The Economic, Social and
Regulatory Aspects of
Advertising
Lecture 3
What makes Advertising a
“controversial concept”
•Views of offensiveness vary from country to
country.
•For example, clothing retailer Bennetton uses
the same ads all over the world and
sometimes the ads impinge on customer
beliefs of certain countries.
•“A Kiss from God”—banned in Italy but won
the Eurobest Award for Advertising in England.
•What may have caused this?
The Economic Impact of Advertising
• “The economic effect of advertising is
like the break shot in billiards or pool”.
• The moment a company begins to
advertise, it sets off a chain reaction
of economic events. The extent of a
chain reaction, although hard to
predict, is related to the force of the
shot and economic environment.
The Economic Impact of
Advertising
• Types of Economic Effects:
1. Effect on the Value of the Products
2. Effect on Prices
3. Effect on Competition
4. Effect on Consumer Demand
5. Effect on Consumer Choice
6. Effect on Business Cycle
The Economic Impact of Advertising
• Effect on Value: Perceived Value issue.
Advertising adds value to a brand by
educating cusomters about new uses for
a product. For example, Kleenex was
originally advertised as a makeup
remover but later as a disposable
handkerchief (tissue).
• Effect on Prices: What happens to prices
if the advertising cost is too high?
The Economic Impact of Advertising
•Effect on Competition: It is true that intense competition
does tend to reduce the number of businesses in an
industry. However, some of the firms eliminated by
competition may be those that served customers least
effectively. E.g. Pizza Time and Pizza Lounge.
•Effect on Consumer Demand and Choice: How
dependant is this on persuasion employed through
advertising? Give examples.
•Effect on Business Cycle- this may take place during
phases of business boom and bust. It may also occur
during the 4 stages of a business life cycle: introduction,
growth, maturity and post maturity.
Social Impact of Advertising
• Deception in Advertising
– Puffery: refers to advertising tactics that cannot be labeled
as true or false such as “best” “premier”. E.g., Tabasco
Sauce
Social Impact of Advertising
• The Use of Stereotyping in Advertising: This involves
using racial elements in advertising. For example:
Intel launched a national
campaign in 2007 that was
almost unbelievable in its
symbolism - but it was most
definitely real. A white manager
(master?) stands over six black
athletes who bow in perfect
symmetry before him. Though
Intel claims 100% innocence,
it’s baffling why the company’s
advertising direction would
include such powerful slave
imagery.
Social Impact of Advertising
• Offensiveness in Advertising: Tourism
Campaign for Australia: “Where the bloody
hell are you?”
Social Responsibility and
Regulatory Aspects
-Social Responsibility:
– Corporate Social Responsibility: states that it is
the “continuing commitment by business to
behave ethically and contribute to economic
development while improving the quality of life of
the workforce, their families and the local
community and society at large. (World Business
Council for Sustainable Development 1999)