The Role & Value of Advertising

Speaking notes for the PowerPoint presentation

Slide I The role and value of advertising This presentation will consider the role and value of advertising based on the following questions: 1. What does advertising do? 2. Why do companies advertise? 3. What is the consumer benefit of advertising? 4. What are the benefits of advertising to society? 5. What advertising CANNOT do 6. What contribution does the marketing industry make? Slide II What does advertising do? Advertising creates awareness of the options available to us and helps us identify the products that best fit our needs. For the purposes of this presentation, products are intended to mean any object of an ad, including nonmaterial products such as services, newspaper subscriptions, holiday destinations etc. Slide III. The desired response We can distinguish four different stages in the consumer s choice of a product awareness, knowledge, preference, purchase. Advertising can play a role at each of those (though not necessarily at the same time): Awareness: I remember that brand Knowledge:, I understand what they are offering me Preference: I choose this product over the competitor . Preference can be based on both emotional and rational benefits o Example of an emotional benefit: Disney - Magic o Example of a rational benefit: Volvo - Safety Purchase: I am going to try it out/buy it again Slide IV. Why do companies advertise? Advertising allows companies to match supply with demand and to build brands with clear values and personalities. What is a Brand? One widely accepted description says: If a customer can perceive that a product or service has a unique identity that differentiates it and they can describe it and the unique set of benefits it offers, then it is a brand .1 Slide V. Advertiser Objectives At each of the four stages of choosing a product, companies use advertising for a distinct purpose. Advertising can: Create awareness by establishing a product s brand name: it is accepted as one of the choices among the consumer s list of options; Increase knowledge of the product by providing information on its attributes: how it works, how much it costs, where to get it etc; Create a preference for the product by differentiating it from the competition: cheaper, higher quality, easier to use, more fun etc; If it does its job well, advertising can ultimately be successful in convincing the consumer to buy the product.
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Randall, Geoffrey. Branding, 2nd edition, Kogan Page Publishing. Page 1 of 6

