Advertising

The power of advertising

• Method for firms to communicate with the customers to show their prices, availability and key features of their goods and services.
• Advertising is the commercial promotion of of goods, services, companies and ideas.
• Lots of billions are spent every year on promotion by firms
• It creates consumer wants therefore raising sales
• If sales rise enough to reach the money invested on ads; profits will rise

Example of advertising

1. Informative advertising

•  Information about a product to a consumer
• Restaurant menus or computer specs
• Also used by the government to inform people about new reglation

      2. Persuasive advertising

•  Create consumer wants and boost sales of a product or service
• Brand switching
• Persuading the consumer at the expense of rival products
• Effects
• Create and reinforce positive consumer perceptions
•  Consumer want
• Consumer loyalty
• Increase on demand
• + market price
• + quantity traded
• + Market share

  

•  Advertsing involves the creation of consumer wants
• Advertising can create powerful brand images and customer loyalties
• Changes attitudes, opinions and perceptions of people towards the product and the firm who makes it
• The brand image
• Name
• Logo
• Phrase
•  More attractive to consumers than rival products
• Firm differentiation
•  Make the user buy the product as a habit
• Customer brand loyalty
• Steady stream of revenue.
• Protect the sales and market share of the firm from competition.
• Customer may be willing to pay a higher price for your brand
• Customers continue to buy the brand even if the producer increases its price or the prices of rival products fall
•  Advertising can reduce competition
• Barrier to entry into the market for that product
• Requires competitors to spend the same or more on advertisemnt campaigns
• Less choice for consumers and higher prices if a low number of firms dominate the market.