Is All This Advertising Really Necessary?

Leo Bogart, Newspaper Advertising Bureau, Inc.
[ to cite ]:
Leo Bogart (1976) ,"Is All This Advertising Really Necessary?", in NA - Advances in Consumer Research Volume 03, eds. Beverlee B. Anderson, Cincinnati, OH : Association for Consumer Research, Pages: 12-16.

Advances in Consumer Research Volume 3, 1976      Pages 12-16

IS ALL THIS ADVERTISING REALLY NECESSARY?

Leo Bogart, Newspaper Advertising Bureau, Inc.

My off-the-cuff response to the question, "Is all this $30 billion a year advertising really necessary?" is that it probably isn't, but that it is pretty much an inevitable consequence of the economic system we live with, which is married to a political system that I like.

Advertising provides one of the clearest lines of visual differentiation between the Communist and non-Communist worlds. We take for granted the constant nattering of commercial messages through the broadcast media; fat and colorful publications in which information and entertainment are wedged as incidentals among compelling exhortations to consume; billboards, car cards, and point-of-purchase displays. And for us, the absence or scarcity of advertising makes for an impression of gray drabness when we enter the urban landscape of Eastern Europe. Advertising is salient to the pictures in our minds as we contrast life under capitalism and life under the new order: Havana 1960 and Havana 1975; Saigon 1974 and Saigon 1976.

This makes it all the more interesting in recent years to note the rise of marketing and advertising as respectable fields of activity in the Communist world. The rehabilitation of advertising arises from several causes:

First, the rise of discretionary income from the postwar low point at which socialist economies were created in Eastern Europe.

Second, the creation of surplus production capacity for many products, even in the Soviet Union, generating a consequent need to develop markets for them.

Third, the erosion of centralized planning doctrine as different state enterprises enter the same areas of production, and rivalries arise.

Finally, the emergence of economic and political pressures to develop export markets. Communist enterprises must compete with Western organizations in non-Communist countries and are, therefore, forced into market research and product promotion. In some countries, foreign imports of luxury goods are permitted, and so is advertising for them.

Needless to say, the Communist world encompasses a variety of systems:

Yugoslavia and Hungary have private economic sectors of modest size in which there is competition, and individual promotions are permissible. Even in comparatively monolithic societies, like East Germany and Bulgaria and the Soviet Union, brand name identity is beginning to assert itself. In Rumania, different factories manufacturing similar merchandise lines have their own retail outlets and vigorously compete for the consumer market, rewarding their managements and employees with appropriate material incentives.

Yugoslavia, with its workers' self-management system of enterprise, has brand name competition and promotion at a level close to that in the West, and not surprisingly, advertising has developed more rapidly there than anywhere in the Soviet bloc. At the same time, as I discovered at an international conference held last Spring under the auspices of the Yugoslav Advertising Association, there is a strange schizophrenia between practice and theory. The papers and presentations at this meeting included very practical discussions of market planning, advertising department operations, and showings of ads and commercials in no way different from ours. These alternated with a series of "theoretical" papers by Communist functionaries who told the assembled admen that advertising must avoid petty bourgeois tendencies and advance the interest of the toiling masses.

One such paper was delivered by a gentleman who was described to me as a former official in his country's secret police and who now serves as dean of the School of Journalism at a major university. His thesis was one with which many FTC staff members would be in agreement: Advertising serves a useful economic function if it is informative for the consumer. Advertising that appeals to reason and facilitates more rational consumer choice helps promote the sale of desirable goods and services. Advertising is harmful when it appeals to emotion and plays on unconscious motives to persuade people to buy things they do not need.

Following each of these sermons, the usual collection of commercials was shown, with jingles chanting the merits of apparently identical brands of shampoo, canned peas, etc. At a reception later, I asked my new friend, the "red dean," whether he agreed that economic productivity was increased by competition among enterprises producing similar products, like shampoo and canned peas. He agreed that this was so. Was it, then, economically desirable for a firm to try to make its brand or company name familiar to the consuming public? Yes. Could this kind of familiarity be a desirable end in itself even if the consumer was given no other information about the product? He thought for a minute and then gave his official answer: "Unofficially, yes."

