|
Waleed Mohsin's Economic Shrine |
|
|
Economics Real Transfer Value of Football Players Extent Of Advertising Commerce Sociology Others |
The Extent of Advertisement Advertising
as of today is one of the foremost important tools that drive businesses.
Effective advertising leads to success where as the inability to advertise
your product effectively leads to organizations demise. First of all it is
important if advertising is properly defined. Advertising is a tool that
is used to provide the potential customers or related parties with the
particular information that they are looking for. Advertising is a tool
that helps develop a product and support it through its life i.e. the
business cycle. The word advertising pertains to promotion, marketing,
announcement, introduction, reemergence and modification of the subject
(the product). Advertising
in its real terms is a source of adding value to the subject (which) in
turn adds value to the organization. Advertising adds value to the product
and to the firm but in fact incurs costs for the producers, which are in
turn transferred to the consumers. Consumers do value advertising as it
has added to the value of the product, but the question arises to what
extent? Advertising
by no means is a virtue alone and by no means a vice alone. There needs to
be an extent to each thing and advertising is no exception. It
is absolutely evident that branding, packaging, promotion schemes and
advertising in its very distinct self make up the bulk of the production
costs, but consumers are willing to pay such high amounts for products
that exclusive of these promotion methods have a far lower value. Both the
customers and the producers approve advertising but to a different extent
and that extent is the yardstick for determining how much both parties
approve it. Now,
coming to the main problem under discussion both from the consumer’s
point of view, the producer’s point of view and the society’s point of
view as a whole. Why
do consumers value advertising? What
is advertising for a consumer and why does he value it? Well! Advertising
is a source of information on different products. This helps to reduce the
market information imperfections. Advertising removes this hindrance
between the prospective buyer and the seller. When we talk about consumers
we always talk about rational consumers. A rational consumer is always
willing to maximize the total utility derived form his purchase.
Advertising gives him that particular and valuable information that would
help him make a better decision towards obtaining that goal of maximizing
his total utility. Advertising
adds a lot of color and variety to the type and quality of goods
available. Advertising, branding and packaging combine to provide
consumers with that precise information that a consumer needs both at a
distant and also at the point of purchase. Rational consumers believe in
the statement “ Money well spent” and thus in regard to this they
value such information and are prepared to pay a price for that. They do
this in terms of the total amount they pay for their purchases, which
includes an amount for advertising, branding and packaging. Consumers also
believe that the price they pay for a good is a barometer to measure the
quality of a specific product. Paying competitive prices for products with
good designs, packaging, branding and advertising adds to consumer
utility. Consumers are always in the quest of finding a trade off between
affordable prices and quality. They compensate on between them to find a
balance that would help to add more to their utility. On the other hand,
it is a common fact that producers would be finding a tradeoff between low
costs and better quality in order to maximize their profits. They would
like to add to their market share by winning the hearts of, as many
consumers as they can along with getting reasonable profits that would add
to their respective utility. Thus keeping such facts in mind it can be
inferred that competitive prices or even high prices charged by producers
are a sign of good input in regard to advertising, packaging and of course
quality. Advertising,
branding and packaging is a very proficient way of product
differentiation. It adds a lot of color, variety and fun to shopping.
Moreover it eases shopping and selection for consumers. Standardized
products make the shopping market a paradise for the consumer. It helps
the consumer to make his own choice, keeping in view the various qualities
and characteristics presented to him. All of this helps the consumer to
make an effective choice, pure form the bias of the sales man. Why
do producers value advertising? In
my view advertising is the producer, expressing his self. Advertising
gives an account of the producer who has put in some effort to bring about
the product. Advertising speaks for the producer. Advertising provides the
producer with a chance to interact with his prospective customers. The
product is endowed its identity by advertising. Branding, packaging and
advertising are all modes of adding value to the product and help in
creating the products own identity, through which it sells its own self.
