How To Advertise: Analysis of Contemporary Advertising (part 2)

Economics: The Growing Need for Advertising

by

Charles Lamson

In the last post we looked at the communication dimension of advertising to get a sense of what advertising is and how it works. The marketing dimension, then, showed some of the many types of advertising that companies can employ to help them succeed, and it showed us where advertising fits into a company's overall marketing strategy. Now we will turn our attention to a broader dimension---economics, which has driven the growth of advertising since its earliest beginnings and has made it one of the hallmarks of the free enterprise system. As English historian Raymond Williams said, advertising is "the official art of capitalist society."

Today, business and advertising are undergoing the most dramatic changes in history. To understand the nature of these changes and why they are taking place, we need to look at how advertising has evolved. 

Principals of Free-Market Economics

Our economy is based on the notion of free-market competition. While there is no such thing as perfect competition there are four fundamental assumptions of free-market economics that, to a greater or lesser extent, our market-driven society believes in and/or strives to achieve:

1. Self-interest. People and organizations tend to act in their own self-interest. By their very nature, people are inquisitive. They always want more---for less. Therefore, open competition between self-interested sellers advertising to self-interested buyers naturally leads to greater product availability at more competitive prices.
2. Complete information. Access by buyers and sellers to all information at all times about what products are available, at what quality and at what prices leads to greater competition and lower prices for all. (This is why attorneys are now allowed to advertise, so that people can know what services are available at what prices.)
3. Many buyers and sellers. Having a wide range of sellers ensures that if one company does not meet customer needs, another will be available to capitalize on the situation by producing a more market-responsive product. Similarly, having a wide range of buyers ensures that sellers can find customers who are interested in the unique products they are able to produce at a fair price. (This is why we have antitrust laws and why the government closely regulates the few monopolies we do have. If a company controls the market and is not responsive to customer needs, the government can intervene to break up the company or otherwise make sure that customers have the alternatives they want.)
4. Absence of externalities (social costs). Sometimes the sale or consumption of products may benefit (for example, by crime prevention) or harm (for example, with pollution) other people who are not involved in the transaction and did not pay for the product. In these cases, the government may use taxation and/or regulation to compensate for or eliminate the externalities (as with tobacco advertising).

Now given these basic assumptions, let's see how advertising fits into the scheme of a free-market economy.

Functions and Effects of Advertising in a Free Economy

For any business, advertising may perform a variety of functions, and, when executed correctly, its effects may be dramatic. To see how this works, let's go back to the beginning of Coca-Cola, when druggist, John Pemberton was still mixing the syrup in his lab.

Pemberton's business partner and bookkeeper, Frank Robinson, suggested the name "Coca-Cola" to identify the two main flavors and because he thought that "the two Cs would look well in advertising." Robinson wrote down the name in his flowing script, creating a logo that is now instantly recognizable around the world and is one of Coca-Cola's more valued assets. Later, a distinctive bottle shape---purportedly the brainchild of a bored glassblower, who based the design on a cacao pod instead of a coca nut, as intended---became the standard throughout the company. The proprietary curvy bottle helped customers differentiate Coca-Cola from other drinks. The creation of the Coca-Cola logo and contour bottle demonstrate one of the most basic functions of branding as well as advertising: to identify products and their source and to differentiate them from others.

When Pemberton first began selling Coca-Cola at Jacob's Pharmacy, he needed to let people know what it was---although we associate the word coke with a cold bubbly beverage, the people of Atlanta did not automatically make the same connection. Therefore Pemberton and Robertson added the suggestion drink before ads in the Atlanta Journal to let readers know why they should drink it (because it is "delicious, exhilarating, refreshing, and invigorating," it was the perfect "temperance drink" during Prohibition), how much it cost, and where they could get it. Here is another basic function of advertising: to communicate information about the  product, its features and its location of sale.

After Asa Candler gained control of the Coca-Cola company he began to develop the market for the drink on a grander scale. With the help of Frank Robinson and a city directory, he mailed thousands of coupons for free drinks to Atlanta residents. Coupons were also handed out on the street and inserted in magazines. To cover the costs of the samples, the company gave free syrup to the soda fountain that offered the beverage. Later, the free sample campaign went along whenever Coca-Cola was introduced in a new market. Candler also distributed promotional items to vendors so that the Coca-Cola logo was visible everywhere both outside and inside the shop. To us, this campaign demonstrates another function of advertising: to entice customers to try new products and to suggest reuse.

Through the early part of the 20th century, Coca-Cola was not the dominant force we know today. Competitors such as Pepsi and the now-defunct Moxie cut into Coca-Cola's market share. Outside forces also threatened the entire industry; sugar rationing during wartimes was especially damaging. Before the United States became involved in World War II, Coca-Cola executives preempted a repeat of the setbacks the company suffered during World War I rationing. They persuaded the government to give troops Coca-Cola instead of alcoholic beverages to boost their morale. The D'Arci advertising agency gathered endorsements from U.S. officers in training camps to support the company's bid to become an official military supplier---and therefore be exempt from rationing. The War Department agreed to the plan, and Coca-Cola borrowed $5.5 million to establish 64 bottling plants near the front lines. The risky investment had great returns. When the soldiers returned home, a survey showed they preferred Coke by eight to one over Pepsi. Coca-Cola masterfully blended patriotism with another of the most important functions of advertising: to increase product use.

As soft drinks became a staple in convenience stores, restaurants and homes throughout the United States, Coca-Cola began campaigns outside the country to affect beverage consumption globally. The first international Coca-Cola bottling plants were established in Canada, Cuba, and Panama in 1906; today the company bottles Coke and about 400 other drinks in more than 200 countries (2007). Coca-Cola franchise bottlers around the world can tweak the recipe to match local tastes by altering the amount of sweetener they add to the base syrup. Bottlers and distributors also supplement the company's advertising with their own promotions and event sponsorships---from a community clean-up day in Armenia to a major film festival in Korea. Through various activities, Coca-Cola has succeeded in accomplishing yet another function of advertising: to stimulate the distribution of a product---in this case, on a global level.

                

In a free market economy, when one company starts to make significant profits, other companies immediately jump in to compete. Over the years, to battle the constant competitive threat, Coca-Cola has funded ongoing marketing communications campaigns to accomplish yet another function of advertising: to build value, brand preference, and loyalty. Although the taste test wars of the 1980s showed that many people liked the taste of Pepsi better than that of Coke, such blind preference has never knocked Coca-Cola out of the top spot. 

*SOURCE: CONTEMPORARY ADVERTISING, 25TH ANNIVERSARY EDITION, 2008, WILLIAM F. ARENS, MICHAEL F. WEIGOLD, CHRISTIAN ARENS, PGS. 31-34*

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