Once we accept the principle of competition among firms producing what is essentially the same commodity, it follows that advertising--perhaps not all, but certainly a good deal of it in that product class--will be non-informational, except for the very fundamental information that the brand exists. When brand image represents the only distinctive feature the advertiser has to sell, it is inevitably more likely that he will use irrelevant and non-rational appeals and rely on gimmick techniques to capture attention and heighten identity. In practice, the informational and non-rational aspects of advertising content are very difficult to separate. To the extent that socialist societies rediscover the economic incentive value of competition among enterprises, their tolerance for non-informative advertising content must grow more similar to ours.

This paper addresses the issue of whether that tolerance is justified. I shall try (1) to distinguish between incidental and fundamental questions about non-informational advertising, (2) question whether it is possible to make generalizations out of which regulatory guidelines can be constructed, and (3) point to what I consider a basic error in a widely prevalent assumption that non-informative advertising works in proportion to its reach and frequency.

But how does the traditional Marxist critique differ from that of John Galbraith, Nicholas Kaldor, and other non-Marxist economists who are critical of advertising and of the consumer-oriented economy?

The Marxists regard the failings of advertising as merely incidental manifestations of the evils of capitalism. Advertising is just one of innumerable techniques by which the toiling masses are exploited by the monopoly interests. The critics within our own ranks are also concerned with the exploitative and manipulative aspects of advertising, but they want to "make the system work," as the expression goes, to facilitate competition rather than to eliminate it altogether.

The most commonly heard kinds of complaints about advertising are, in my opinion, incidental to the basic structural criticisms that have been offered in economic terms.

First of all, as Bauer and Greyser's A.A.A.A. study showed a decade ago, objections to advertising very often mask objections to the advertised product. To meet these objections requires limitations on production, distribution, or pricing of a legally available product, or in some instances restricting its use of media with a large audience of children.

Second come objections to specific ads that are esthetically offensive or vulgar and to those whose claims or presentations are false, misleading, or unfairly competitive. Another Set of concerns relates to advertising that might be unpersuasive to most mature adults, but that can coerce vulnerable sectors of the population--children or persons of low intelligence or education.

Regardless of how much merit there is in these social criticisms, I don't believe that they concern the basic function of advertising. Both moral law and Federal Trade Commission regulations proclaim that, "Thou shalt not steal, lie, or coerce." Transgressors must be brought to account, but their individual derelictions have very little to do with the whole system of advertising in which we simply cannot assume that theft, deception, and coercion are the norm rather than the exception.

All of these criticisms, I believe, are case-specific and therefore tell us nothing about the essential character of advertising institutions as such.

A third and more troublesome set of objections relates to the influence of advertisers over media content. Apart from the recurring instances in which media dependent on advertising distort their non-advertising content and present publicity and puffery in the guise of disinterested information, it is charged that media censor themselves to avoid offending advertisers and thus do disservice to the consuming public and the body politic. A more subtle and compelling argument is that the array of media content available to the public represents advertisers' choices--or choices made on their behalf--rather than public choices, with disastrous consequences for both public opinion and popular taste.

If we were to accept the argument that the dependence of media upon advertising support has socially undesirable consequences (and the argument must begin by asking "compared to what?") does this represent a fundamental flaw in advertising? I would have to conclude that it does not, since in democratic societies, media are structured and funded in a variety of different ways. As a result, there are substantial variations in the mix of advertising among media, even where the total pressure of advertising is at a high level. In Germany, for example, television advertising has been deliberately kept to a minima, and in the United Kingdom, radio advertising has only recently been introduced. The British subsidize the BBC through license fees; we subsidize magazines through our low second-class postal rates. Sweden taxes advertising and provides a newsprint subsidy for smaller newspapers. In some countries, the reader pays most of the cost of the newspapers he buys. Here the advertiser does. In this country, advertising of certain products is restricted from certain media by custom, voluntary choice, or law. Broadcasting systems are managed with varying emphasis on maximizing audience size as a prerequisite to gain advertising revenues. All this suggests that while changes and reforms might be made to change the dependence of media on advertising income, these changes would have more to do with the evolution of social policy toward the media than with the functions of advertising itself.

