Some thought on economics of advertising.

Discussion in 'Economics' started by JJacksET4, Jan 8, 2010.

  1. Hi all,

    I was just wondering if others felt the same way I do and I wanted to share some thoughts.

    I often wonder if corporations that are well known brands, and/or don't sell directly to the public, etc. really need to advertise as much as they do. As we all know, we are just flooded with Ads if for example we watch an NHL hockey game (I'll use this as my example). There are ads of course during commercial breaks, there are ads covering the boards, there are ads such as the "Dell Taco power play"or whatever. It just goes on an on.

    I know there are some products I buy that I will not stop if the ads stopped - for example Mountain Dew which I drink too much of. On the other hand, there are products I will never buy no matter how many ads I see.

    Companies like McDonalds - do they really need ads everywhere, all the time? I just wonder if some companies that are already well known and are everywhere really need to spend that much $, driving up all our costs - and remember, that includes the costs to the networks, the cost of making the ads, having the marketing people work on them, etc. I think sometimes advertising gets a company to where they are, but then they become addicted to it and never even try cut back, even when they are a household name.

    I remember a while back, maybe 2001-2002? I would see these Nortell Network ads all the time - sometimes it was like they were every break, and I knew Nortel was struggling at the time. Why keep the ads running and spending tons of $ when I don't think they even made their $ selling to consumers? Sure enough, I think they went Bankrupt and I don't see their ads anymore. I also seem to remember some companies spending like Millions of $ to advertise for like 30 seconds on the Super Bowl and now they are gone as well in some cases.

    I would be curious if anyone knows just for the fun of it, or if you want to guess - about how much does it cost about to have an ad on a hockey side board for one season in an NHL rink?

    I would just like to see some of the top known brands try to not spend so much money placing their logo/name, etc. everywhere and see if it really changes much. Not cut off completely of course, but why the need to be everywhere? I can certainly understand specifically advertising a new product.

    It's just a bit frustrating - how many times do we need to be told to drink Bud Light or buy a Honda? I have never spent 15 minutes to try save 15% on car insurance either GEIKO :) - maybe if you didn't spend a trillion $ on ads, you could save people 30%!

    Just some thoughs, not looking to get into a big argument or anything. Again, I fully understand advertising new products, etc. and advertising for smaller companies, as I have seen the power of that myself.

    What do you all think?

  2. But they have to keep advertising so that people learn how to spell Geico correctly so that when you are ready to save 15% or more on car insurance, you're able to find them in the phone book.

    I owned several businesses. If you are not in contact with your customer base, someone else will be. While most mass advertising is not the most effective way to stay in contact with your customers for most small businesses, it makes a lot of sense for a mass market business like those you mentioned.

    For what its worth, I finally gave the Government Employees Insurance Company (Geico) a call four months ago (I just happened to hear their add on TV while opening my car insurance premium bill. I actually saved quite a bit more than 15%. I would think that if Geico stopped advertising, their business would not only stop growing, but would quickly start shrinking.
  3. Yes...when you are big, you have to throw alot of money out there or some other company will throw their name in the ring and you might try their product and like it, then the big company loses its market share.

    For many of you have ever heard of "Nesbitts Orange Soda"? Probably not many of you unless you are over 40, and if you are over 60 then you will definately remember it. It was the 3rd most popular drink in the world. It went Coke, pepsi, Nesbitts Orange soda. Nesbitts used Marilyn Monroe to advertise its soda back in the 40s As they slowed their advertising Orange Crush passed them up and in the late 70s sunkist came in with their beach boys "Good vibrations" campaign and now you cant find a Nesbitts Orange Soda anywhere.

    So if Mcdonalds, or Coke, or any of those other big companies stopped advertising and some little guys product started getting some market share, it can be pretty bad for a big company as they have large expenses and taking away market share would cause some of their business to disappear.

    You say you would keep using some of the products if they stopped advertising, but if you start seeing some of your friends using a product (because they saw the advertising) and they tell you how great it is, you are going to try it at the very least and if you like it, you are now a loyal customer to the new product.

    Its like if you eat at Mcdonalds every day and thats your favorite hamburger and you refuse to eat anything else....then one day 5 of your friends are eatting a burger from "Wacky Jacks burger joint" and it smells good and they offer you a taste, are you going to say "NO! I only eat McDonalds"? Of course you are going to try it.

    Thats why they have to keep the name brand in peoples heads.
  4. I should also probably state that i use Geico I pay $334 per year for full coverage on my car which is the cheapest i've ever paid in my life. Although they only give you that deal if you've been driving for a long time and never have any tickets or accident. The next cheapest place costs about $200 per year more.

    On the downside with Gieco, when I tried to add my wife that just learned how to drive, they wanted to charge me $1100 per year, so its not a good company for new drivers.
  5. ok,

    good thoughts - I guess one of the things is just how constant the advertising is. I mean, I can see their TV ads 5-10 times in a day if I watch sports or whatever. That must cost them a small fortune. If they were on say 1/3 as much, everyone would still know the name, the GEIKO (sorry!), the Cavemen, the 15% in 15 minutes, etc, etc. They might actually have as much or more impact if they weren't on so often that people got sick of them.

    BTW - when I watch TV I always have 1 or 2 flip channels and almost never watch ads other then when both or all 3 channels have ads (which is still too often!).

    It's almost like it's a favor to the TV networks. If some of these guys didn't offer to fill so many slots, the TV stations would go nuts trying to fill them!

    I guess the other thing though is like in my Nortel example - just pretend - if Geico were to fall into a sales slump, would they advertise less - they would probably advertise more and then have a very bad year with less sales and more expenses! But I bet they never tried to cut back even 25% for example.

    When Nortell was slumping, sometimes I swear their ad was on every single commercial break during some games - it didn't save them, that's for sure.

    Thanks for the comments.

  6. One reason may be cos may get a buy 10 spots get 5 free. Some cos have on call spots, that might be aired during a certain news event (so you might see more ads in a concentrated time period).

    Cos budget 3% for advertising as they grow larger they may budget 1-2 % of sales which could be larger in dollar amount than their original budget of 3%. Ad dollars are part of a prudent business plan. Ad budgets could be considered contigency funds in a way, a downturn in the economy cos raid the ad budget (never a good idea).
  7. peil..

    On that topic, there is one thing I wonder about with discount car insurance companies - sure they can be cheap, but what happens if a real problem comes up?

    About 15 years ago I was with Allstate, which I think was just because someone told me to try them. Well, I got involved in a small accident that I don't feel was my fault. There were 3 or 4 cars in a small chain.

    One party of 2 people in one car refused medical attention and appeared to be OK and drove off. Later, they claimed their backs hurt, etc. and they went to a Chiropractor and rang up some large bills. So, of course they tried to sue.

    Well, Allstate got on the ball and investigated and learned that this Chiropractor was suspected of doing treatments that weren't needed and scheming with people to pretend treatments were needed and done and they would split the money from any lawsuits they win or whatever.

    Allstate threatened to go after them and offered to me that I might want to sue.

    Anyway, when a court date (I don't know if it was a pre-trial hearing or what) came up, the Plaintiffs didn't show up and the case was dismissed. I never went to a court room - never saw a judge, never spoke to an attorney (just got a letter or 2 in the mail).

    So, I have stayed with Allstate ever since. How can a person be sure what a different car insurance company would do in a similar situation?