Advertising is generally seen as a business activity whose aim is to create demand for businesses. A large number of companies including some industry leaders invest heavily in advertising to create demand and maintain sales. Some companies choose to market themselves in other possible ways without spending an enormous fortune on promotions. Now, compare Pepsi and Coca Cola with Starbucks. Pepsi and Coca Cola are two soda beverage giants and each of the two invests around $4 billion each year in marketing and promotions. On the other hand, Starbucks, the largest coffee brand in the world, invests barely a quarter of a billion in advertising and promotions. Why is there such a major difference in their advertising expenses? Is advertising not the primary means of acquiring sales and revenue for the first two companies? Why is it not so in the case of Starbucks? All three brands under discussion here are from the food and beverage industry, but their approach to marketing and promotions is very different.
The approach used by Coca Cola and Pepsi is similar. They advertise to promote the products that are already well known in the market but it is mainly the competitive pressure forcing them to invest heavily in advertising. Growth does not come solely from advertising and Coca Col and Pepsico have also invested in building strong brands. Starbucks and Costco are two leading businesses that have proved that you can market your brand and achieve strong demand with heavily spending on promotions. Until the last few years, the advertising expenses of Starbucks were close to zero. Instead, the company invested in product quality, consumer experience, ethical business, and other things that helped it promote a strong image and achieve positive word of mouth.
The main question related to advertising is that if it is really a reliable investment in growth. Do markets and consumers or societies benefit from advertising or is advertising used to exploit the customers, to build demand, and encourage unnecessary consumption?
Noam Chomsky thinks advertising undermines markets and instead of letting informed consumers make rational choices, it tries to prevent that. The American linguist thinks advertising is manipulative and exploitative and aims to control people’s minds.
However, what consumers see as a privilege is one of the many mechanisms companies and even governments use to manipulate and control people’s minds. The advertising expenditure during the 2016 presidential elections was just a sample of how targeted advertising is being used to manipulate the outcome of the elections in the United States. According to industry sources, an estimated $6.3 billion was spent on advertising in the 2016 presidential elections. This could increase faster in future. Is it really necessary to invest as much in advertising? What will be the impact of using advertising and targeted digital ads to manipulate the outcome of elections and should the political systems in nations like the US, the UK, and India use it to influence voters’ mindset? Even in the case of companies like Coca Cola, Nike, Samsung, and Pepsico, is it good to spend a large amount on advertising, much of which just aims to influence the customers and increase the number of unnecessary purchases? Is the world really benefitting from advertising?
There are of course benefits from advertising but only to the extent that it encourages rational choices by consumers. Considering the level at which advertising takes place every day in our world, advertising seeks to prevent consumers from making rational choices. Instead, consumers are bombarded with choices in a manner that almost disallows them from knowing what is profitable for them and what is not. It is also difficult to decide how much advertising is beneficial to our world. It is also true that the advertising industry is a leading source of employment and increased expenditure on advertising will help employ more.
The benefits are not limited just to employment but the question is who will benefit the most from the advertising expenditure – the company or institution that is advertising, the consumer, the society, or the economy. Often, it is the advertising giants like Google that benefit the most from advertising. Yes, there are thousands of small and large businesses around the world that have acquired profitable growth from digital advertising but will not heavy advertising tilt the balance in the favor of those that spend more on it.
If this was the truth, how did companies like Starbucks acquire superior growth and industry-leading positions? Definitely, there is something that is more important than advertising. If those billions of dollars are devoted only to churning demand for products and growing consumption and sales, then it is a big wastage of money. It is why many times customers just choose to ignore marketing messages and advertisements and select to buy only from the brands they trust. Companies use advertising to build trust also. However, customers will buy more confidently from you if your business offers a superior customer experience and not plainly because you advertise a lot.
Main perils of advertising:
Encourages unnecessary consumption:
Our consumption patterns are affected by advertising. From KFC to McDonald’s, Domino’s, and Walmart, everywhere people are buying more than they need because their worlds are driven by advertising. They see an ad and the temptation to make that purchase overrides every other feeling. It is almost impossible to control the feeling and then consumption leads to more consumption. Once you buy a product, the seller urges you to buy a related product. It has become a matter of social class and the brands you prefer get attached to your identity. Changing this pattern is also difficult because the more you try to forget a thing, the more these ads try to remind you that you missed a discount or sale. A simple ad invites your attention to a product on offer with a heavy discount. You go shopping and the salesman shows you more products and in the end, you return with a heavy credit card bill. When you are done with buying and sit down to calculate the expenses at the end of the month, it turns out you shopped more than you needed. It is the truth of each industry and not just FMCG or retail but even the finance industry and banking. The insurance sector is particularly known to invest heavily in advertising.
Grows the chances of unfair competition:
The chances of unfair competition can also grow with heavy advertising. The level of competition is very high in the industry. There is hardly a sector that is not seeing too much competition. Intensifying competition has given rise to uncertainty which businesses think can be minimized through advertising. However, while trying to build a stable and strong competitive advantage, companies can often resort to methods that are manipulative and unethical. This often becomes evident when a company tries to target a rival directly or indirectly through advertisements. Fair competition is good for the market and society. On the other hand, unfair competition makes businesses adopt unethical business practices that can lead to a turbulent situation. If the situation escalates, it ends up hurting the business itself. It can also obstruct the growth of new, ethical and innovative brands since the established brands have more to invest in advertising and promotions to grow brand awareness. Smaller brands despite providing good quality products and services cannot spend much on advertising and promotions which leads to slower growth for them. as a result, these brands end up being acquired by the larger ones.