All of the objections to advertising that I have mentioned so far might apply to advertising of both the informative and non-rational kinds and are not related to advertising's economic function.

In evaluating the economic effects of advertising, we may take the standpoint of the individual consumer, of the brand or the firm which manufactures it, of the product class or industry, or of the entire economy.

In classical economic theory, all these four sets of benefits interact. That is, if we want to go with Adam Smith rather than with Karl Marx, a consumer benefit is translated into greater consumption, at greater profit for the successful firm, increased sales volume for the product category, and greater efficiency for the whole system through economies of scale in production and distribution. Product innovation is stimulated by advertising, creating new markets and expanding old ones, with consequent benefits for the consumer.

To see where the critics disagree, let me quickly review their two principal themes: You will note that both focus on parity products characterized by high advertising-to-sales ratios.

The archetypal illustration of a parity product of this kind is a campaign for blended whiskey that ran some years ago. A friend of mine who was the copywriter on the account was simply unable to find any good copy points to distinguish his client's product from any of its competitors. Having sought in vain for evidence of superiority, he came up with a slogan that the client loved and that ran for years. It was powerful without being in the least deceptive. The slogan was, "If you can find a better whiskey, buy it."

The first criticism of this kind of advertising for the sake of name registration is that it is economically wasteful and unproductive, that it raises the cost of goods to the customer without providing any commensurate tangible benefit in return. In economic terms, it results in a misallocation of resources.

Nicholas Kaldor argues that the economy spends too much on advertising because it is supplied jointly with goods and services and therefore consumers are forced to buy more of it than they want.

Translated from economic to social terms, the argument is that advertising corrupts and debases values, it creates a preoccupation with material goods and exploits irrational and neurotic motives to promote products that serve little purpose or are actually harmful. Advertising changes social priorities by encouraging expenditures for individually consumed articles and services at the expense of public goods that must be consumed in common. It persuades consumers to buy things they don't need instead of devoting a larger part of their productive labor and income to the social purposes that everyone needs: clean air and water, crime prevention, the arts, efficient public transportation, preventive medicine, and the like.

A second argument is that advertising contributes to the growth of monopoly and thus to economic inequities. Advertising enhances the power of the dominant firms in product fields characterized by minute differences among brands and in which advertisers compete in terms of brand image rather than through product improvement.

The advertiser of a parity product must promote image rather than information about product advantages.

Thus, the sheer weight of his advertising, rather than its content, becomes a prime determinant of his market position. The leaders can set up the biggest budgets and hire the outstanding talent to manage their schedules and create their ads. As they swing their weight around, they can buy advertising most efficiently, outspending and out-maneuvering their competition, progressively increasing their market share. Essentially, this is the conclusion reached by former Assistant Attorney General Donald Turner. When he was head of the Anti-Trust Division, he argued that broadcast television discount structures were a strong inducement to corporate mergers and acquisitions in package goods fields where advertising represents a substantial proportion of corporate expense. It is also the conclusion reached by William Comanor and Thomas Wilson, who, in a recently published econometric analysis, conclude that a firm's ability to dominate advertising in its product category leads to increasing market share, monopoly profits, and barriers to the entry of new competitors.

(It must be noted in passing that while barriers to entry may faze the small entrepreneur, they hardly matter to a conglomerate ready to move into a new field of activity.)

