BUAD 307
Marketing
Fundamentals

 

 

 

FINAL EXAM REVIEW

Advertising Effectiveness

PowerPoint Narration

The effectiveness of advertising is a highly controversial topic.  Research suggests that in many cases advertising leads to a relatively modest increase in sales.  One study suggests, for example, that when a firm increases its advertising spending by 1%, sales go up by 0.05%.   (The same research found that, in contrast, if prices are lowered by 1%, sales tend to increase by 2%).  In general, it appears that advertising is more effective in selling durable goods (e.g., stereo systems, cars, refrigerators, and furniture) than for non-durable goods (e.g., restaurant meals, candy bars, toilet paper, and bottled water).  Also, advertising appears to be more effective for new products.  This suggests that advertising is probably most effective for providing information (rather than persuading people).  Note that many advertising agencies make a large part of their money on commissions on advertising sold.  Thus, they have a vested interest in selling as much advertising as possible, and may strongly advise clients to spend excessive amounts on advertising.

Research suggests that advertising effectiveness follows a sort of “S-“ shaped curve:

Very small amounts of advertising are too small to truly register with consumers.  At the medium level, advertising may be effective.  However, above a certain level (labeled “saturation point” on the chart), additional adverting appears to have a limited effect.  (This is comparable to the notion of “diminishing returns to scale” encountered in economics).