1. How Advertising Works Advertising & Media Unit 1

2. Advertising and the Economy The United States is a market economy – The amount and prices of goods and services are determined by market forces – Consumer demand is a major force in a market economy Consumers can be individuals, households (groups of individuals), businesses or governments anyone who uses products/services – Advertising is focused on increasing consumer spending Can stimulate spending during an economic downturn

3. Consumer Spending Considered the engine of the US economy The amount of money (in real dollars and as a percent of income) consumers spend has been increasing If consumers overspend, the spend more money than they earn – Debt – Bankruptcy

4. Why Do Consumer Spend? Consumer behavior includes all activities completed by the consumer – No single theory to describe or predict consumer behavior A Need is something necessary for survival (food, shelter, clothing) A Want is everything else – Advertising focuses on creating consumer Wants

5. Marketing and Advertising Marketing is the promotion and distribution of a product Advertising is a subset of marketing – Make the product standout against competition – Create new markets for product – Directs information to target market Target market can be defined by advertisers or marketers

6. Advertising and Prices Advertising effects pricing in both directions Advertising costs companies money – 1% of sales for auto and retail – 15% of sales for consumer products – Cost of advertising is passed along to consumer Effective advertising makes companies money – Return on advertising dollars is increased sales – Companies may lower prices to consumers

7. Why Are Ads Successful An effective advertisement will demonstrate a benefit from the use of the product/service – Functional benefit – the same for everyone Cleaner clothes, save time, whiter teeth – Emotional benefit – more difficult to measure Sex appeal, satisfaction, pride, sense of belonging

8. Benefits of Advertising Educate consumers – Reduce search time – More informed choices Product prices should drop Supports a variety of mass media – Advertisers pay for television programs, radio spots, internet space, etc. – Keep subscription prices low

9. Drawbacks of Advertising Advertising is biased Raises the standard of living for some, but widens the gap between rich and poor – Actually and by perception Affects the type of information available Can promote stereotypes

10. How People are Portrayed People in advertisements are usually attractive – To create a desire for inclusion Stereotypes are used in advertising – Preconceived and generalized portrayal of a group of people