Henry Grabowski and Philip Nelson have taken issue with Comanor and Wilson's data base, analytical procedure, and conclusions, and I have been told that the authors are re-examining their argument. Grabowski concludes that sales explain advertising rather than the other way around. He reports that "with the exception of a few advertising-intensive categories, advertising had an insignificant effect on consumer demand" for "fairly broad aggregate categories." In short, this denies the thesis that it changes consumers' priorities, even though those few advertising-intensive categories may be precisely the ones that attract the lightening bolts. "The few categories in which advertising continued to exhibit highly significant effects on demand ... Were characterized by very high average advertising intensities." ..."This suggests that certain types of goods may have product characteristics which are uniquely amenable to stronger advertising effects."

What are these types of goods? Nelson's paper seems to suggest the answer: The lower the utility value of a product, the more heavily it will be advertised and the more likely it is to become a repeat purchase. This analysis "assumes that consumers are able to determine the utility of a brand after enough purchases of that brand."

Yale Brozen and others have argued that "while advertising can persuade a consumer to make the first purchase, no amount of advertising is going to sell the product a second time if the product doesn't deliver." But this argument side-steps the point, which is not that advertising makes unacceptable products look good, but that it makes acceptable products that are heavily promoted seem preferable to equally acceptable products that aren't--and for no good reason.

In how many product fields does the consumer's choice reflect an assumption that brand differences are real and important, rather than an assumption that all familiar brands are acceptable? In the latter situation, can we assume that the informational content of the message is totally meaningless, and that the only residual value of the advertising is the reminder that the brand exists? To the degree that this is true, advertising is a means of registering the brand name rather than a means of competitive persuasion. This suggests that nonsense is accepted by the consumer as nonsense, with no particular resentment. If this is so, it would appear to support the proposition that the sheer volume of advertising pressure in dollars is directly translated into sales. That proposition is untenable.

The evidence from a number of studies I have made suggests that brand preferences are distributed identically among people who have little or no exposure and those who have a great deal of exposure to the advertising for mass-market parity products. Is the explanation that even the supposedly "unexposed" have some fleeting contacts with those brands, and that these contacts occur randomly in the same proportions as among the more heavily exposed, with each brand's advertising canceling the effects of each other's? Advertising exposure for any given brand is an index of its visibility in the marketplace. This reflects its sheer physical distribution, which in turn is a function of its market share.

(1) If heavy advertising in a product class could successfully change consumption patterns to its advantage, one might expect that this would lead to increased sales for the category, and hence to a larger share of all advertising.

(2) The fact is that parity products' share of all advertising has dropped by one-fourth in the last ten years, from 29% to 22%. In 1964, groceries, toiletries, toilet goods, beer, and cigarettes represented 47.0% of all national advertising in the measurable media (TV, magazines, and newspapers). Last year, they represented 39.8%. (Incidentally, cigarettes account for only 1.6% of the 7.0% drop.) This decline took place in spite of the fact that these categories have been heavy users of television. Television increased its share of all national advertising from 22% to 25% in the same period, and probably doubled its output of commercial messages, though individual viewing continued at the same level.

(3) Moreover, national advertising has grown at a slower rate than the local sector. In the last ten years, 1964-74, national fell from 61.6% to 55.1% of the total.

(4) This is especially interesting because critics of the non-informational aspects of advertising are generally willing to exclude retail and newspaper classified advertising from their complaints, since it is generally highly specific and factual.

(5) In 1964, national advertising was equivalent to 3.33% of all retail sales volume. Ten years later, the figure was 2.74%--or an 18% drop in the ratio.

Over a ten-year period between the last two reports from the Internal Revenue Service, advertising-to-sales ratios for all manufacturing companies fell from 1.42% to 1.36%, and this decline is visible in most industries in which one expects to find a high proportion of parity products. Of eight categories of food and beverages, sugar and grain mill products were the only two in which advertising did not decrease as a percent of sales. In tobacco, prior to the broadcasting ban, advertising-to-sales went down. In drugs, it went down. In fact, the few categories where the ratio went up--books, footwear, watches and clocks, and radio and television sets--are all characterized by great fractionation and diversity, and a correspondingly high level of informational content in their advertising.

