Commercial advertising. Everyone seems to make a huge deal about commercials and advertisements these days. We think we remember the good, interesting ones and I know people who watch the Super Bowl solely for the advertisements. So when I saw the slide that asked “Is all “innovation” innovative?” I was a little taken aback.
We learned that substitute gimmicks or packaging changes most of the time result in a deadweight loss. Also, with advertising, unless it creates demand where there wasn’t before, it’s a deadweight loss on a macroeconomic scale. This information surprised me at first, but as I thought about it more, it made sense. I have never really had more of a desire for a good after a package change and advertisements for goods I know I do not want don’t swing my decision. We were given an example of a graph which showed that in some cases, it makes sense for a firm to not advertise when compared to total cost.
On the other hand, we learned about signaling, when an informed person or firm taken an action to send a message to less informed people. Advertising can act as a signal of quality to consumers, regardless of the advertisement’s content. Now this did stun me. I always imagined teams and teams of people working on a single commercial, doing tests and surveys to see which one communicates and translates well with the desired consumer group. Is this all for nothing? Perhaps; because in our minds all advertisements send a signal that the maker is successful enough to advertise in the first place and that they have faith in their product. Brand names also stick out to us as a sign of consistency. I remember being a young child and getting so angry with my mom for buying me store brand foods, convinced that brand names were so much better, even then I was swayed by signaling.
It’s clear that advertising is a good choice most of the time, regardless of how good the ad is, we will likely remember it. I believe this information has helped me. Next time I see a terribly stupid commercial and think, “Why would they ever air that?” the joke will be on me as a consumer.
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Advertising is a smart choice for any business, especially a new busines, one that is not well-known. It is a way to get a company out there, and does increase business, but that all depends on where the advertising is maketed. If a high-end jewlery store has a billboard in a ghetto inner city area, chances are they will not increase their business and the money spent on advertising will be wasted. The marketing of the advertising is what determines the success of the money spent.
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