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Slide VI. What is the consumer benefit? This section looks at four ways in which advertising has a direct benefit for the consumer: Advertising is the driver of consumer choice; Advertising makes brands accountable to consumers; Advertising generates a better value proposition for consumers; Advertising is used by us all every day. Slide VII. Advertising promotes choice We all live different lives and have different values and needs. A product that is right for one may not be right for another. There are many levels on which advertising can promote choice: 1. Price: advertising tells us about differences in prices for the same or comparable products. E.g. Tesco vs Aldi. 2. Quality: advertising tells us about differences in quality between comparable products. E.g. Tesco vs Marks&Spencer. 3. Taste Preferences: advertising tells us about products that best fit our own individual tastes. E.g. Tesco vs The Body Shop. 4. Convenience: advertising tells us about products that best suit our lifestyle. E.g. Tesco vs Amazon. Companies seek to respond to these differences in values and needs. Advertising helps them link their offering with such diverse demand. It allows them to provide a much broader range of options than would otherwise be the case. By telling us about these options, advertising ensures that we don t need to settle for second best. It helps us exercise our right to choose. Slide VIII. Accountability Advertising is a public commitment. On the basis of an ad, the consumer has precise expectations about what a brand will deliver. Through advertising, a brand establishes a contract of confidence with its consumers. Failure to meet the consumers expectations risks breaking the brand s contract of confidence and undermining consumer trust in the brand. When trust is lost, consumers will easily switch to another brand. As a result, advertising makes a brand publicly accountable. Proof-point: In 2004, the company Ingersoll Rand had to replace 380,000 of its supposedly impregnable Kryptonite brand bike locks in 21 countries after it emerged they could simply be picked with a pen. The experience cost the company $10 million reducing the lock division s operating margins by almost a quarter compared with the previous year.2 The reason, however, was not a looming lawsuit. The company felt obliged to avoid the embarrassment of breaking the promise it had made to its customers. Slide IX. Better Value Proposition Advertising enables new companies to enter into the market, and allows existing companies to differentiate themselves from their competitors. This helps promote and stimulate competition. Competition forces companies to keep improving the value of their products for their consumers: driving down prices and driving up quality. Proof-point: When bans on advertising were lifted in some US states, the FTC estimated that prices of spectacles fell by 30% to 40% thanks to public awareness and competition.3 Value does not have to be material it can also be created in meeting specific tastes and preferences. Slide X.
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Cf. USA Today, 18 September 2004; Ingersoll Rand SEC filing, 21 October 2004. Carlton, Dennis and Jeffrey Perloff. Modern Industrial Organization, New York: 1989. pp. 602-603. Page 2 of 6
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Everyone Advertises Not just big businesses advertise. Proof-point: The top 100 marketers account for only 20% of all media ad expenditure.4 Advertising is critical for start-ups who want to break into the market with novel products. It is also essential for small-and-medium-sized enterprises (SMEs), the backbone of any economy, to succeed. Governments use advertising to communicate about public services and government projects, and to tackle social problems like domestic violence, drunk driving, or low disease awareness. Civil society groups, NGOs, universities, museums, operas all advertise to showcase their events and projects. All of us advertise when searching for jobs and houses in the classifieds, when distributing fliers for an event, or when selling products on eBay. Slide XI. What are the benefits to society? This section looks at the numerous benefits of advertising to society: Advertising generates economic growth and jobs; Advertising turns innovation into products we use; Advertising funds a pluralistic media landscape, empowering free speech in an open, democratic society; Advertising supports cultural and sports and is a source of creativity and creative values. Slide XII. Economic Growth By helping businesses succeed in the marketplace, advertising is a cornerstone of a dynamic economy. Successful companies create more jobs, pay more tax for inward investment and contribute directly to economic growth. Proof-points: Research demonstrates that there is a direct correlation between advertising and economic growth:5 There is a positive correlation between the rates of total investment in advertising and the average rate of growth in GDP (1991 to 2000) across major markets. A higher rate of advertising investment as a percentage of GDP directly increases the rate of return on other tangible and intangible investments (e.g. R&D, product development, skills training). Business sectors where advertising is used effectively are that those with the most dynamic market share movement and therefore those in which competition, a recognised driver of growth, is liveliest. Those countries in which relatively little is invested in advertising are also those in which economic growth is weakest. Sectors with a high advertising investment rate over-contribute to growth in consumption, and therefore to economic growth. The advertising industry itself, too, contributes disproportionately to economic growth. Proof-points: At 6.4% in 2007, the communications industry the third-fastest growing sector of the US economy.6 Within the wider advertising industry added value is increasing twice as fast as in the economy as a whole.7 Slide XIV. Intangible Assets Increasingly, a country s wealth is not based on physical assets but on its intellectual and human capital: the capacity to innovate, create concepts and produce ideas. These intangible assets are a key element of any knowledge-based economy. Intangible assets allow national economies to remain competitive in the global market. Brands (alongside human resources) are one of the largest intangible assets of an economy. Proof-point: On average, the brand constitutes 30% of the stock-market value of listed companies.8
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AdAge, 21st Annual Global Marketers - PART 1: Global Ad Spending by Marketer , November 19 2007; WARC, World Advertising Trends 2007. 5 WFA, Advertising and Economic Growth , http://www.wfanet.org/documents/3/WFA-UDA_Advertising&Economic_Growth.pdf. 6 Veronis Suhler Stevenson, Communications Industry Forecast 2007-2011 7 WFA, Advertising and Economic Growth , p. 28 Page 3 of 6
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Advertising builds and sustains brands, guaranteeing the promise of long-term profitability. Countries too have their own identities and brands . We often think of particular products that come from these countries as symbolising a certain quality, taste or idea. Just imagine a un-branded France, Japan or US.