By the way, have these trends had any visible effect on industry concentration ratios? Between 1963 and 1970, advertising/sales ratios fell from 5.0% to 3.8% for the major cigarette companies and from 13.2% to 10.9% for the leading soap companies. Yet in that period (before the ban on their broadcast advertising and during a period of extraordinary brand volatility) the four leading cigarette companies increased their share from 80% to 84%, while the four leading soap companies' share fell from 72% to 70%. So the monopoly thesis is not easily demonstrable.

But the declining advertising-to-sales ratios raise an even more interesting question, when we look at the efficiency of advertising from the standpoint of the whole economic system. Are advertisers concluding that the ever-increasing number of messages have taken us up against the perceptual threshold beyond which consumers can no longer absorb them? Does this, then, mean that they will increasingly turn to alternative means of promotion as a substitute for advertising? Economic law would suggest that such alternatives will be tested and pursued if their payoff is greater.

It is sometimes suggested that the total amount of advertising in a particular product field should be limited at some arbitrary cutoff point, defined either at a percentage of gross sales volume or at a percentage set in relation to advertising for all products and brands.

A few years ago, in an effort to demonstrate that advertising represented an unwarranted and uneconomic exploitation of the consumer for advertisers' private benefit, the British government forced each of the two major soap companies to stop advertising two leading brands of detergent and to lower the price by the amount of money saved. These brands quickly lost market position, in spite of their 20% lower price.

But limiting advertising for a few particular brands is very different from limiting advertising for a whole category. (In a way, that has been attempted in this country, when utility companies have been restricted from promoting increased consumption of electricity at a time of energy shortages. But this is a special case.) The aggregate promotional effect of all advertising in a product category is competitive with that of all other categories for its share of total consumer spending. Any government body that determined that people should spend less money on sleeping pills, soap, or cosmetics could limit the market much more effectively through discriminatory taxation than by regulating any one particular form of sales promotion.

Limitations on the volume of advertising could simply divert sales pressures into other forms of merchandise and promotion--from market research to push money directed to the same purpose and perhaps more difficult to regulate. The cigarette industry's diversion of funds out of broadcast advertising into premium offers and auto races represents just one example. Advertising and other promotional activity are hard to disentangle. Cooperative advertising and coupon advertising are often paid out of promotion rather than advertising budgets.

Regulations and controls of advertising have to be based on generalizations. That is, you have to be able to assume that you're dealing with a class of events i-n order to subject such events to regulatory proceedings. Frank M. Bass (1974) has recently pointed to the difficulty of generalizing about advertising performance. He reanalyzed a Federal Trade Commission study of 97 food companies and found that in only one-third of the cases there was a strong link between profitability and the advertising-to-sales ratio. Moreover, he writes, "There are some industries in which advertising and profitability are independent, while there are other industries in which advertising and profitability are strongly related.., the differentiating characteristic ... is not the size of the advertising/sales ratio."

Comanor and Wilson also come up with qualified answers when they review the evidence of advertising's effect on the market share of the leading brand. They find considerable variations from one product class to the next.

As a matter of fact, my own look at different product categories shows that the percentage of national advertising accounted for by the leading company or companies varies all over the lot. It may be necessary for a firm to register a minimum amount of visibility or acceptability through advertising pressure. Still, it is difficult to state with any precision at what point such a barrier to entry is transformed from a minor obstacle to an impenetrable wall.

Why is it so hard to generalize about advertising? Because its unpredictable creative element cannot be programmed. Looking at advertising volume strictly in terms of dollar investments gives us no real clue as to its yield. We're back with John Wanamaker's old observation that 50% of his advertising was wasted, although he didn't know which 50% it was. My own guess is that if John's experience was typical, 50% was an extremely low estimate.

In the economic studies, it is tacitly assumed by both the critics and supporters of advertising that creative quality may be considered a constant; that its variability shows about the same range that you would expect to find in product performance or in entrepreneurial talent. This assumption is critical, and also mistaken.

