’s report, Armstrong sociate their brands too closely with a single endorser was  dropped by every major sponsor, including Nike, Nike has recently moved toward an “ensemble approach” ­Anheuser-Busch, Radio Shack, 24 Hour Fitness, Oakley, to endorsements, using a pool of athletes to promote its 28  PART 1  |  An Introduction to Advertising ­endorsement contracts because of his athletic ability and inspirational message Yet, in the end, his legal and moral transgressions created marketing challenges The quandaries faced by Armstrong’s sponsors helped reinforce a basic truth: ethics and social responsibility are every company’s business.6 ■ THE MANY CONTROVERSIES ABOUT ADVERTISING Advertising is a public activity Companies risk criticism and attack if their ads displease or offend, or if their products don’t measure up to the advertised promises This has led some to suggest it is safer to buy advertised products because, when a company’s name and reputation are on the line, it tries harder to fulfill its promises John O’Toole, the late chair of Foote, Cone & Belding and president of the American Association of Advertising Agencies, pointed out that many critics attack advertising because it isn’t something else Advertising isn’t journalism, education, or entertainment—although it often performs the tasks of all three—so it shouldn’t be judged by their standards Sponsors advertise because they hope it will help them sell some product, service, or idea.7 Views of offensiveness vary a great deal This advertisement was banned by Britain’s Advertising Standards Authority The agency said the ad was likely to cause widespread offense © Photoshot/Newscom wares rather than one big star Risk to the brand is reduced, therefore, should any of the athletes stumble Under ­Armour, a Nike competitor, uses a similar approach A ­company VP notes that Under Armour doesn’t “let any one person get bigger than the brand.”5 Lessons? The same dynamics that can benefit a brand linked to an admired celebrity can damage a brand associated with a controversial one Mr Clean, the Maytag ­Repairman, and the Burger King will never embarrass ­anyone—these “celebrities” exist only in ads However, when brands partner with real people, life gets much more complicated Lance Armstrong earned big Notwithstanding O’Toole’s articulate defense, many controversies still swirl around the whole field of advertising Some focus on advertising’s economic role For example, does advertising cause higher prices? Does it discourage competition? Can it influence overall consumer demand? What effects does it have on consumer choice and on the overall business cycle? Other controversies focus on the societal effects of advertising For instance, does advertising make us more materialistic? Does it tempt us to buy things we don’t need? Does it affect us through subliminal processes? How does it change or even debase the art and culture of our society?  Additionally, who is responsible for any harmful effects of advertising How much latitude should marketers have in what products they promote and how they advertise them? Do consumers have some responsibility in the process? Finally, what is the proper role of government? What regulations should we have to protect consumers? And laws sometimes go too far and violate Constitutionally protected freedom of speech? These are important questions without simple answers But ­debate is healthy This chapter addresses some of the major questions and criticisms about advertising, both the pros and the cons, and describes the regulatory methods used to limit the damage from advertisers’ abuses CHAPTER 2  |  The Environment of Advertising  29 added value  The increase in worth of a product or service as a result of a particular activity In the context of advertising, the added value is provided by the communication of benefits over and above those offered by the product itself Recall from Chapter the underlying principle of free-market ­economics—that a society is best served by empowering ­people to make their own decisions and act as free agents within a system characterized by four fundamental assumptions: self-interest, many buyers and sellers, complete information, and absence of externalities (social costs) E X H I B I T –   A country’s level of ad spending is closely related to its standard of living $60 $50 GDP per capita ($000s) externalities  Benefit or harm caused by the sale or consumption of products to people who are not involved in the transaction and didn’t pay for the product This framework, derived from the goal of promoting behaviors that foster the greatest good for the most people, offers a system of economic activity—capitalism—that has accomplished that goal better than any other economic system in history But greatest doesn’t mean perfect And beware the fate of marketers who fail to attend to the damage, real or perceived, that they may be causing By using this framework for our discussion of advertising controversies, we have a basis for understanding how advertising may contribute to, or detract from, the basic goal of free enterprise: “the most good for the most people.” LO2-1  Describe the impact of advertising on the economy THE ECONOMIC IMPACT OF ADVERTISING Money spent on advertising in the U.S equates to approximately percent of the gross domestic product (GDP) In relation to the total U.S economy, this percentage is small Still the United States is near the top of the list for the highest per capita ad spending in the world As Marcel Bleustein-Blanchet, the “father” of modern French advertising, pointed out, it’s no coincidence that the level of advertising investment in a country is directly proportional to its standard of living.8 Exhibit 2–1 shows the relationship b­ etween advertising spending per capita and standard of living (GDP per capita) around the world Although China is the third largest ad-spending country in the world, its per capita spending is low due to its very large population 30  PART 1  |  An Introduction to Advertising US Canada $40 Australia Germany France Italy $30 UK Japan $20 $10 $0 $0 Brazil China $100 $200 $300 $400 $500 $600 Ad spending per capita Sources: 2010 data: http://mumbrella.com.au/australia-has-largest-adspend-percapita-in-the-world-60128; World Bank 2011 data: http://en.wikipedia.org/wiki/List_ of_countries_by_GDP_%28PPP%29_per_capita The economic effect