Can cause price wars to escalate
Advertising can also affect prices and cause price wars to grow. Suppose there are two rival businesses engaged in tough competition to achieve faster growth and increase their market shares. One starts manipulating prices and trying to lure customers by aggressively advertising lower prices. This leads to the competitor responding with a fiercer reduction in prices. What happens next is that a ferocious price war begins and on the one hand, the companies reduce prices, on the other, they try to push for more sales by advertising heavily. The intense rivalry between Pepsico and Coca Cola had been termed as Cola wars. These are the two largest brands in the soda industry and no third brand has been able to achieve as large a stature as them.
Can enforce irrational choices
How do we make our buying choices? Most often consumers rely on brands that they have been buying from. If a change happens, it is most likely brought about by an advertisement or another marketing gimmick that pulls the customer away from his preferred brand. However, with growing competition and higher advertising, companies are constantly trying to make consumers switch. Often there is just so much advertising happening around you that you feel like getting pulled into a store even without knowing. Advertisements do not let you think. It is true that companies are focusing more on customer experience and customers will instantly know if they have bought the right product or not. However, many times the likelihood of making an irrational choice is higher because of the heavy advertising. Consumers need to stop, think, and then act to make the best choice. Only TV, digital or print ads must not be the source to inform your buying choice. However, companies advertise new features and create a type of pressure to buy newer product models with latest features. New models are released every six months and then advertised heavily online through media and other channels and it is a common practice across industry sectors including smartphones, electronics and automobiles.
Can be highly distracting and cause people to get annoyed:
Heavy advertising often causes a lot of distraction and annoyance but this is something people have to cope with. Often while sitting before the television, people become distracted and annoyed when ads frequently appear in the middle of a program. Advertising spoils customer experience in this manner. A somewhat similar case appears online when people are surfing the web or shopping online. There are just too many products and suggestions. Customers can easily grow distracted and frustrated. Even when outdoors, you come across ads on the roadside, and in the market where billboards and small and large posters dot the walls of buildings. Roadside billboards can be distracting while driving. At other times also when you are looking out of your apartment window and a large billboard tries to command all your attention, you feel like something is obstructing your vision and will not let you see things behind that large ad.
Companies relying on advertising solely can find themselves in a mess
Advertising appears like a lifesaver to many companies but often they find themselves in a bitter mess compared to the companies that spend less on advertising. Businesses should also focus on other channels for growth. Heavy advertising can distract customers and affect the company’s image. It also draws the attention of the media and companies can invite unwanted criticism only because of too heavy advertising. So, while advertising is fine to a certain extent, companies may not be able to achieve the right results if they do not approach it the right way and advertise only with the aim to impress and influence the consumers. Companies must remember that heavy advertising can also backfire.
Unethical advertising is perilous for society and consumers
Advertising is beneficial if it is ethical and does not try to manipulate consumer behavior or affect how people make purchasing decisions. Ethical advertising is effective and can have a good influence on society and consumers. However, cases of unethical advertising in the industry have also frequently come to light. Unethical advertising affects consumers and society in a negative manner. It does not just hurt business image but also has a negative impact overall on customer perception and trust in a brand. In many cases, companies have instantly felt the impact of unethical advertising. False advertising can influence customer behavior and lead to wrong decisions. While governments have formed several laws to curb the use of false and misleading advertisements, the problem is that cash-hungry institutions will still use them. Society often finds itself in a mess because a false advertisement can sometimes have very serious consequences. In the age of social media advertising and fake news, implementing control measures is difficult but consumer awareness helps against unethical and false advertising.
However, despite those several perils, the world of advertising continues to find growth at a scale that is both fascinating and alarming. The digital advertising industry continues to grow very fast, driven by the growth of AI and digital technology as well as the success of targeted advertising methods. The large corporate houses are growing enormously each year while the consumers and society to gain nothing substantial. There is intense competition among businesses but there is also a lot of competition among consumers who generally end up being fooled and spending on things they do not need. You do not need to have every convenience in this world and when we look around ourselves, we find our world full of things that are just filling space but not adding any real value to our lives. What are we doing if not just being targeted by ads and trackers? What works in the favor of advertising is the fear of not having, of not being ahead of others, and that of being called untrendy and unmodern. Celebrities have also played a major role in establishing a culture of spending by vouching for brands they do not know or understand.
Do you know there are brands in this world that solely depend on celebs and influencers for marketing and promotions? What can a customer do despite knowing how his world is changing and how much of his buying behavior is influenced by advertisements ruining his taste and trying to manipulate how he thinks and decides? Everything around us is changing and we need to watch and filter the information reaching us and make effective choices as modern and informed consumers. While we cannot change everything, we can still filter out the toxic advertisements seeking to influence our behavior in a manner that can hurt us financially and personally.