Advertising’s Impact on the Economy and Consumer Behavior

Posted on Nov 27, 2024 in Economy

Advertising and Economic Dimension

What is Economics?

Economics is the social science that studies the production, distribution, marketing, and consumption of goods and services. It examines the quality and quantity of economic assets and exchanges, focusing on how societies address economic problems.

Marketing’s Role in the Economy

Marketing organizes voluntary and competitive exchanges to efficiently match product and service supply and demand. This involves:

  1. Organizing the physical flow of goods from production to consumption (Logistics).
  2. Managing information flows that facilitate exchange, ensuring efficient supply-demand interaction (Communication).

Logistics, Distribution, and Communication

  1. For exchange to occur, potential buyers must be aware of products and their attributes.
  2. Communication aims to inform producers, distributors, and buyers.

Communication Flow

Before Production: Market research identifies buyer needs and preferences, creating opportunities for producers.

After Production: Manufacturers communicate through advertising and sales to raise buyer awareness.

Post-Consumption: Feedback on satisfaction informs adjustments to products and marketing.

Consumer Information

Consumers purchase attributes that satisfy needs. They make decisions based on limited information, relying on:

  1. Producer-Dominated Information: Advertising, vendor opinions, samples.
  2. Personal Information: Word-of-mouth from friends, family, and opinion leaders.
  3. Neutral Information: Objective articles in media.

Consumer Behavior

Types of Consumer Decisions

  • Limited
  • Extensive
  • Routine

Perceived Risk

Perceived risk is the uncertainty about purchase consequences. Types of risk include:

  • Financial loss (defects)
  • Time loss (complaints, returns)
  • Safety risk (health issues)
  • Psychological risk (dissatisfaction)

More information = reduced risk

Consumer Conduct

  • Limited Conduct: Occurs with perceived risk and new brands.
  • Extensive Conduct: Occurs with high risk, new product classes, and requires more information.
  • Routine Conduct: Occurs with experience and brand preferences.

The Buying Process

The buying process involves seven stages:

  1. Problem Recognition
  2. Information Seeking
  3. Motivation
  4. Evaluation of Solutions
  5. Purchase Decision
  6. Post-Purchase Behavior

Economy and Advertising

Advertising promotes competition and stimulates production and consumption. It influences market access, consumption, and new product launches. Advertising correlates with living standards and supports media through revenue.

Economic Effects of Advertising

  • Increases sales and profits
  • Builds brand identity
  • Simplifies trade
  • Increases sales volume, reducing production costs
  • Stimulates demand, increasing income and employment
  • Creates jobs
  • Increases worker income

Advertising’s Effects on Price

  • Advertised products may have higher prices.
  • Competition can lower prices in fragmented markets, while leading brands set prices in less competitive markets.

Advertising and Competition

Competition is complex, with large firms often absorbing smaller ones. High advertising costs can deter new entrants.

The Business Cycle

Advertising sustains employment and income by maintaining demand. Investing during crises can protect market share.

The Principle of Abundance

In economies with surplus production, advertising:

  1. Informs the public about choices.
  2. Facilitates competition for consumer spending.

Definition of Advertising in Economics

Advertising is any paid, impersonal presentation and promotion of goods or services by an identified sponsor.

Characteristics of Advertising Communication

  • Messages promote business interests.
  • Messages are paid for.
  • The sender is identified.

Advertising’s Roles in Marketing Communication

From an economic perspective, advertising:

  1. Increases product knowledge.
  2. Identifies product sources.
  3. Describes product qualities and usage.

Advertising and Marketing

From a marketing standpoint, advertising aims to convert demand into purchases and is subject to communication programs, targets, and action plans.

General Conclusions

  • Advertising is an economic and marketing tool.
  • It connects businesses with consumers.
  • Advertising information is partial.
  • It’s an instrument for market share.
  • Advertising aims to establish and maintain market presence.
  • Advertising investments are justified by their benefits.
  • It supports mass media financially.