of advertising is like the break shot in ­billiards or pool The moment a company begins to advertise, it sets off a chain reaction of economic events, as shown in ­Exhibit 2–2 The extent of the chain reaction, although hard to E X H I B I T –   The economic effect of advertising is like the opening break shot in billiards Communicators Customers Organizations Individuals Stakeholders Manufacturers Directors Competition Consumers Advertising Wholesalers Managers Retailers Media Trade customers Suppliers Distributors Employees Resources Subcontractors Does advertising lead to higher prices? Economists believe that ads can actually contribute to lower product prices This ad for Darty, a French retailer, is meant to attract price-sensitive consumers “Low price or low price with everything included.” Source: Darty France predict, is related to the force of the shot and the economic environment in which it occurred Let’s consider the economic questions we posed earlier Effect on the Value of Products Why most people prefer Coca-Cola to some other cola? Why some people prefer the iPod to some unadvertised brand? Are the advertised products functionally better? Not necessarily But, in the mind of the consumer, advertising has given these brands added value It’s no coincidence that the level of advertising investment in a country is directly proportional to its standard of living.8 Some believe that a product’s image, created in part by advertising and promotion, is an inherent feature of the product itself.9 While an ad may not address a product’s quality directly, the positive image conveyed by advertising may imply quality By simply making the product better known, advertising can make the product more desirable to the consumer In this way, advertising adds value to the brand.10 That’s why people pay more for Bayer aspirin than an unadvertised brand displayed right next to it—even though all aspirin, by law, is the same.11 Advertising often makes it possible for small businesses to compete effectively against large corporations Anthony’s Pizza’s freedom to advertise allows this neighborhood pizza parlor to compete with the national chains © Anthony’s Pizza, Berwyn, IL Advertising also adds value to a brand by educating customers about new uses for a product Kleenex was originally advertised as a makeup remover, later as a disposable handkerchief Arm & Hammer baking soda experienced a surge in sales when it was advertised as a refrigerator deodorizer In a free-market system, consumers can choose the values they want in the products they buy If low price is important, they can buy an inexpensive economy car If status and luxury are important, they can buy a big SUV or or sleek sports car Many of our wants are emotional, social, or psychological rather than functional One way we communicate who we are (or want to be) is through the products we purchase and use What you assume about a person who drives up in a new BMW 7-series sedan? CHAPTER 2  |  The Environment of Advertising  31 primary demand  Consumer demand for a whole product category And is inspiring such thoughts in others part of the appeal of the car to its owner? In all likelihood, yes ­ owever, firms eliminated by competition may be those that H served customers least effectively In other cases, competition is reduced because of mergers and acquisitions In terms of our economic framework, by adding value to products, advertising contributes to self-interest—for both the consumer and the advertiser It also contributes to the number of sellers That increases competition, which also serves the consumer’s self-interest High costs may inhibit the entry of new competitors in industries that spend heavily on advertising In some markets, the original brands probably benefit greatly from this barrier However, the investments needed for plants, machinery, and labor are of far greater significance These are typically greater barriers to entry than advertising selective demand  Consumer demand for the particular advantages of one brand over another Effect on Prices If advertising adds value to products, it follows that advertising makes them more expensive, right? And if companies stopped all that expensive advertising, wouldn’t products cost less? Not necessarily Some advertised products cost more than unadvertised products, but the opposite is also true Both the Federal Trade Commission and the Supreme Court have ruled that by encouraging competition, advertising actually works to keep prices down This again serves the consumer’s self-interest Sweeping statements about advertising’s positive or negative effect on prices are likely to be too simplistic We can make some important points, though • As a cost of doing business, advertising is indeed paid for by the consumer In most product categories, though, the amount spent on advertising is very small compared with the total cost of the product • Advertising often enables manufacturers to engage in mass production, which in turn lowers the cost of products These savings can then be passed on to consumers in the form of lower prices • In regulated industries (agriculture, utilities), advertising has historically had no effect on prices When industries are deregulated, advertising usually lowers prices, but not always • In retailing, price is prominent in many ads, so advertising tends to hold prices down On the other hand, national manufacturers use advertising to stress features that make their brands better; in these cases advertising can support higher prices Effect on Competition Some believe advertising restricts competition because small companies or industry newcomers can’t compete with the immense advertising budgets of large firms Intense competition does tend to reduce the number of businesses in an industry 32  PART 1  |  An Introduction to Advertising Advertising by big companies often has only a limited effect on small businesses because a single advertiser is rarely large enough to dominate the whole country Regional oil companies, for example, compete very successfully with national oil companies at the local level In fact, the freedom to advertise encourages more sellers to enter the market And you’ve probably seen nonadvertised store brands of food compete very ­effectively with nationally advertised brands on the same grocery shelves Effect on Consumers and Businesses The question of advertising’s