Re: ECON: Advertising

Max M (
Tue, 26 Jan 1999 22:53:09 +0100

From: Lee Daniel Crocker < (none)>

>> ...people buy diamond engagement rings because they're expected to, not
>> because they see an ad on TV and think 'oh, I think I'll buy a diamond
>> engagement ring today'. Galbraith's theory seems to be the latter; we see
>> an ad on TV and follow the meme to go out and buy a diamond engagement
>> ring even though we're not going to get engaged.
>Your contention was that advertising does not create demand among
>adults to a large degree. I offered this counterexample, because
>people are "expected" to buy diamond engagement rings precisely
>because DeBeers told them to in its advertising decades ago

Well. The result of any good advertising push can be meassured and tested scientifically. It is true that we in the advertising industry don't know yet exactly what makes a campaign work. But we are shurely not entirely clueless. Advertising works! Period.

In the classical theory of market economy many producers are in competition for many consumers, and price is the balancing mechanism. It is a vital part of this idea that both producers and consumers have perfect information. This is where marketing comes in handy. We skew the information enough that the customers BELIEVE that the product we are promoting is superior.

That is what makes brand marketing so effective. We tell the customers again and again that a brand is better than the others. We tell that it has a bigger value than other brands. Thus the brand becomes a short cut in communication with the customers.

A brand is a combination of:
Features (what the product is)
Customer benefits (what needs and and wants the product meets) Values (what the customer associates with the product.)

A brand is is created when marketing adds values to a product, and in the process differentiates it from products with similar features and benefits.

Diamonds are a good example. For a long time De Beers in South africa have had a de facto monopoly on the distribution of diamonds. Thus they have been able to controll the supply of diamonds. By marketing the "value" of diamonds they have created a high demand, and by keeping the supply of diamonds just under the demand they have kept prices high. Actually De Beers has a $1 billion worth of diamonds in their vaults that they keep of the market to keep the prices high. If they would decide to sell these diamonds the value would fall considerably.

Coca Cola is another good example. Here in Denmark they have a market penetration of 80% All of the other Cola brands share the remaining 20% This is despite the fact that more than 55% like another brand better in blindtests. (We are marketing this competing Cola product called Jolly Cola) So much for the free market vs. marketing. Coca Cola has made a darn good branding campaign for the last decades that is hard to counter.

So don't doubt that marketing works. It even uses scientific rationalism if it is done professionally. A lot of marketing guys do believe that it is an art though, but their results are not good in the long run.

Max M Rasmussen
New Media Director (In the advertising bussines :-) )