So we come to the main point. Advertising promotes sales but adds to
costs. Why
does the society value advertising? Advertising
is a mode of relating various messages of utmost importance to the entire
population of a country. The state can create a solid link between itself
and the society through advertising. Advertising
as a vice for the consumers. The
major concern for the consumers is the high cost that they have to pay for
advertising. Advertisers indulge in various manipulative and misleading
claims and that persuades the consumers to take wrong decisions. Moreover
as mentioned later, persuasion through advertising makes the consumer
spend more than his optimal level. Advertising
as a vice for the producers. The
producer has to spend hefty amounts on the whole procedure of advertising
including the hiring of staff. Moreover the procedure requires high setup
costs that may drive down profits at the start. Resources are somehow
wasted. As we know, resources are scarce and have alternative uses, but
they are being used for advertising that adds to costs both for the
producer and the consumer. Advertising
as a vice for the society The
society greatly values the scarce resources and their being used on
advertising is wastage. Misleading claims harms the rest of the society
just for the benefit of the producing community. What
is the Extent for a consumer? In
order to determine the extent of advertising that a consumer would prefer,
we have to use the marginal analysis. We have to weigh the pros and cons
of each additional amount of advertising in order to determine where a
consumer’s utility (total) from advertising is advertised and the net
benefit equals zero. Measuring
costs of advertising for a consumer is pretty simple as compared to
measuring the benefits of advertising. The basic cost of advertising to
the consumer is the amount he has to pay for advertising. The other costs
of advertising are the manipulations in ads and the persuasion that often
leads to wrong choices or overspending by a consumer. In order to find the
basic costs of advertising it is pretty easy to include that amount which
is paid for advertising, branding and packaging by the consumer. Though,
this is pretty easy but in order to find the other costs an index must be
constructed so that those costs can be calculated in terms of marginal
costs so that the analysis may be completed. These costs must be given a
monetary value so that they may valued and can be added to other costs in
order to compare them with the benefits of advertising. Let
us now describe the benefit function of the consumer and his cost
function. The benefit function constitutes of 5 major components:
Well,
the most important benefit of advertising is the link that it creates
between a buyer and seller. Information is costly, and advertising
provides very useful information to the consumers at nominal costs. In
order to aid our analysis we can categorize consumption into two broad
categories. Each consumer has a certain amount of income, a portion of
which he intends to consume and the other portion that he hopes to save
and invest. The
advertising firm has to target both the portions of the income. When the
consumer targets the amount that the consumer is willing to spend the firm
in consideration is actually competing with its rivals. On the contrary,
when the advertiser targets the other portion of the income, he is
actually competing against the consumer’s will power and resistance to
save and forego consumption. So, in such a way we can identify two
prospective rivals for a competing firm: one the rival firms and the other
is the consumer’s resistance. Keeping
the above benefits in mind we can infer that although an estimate can be
calculated for the cost savings in the provision of information, but all
other benefits require to be indexed so that their value can be converted
into monetary terms. After the procedure is over, the monetary value of
these benefits must be added so that the accumulated amount of benefits is
obtained. This would constitute the utility function and when we talk
about marginal utility, it would be like a demand curve, sloping
downwards, much like those in other marginal analysis. Moving
on to the cost function, we can say that the cost function has 3 major
components:
In
the above case, we do have a monetary value for the costs, but the next
two costs must be indexed for and converted into a corresponding monetary
value. These costs would then be added, so that the total costs can be
calculated. Similar to the benefit function, we will consider the marginal
function and that would an upward sloping marginal cost curve. The right mix
for the consumer would be the point where the marginal benefits of
advertising for the consumer equate to the marginal costs of advertising
for the consumer. That would be the point where the total utility from
advertising would be maximized and net marginal benefit would be equal to
zero. A point preceding this optimum level would mean that advertising is
below the consumers advertising equilibrium and a point exceeding the
optimal point would mean that advertising is in excess of consumers
advertising equilibrium. What
is the extent for
a producer? Just
like the consumers advertising equilibrium, the producer’s equilibrium
would also be based on marginal analysis. In order to complete that
analysis it is important to define the producer’s advertising benefit
and cost function. The benefit function for the producer has 5 major
components:
Monetary
values can be used for components 2,3 & 5 but the remaining 2 must be
indexed and then a monetary value must be assigned to them, as there is no
direct way of determining their monetary value. After completing the above
procedure they would be added together and that would be the total utility
function and its marginal part would be the marginal utility function. On
the contrary, we have the cost function that would be comprised of 3 major
components:
The
above costs can be assigned monetary values directly although it might be
so that some minor components may have to be indexed and then have to be
assigned monetary values. The rest of the procedure remains the same, as
we would add these costs to get the total cost curve and its marginal
components would constitute the marginal costs curve. The intersection of
marginal benefit curve of advertising and the marginal cost curve of
advertising would determine the equilibrium for the producer. What
is the extent for the society? The
society comprises of the producers, the consumers and the 3rd
party or the people who are not directly included in the transaction. The
marginal analysis remains the same except for the fact that they would
include all the benefits (for the producer, consumer and the rest of the
people) and all the costs (for the producer, consumer and the rest of the
society). Now
lets define the society’s benefits function. The function comprises of:
On
the contrary the costs function of the society comprises of:
As
in the cases above, we would add up these costs and benefits and at the
point where the marginal benefits of advertising equates with the marginal
costs of advertising that would be the optimal quantity of advertising for
the society. The Right Mix The benefit of the society is the primary concern for an economy. The welfare of the society must be maximized and that can only be done if the extent of advertising is set in relation to the optimality of the society’s net benefit.
|