effect on consumer demand is complex Studies show that promotional activity does affect aggregate consumption, but they disagree as to the extent of its influence For example, the demand for tablets, smartphones, and laptop computers expanded at a tremendous rate, thanks in part to advertising but more to favorable market conditions At the same time, advertising hasn’t reversed ­declining sales of such items as hats, fur coats, and print newspapers Advertising can help get new products off the ground by giving people more “complete information,” thereby stimulating ­primary demand—demand for the entire product class In ­declining markets, when the only information people want is price information, advertising can influence selective ­demand—demand for a particular brand But the only effect it will have on primary demand is to slow the rate of ­decline In growing markets, advertisers generally compete for shares of that growth In mature, static, or declining markets, they The famous “Got Milk” campaign promotes compete for each other’s shares primary rather than selective demand because the goal of the campaign is to have consumers drink more milk, not a particular brand of milk The “Got Milk?” campaign created by agency Goodby Silverstein & Partners for the California Milk Processor Board has been around for over 20 years, and its memorable two-word slogan is undoubtedly one of the most famous taglines in advertising history Source: The California Milk Advisory Board Manufacturers who want to beat the competition need to make their product unique For example, look at the long list of car models, sizes, colors, and features designed to attract different buyers The freedom to advertise encourages businesses to create new brands and improve old ones When one brand reaches market dominance, smaller brands may disappear abundance principle  for a time But the moment a better product comes along and is advertised skillfully, the dominant brand loses out to the newer, better product Once again, the freedom to advertise promotes the existence of more sellers, and that gives consumers wider choices Historically, when business cycles dip, companies cut advertising expenditures That may help short-term profits, but studies prove that businesses that continue to invest in advertising during a recession are better able to protect, and sometimes build, market shares.12 However, no study has shown that if everybody just kept advertising, a recessionary cycle would turn around We conclude that when business cycles are up, advertising contributes to the increase When business cycles are down, advertising may act as a stabilizing force by encouraging buyers to continue buying The Abundance Principle: The Economic Impact of Advertising in Perspective To individual businesses such as Apple, the local car dealer, and the convenience store on the corner, advertising pays back more than it costs If it didn’t, these companies wouldn’t use it But advertising costs less for the consumer than most people think The cost of a bottle of Coke includes about a penny for advertising And the $20,000 price tag on a new car usually includes a manufacturer’s advertising cost of less than $400 dozen of the 50 best-known cars developed in the twentieth century are still sold today States that an economy produces more goods and services than can be consumed In such an economy, advertising serves two important purposes: it keeps consumers informed of their alternatives, and it allows companies to compete more effectively for consumer dollars Advertising stimulates a healthy economy It also helps create financially healthy consumers who are more informed, better educated, and more demanding Consumers today insist that manufacturers be held accountable for their advertising This has led to an unprecedented level of social criticism and legal regulation, the subject of our next sections check yourself ✓ Why you think countries with higher advertising spending per capita tend to have a higher standard of living? Explain the effect that advertising has on brands, prices, competition, and primary and ­selective demand What beneficial roles does advertising play in a healthy economy? Advertising helps create financially healthy consumers who are more informed, better educated, and more demanding To the broader economy, the importance of advertising is best demonstrated by the abundance principle This states that in an economy that produces more goods and services than can be consumed, advertising serves two important purposes: It informs consumers of their alternatives (complete information), and it allows companies to compete more effectively for consumer dollars (self-interest) In North America alone, the U.S and Canadian economies produce an enormous selection of products The average supermarket carries over 40,000 different items.13 Each automaker markets dozens of models This competition generally results in more and better products at similar or lower prices Advertising stimulates competition (many buyers and sellers) In countries where consumers have money to spend after their physical needs are satisfied, advertising also stimulates innovation and new products However, no amount of advertising can achieve long-term acceptance for products that people don’t want Despite massive advertising expenditures, fewer than a Despite extensive advertising efforts, some products, like the Edsel automobile, will fail simply because they not meet the expectations of customers at that particular time Many of the best-known cars developed in the twentieth century are no longer sold today Ironically, the Edsel has since become a pricey collector’s item for automobile aficionados © Pictorial Press Ltd/ Alamy CHAPTER 2  |  The Environment of Advertising  33 ... Branding  11 0 Product Packaging  11 1 ADVERTISING AND THE PRICE ELEMENT  11 1 Key Factors Influencing Price  11 1 ADVERTISING AND THE DISTRIBUTION (PLACE) ELEMENT 11 2 Direct Distribution  11 2 Indirect... for ad profession 19 11 First “truth in advertising codes are established by what is now called the American Advertising Federation (AAF) 19 20 19 39 19 40 19 59 19 60 19 69 19 70 19 79 19 20s Albert Lasker,... 410 Measuring Sponsorship Results  410 CORPORATE ADVERTISING 411 Public Relations Advertising 411 Corporate/Institutional Advertising 411 Corporate Identity Advertising 413 Recruitment Advertising