The striking variability in advertising productivity must lead us to conclude that the yield from advertising is not actually related to its sheer volume of expenditure or to its ratio to sales. The Universal Product Code and the computerized supermarket checkout have made it possible to determine precise contributions of advertising to product movement over a very short period of time. We have been tracking weekly sales, item by item, in a number of supermarkets with automated checkout counters, in different parts of the country. In one Ohio chain, we compared unit sales for the week in which an item was listed in a retail food ad with its sales during other weeks of the month in which it was not advertised. This represents a true measure of the effects of only two elements: (1) the amount of advertising pressure and (2) the attractiveness and value of the product to the consumer.

One private label brand showed a 614% increase for the test week in which it was advertised. Another product, advertised with exactly the same weight and prominence, showed a 22% increase in sales for the test week. (In this particular instance, the difference in demand elasticity for the two products may be the best explanation of this thirty-fold difference in the rate of sales increase.)

Tracking items that had a much smaller listing in a supermarket ad, we found one that showed a 180% increase and another that actually showed a 25% decline during the advertised week, perhaps because of competitive promotions. Taking two coupon offers of identical size and typography buried within the same ad, one was followed by a 782% sales increase, another by an increase of 45%.

Couponing for a typical grocery item involves a very small purchase decision. But the U.S. Army recently (1974) used an inquiry coupon in recruitment advertising bound into forty-four magazines. The cost per inquiry ranged from $4.68 to $393.28, and the cost per resulting enlistment ranged from $165.42 to $84,050.

Apart from variations in the suitability of media for specific purposes, different advertising messages for the same product vary tremendously in persuasive appeal and power, as copy testers have long known. Evidence continues to accumulate that many advertising messages are forgotten very rapidly. For example, a study recently made by W. R. Simmons for Golden West Broadcasting shows that among telephone respondents who had been watching a TV station for the previous hour, 1.5% of all the commercials in that hour were recalled (with aid).

No doubt newspapers and other advertising media have an equivalent rate of forgetfulness for messages that are essentially delivered at random, rather than actively sought out.

If only a small proportion of ad messages are remembered, this implies that an incredible amount of waste must occur in advertising communication. I do not mean to suggest that a message that is not consciously remembered is without effect, since its echoes may be evoked when it is repeated or when the consumer confronts the product at the point of sale. But messages that are poor in memorability or inadequate in persuasive content are more likely to be non-productive, under-productive, or counter-productive for the advertiser and for his product field, and thus serve no useful economic function. What can be the social benefits of this unproductive advertising, which fails to produce sales effects commensurate to its cost, and therefore results in no increased economic activity?

So--Is all this advertising really necessary? Well, yes--and no.

(1) It is impossible to conceive of a competitive market economy in which advertising does not play a part. Advertising is one of a variety of forms of selling and promotion. The advantages of size to an advertiser parallel advantages of size in other realms of merchandising, distribution, and sales. There is no logical or reasonable way of restricting one aspect of promotion without restricting all other ways--which would mean the end of competition.

(2) In many instances and in many aspects, there may be legitimate reason to criticize the economic and social effects of advertising. But these instances must be dealt with on their own specifics. A knee-jerk defense reaction to any attack on any aspect of advertising is just as witless as knee-jerk hostility. The economic effects of advertising are not subject to universal generalizations.

(3) A growing percentage of all advertising in informational in character. A declining proportion is represented by national advertising in product fields characterized by minor performance differences among brands. This trend should continue as we have increasing product differentiation in the market place and more rapid growth in the consumption of services than of goods.

(4) The misallocation of resources that results from overspending by certain advertisers is probably small relative to the misallocation that arises from inadequacies of advertising content and scheduling. To correct those misallocations is precisely the task of consumer research.

REFERENCE

Frank M. Bass, "Profit and the A/S Ratio," Journal of Advertising Research, 14(December 1974), 9-19.

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