Slide XV. Job Creation Through its positive effect on economic growth, advertising helps generate jobs. Proof-point: In the US advertising plays a key role in generating 18.2 million of the 126.7 million jobs.9 The wider advertising industry itself has a positive leverage effect on job creation. Proof-point: The ad industry s contribution to employment growth is two to four times greater than the average for the overall economy.10 Slide XVI. Innovation Innovation is widely recognized as the single most important ingredient in any modern economy. Advertising helps turn innovative ideas and technological developments often in danger of remaining unexploited into products we use. Innovation on its own does not create economic value: we need advertising to make R&D investments profitable. Proof-point: The MP3 technology for playing electronic music was invented in Germany by the Fraunhofer Institut, a research body. The first patent for the technology was registered in 1989. Yet it was brought to market as a commercially viable product by US-based Diamond Multimedia in 1998. Proof-point: When Sir James Dyson launched the bagless vacuum cleaner in the 1980s it went largely unnoticed. The breakthrough came more than ten years later, following a memorable ad campaign with the slogan say goodbye to the bag which revolutionised the vacuum cleaner market and soon led other manufacturers to introduce their own bagless models. Slide XVII. Media Pluralism Advertising funds a diverse, pluralistic media landscape. Without advertising, many of the world s media as we know them would not exist. By supporting multiple voices, advertising ensures diversity in the marketplace of ideas. It is essential for an open, democratic society Proof-point: On average, newspapers and magazines rely on advertising revenue for over 50% of their earnings.11 On television and radio, the huge variety of sport, drama, news and children s programs that we have come to expect would be unthinkable without advertising. Proof-point: An estimated 94% of revenues from children s TV advertising are directly reinvested in children s programmes.12 Most content and technology available online is free paid for by advertising. Advertising as an art, as a need and especially as a duty, is an integral part of the freedom of expression. It is impossible in a democracy to separate the freedom of publishing or broadcasting news, opinions or entertainment, from the freedom of advertising. 13 (Francisco Pinto Balsemao, Former Prime Minister, Portugal) Slide XVIII. Sports and culture
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Milward Brown Optimor. BrandZ: Top 100 Most Powerful Brands 2007 , pp. 3 & 26. Advertising Tax Coalition, Role of Advertising in America prepared by the WEFA Group & Nobel Prize Winner, Dr. Lawrence R. Klein, 1999. 10 WFA, Advertising and Economic Growth , http://www.wfanet.org/documents/3/WFA-UDA_Advertising&Economic_Growth.pdf, p. 28 11 SEO Economisch Onderzoek-Univ of Amsterdam, Het economische belang van reclame, Centrum voor Merk en Communicatie, 2006, pp. iii & 52 12 Data provided by egta, Association of Television and Radio Sales Houses, 2005, www.egta.com 13 He is also Chairman and CEO of Impresa SGPS and Former Chairman of the European Publishers Council. Page 4 of 6
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There is little in the world of culture and sport that we can dissociate from advertising. Advertising and sponsorship play an essential role in enabling sporting events such as the Olympic Games and the football World Cup. It also heavily subsidises the transmission of such events to a global audience. Proof-point: The costs of running the 2012 Olympics in London estimated at 2bn will be entirely funded through sponsorship and related revenues.14 No advertising at the Olympic Games but no games without advertising. Michael Payne (IOC Marketing Director 1983-2004)15 In the arts, sponsorship subsidises and pays for major exhibitions whether at the Museum of Modern Art or the Guggenheim or for performances at La Scala or the Opra National de Paris. Global spending on sponsorship exceeded $30 billion in 2005.16 Sponsorship also supports grassroots and community sports teams, cultural events and aspiring artists. Proof-point: Damien Hirst, today one of the most eminent contemporary artists, started his rise to fame with a student exhibition sponsored by the London Docklands Development Corporation.

Slide XIX. Creativity and Creative Values Advertising plays an important role in social and art history and provides substantial work and public display for the talents of the world s best photographers, designers, film makers, graphic artists, indeed artists of every description. Proof-point: Toulouse-Lautrec was an ad guy! Advertising champions creative values and inspirational and innovative ideas. It supplies a constant source of wit, humour, neologisms, catch phrases and profound and provocative ideas. Advertising also allows the creative industries to flourish. Slide XX. What Advertising CANNOT do It is important to acknowledge the limitations of what advertising can do. Advertising cannot convince us to buy a product against our better judgment. Advertising cannot deliver success for product consumers do not want, or whose quality does not live up to consumer expectations. Proof-point: Research shows that 75% of new product launches fail: nothing kills a bad product like good advertising.17 Advertising cannot afford to ignore societal expectations of responsible advertising, as it would jeopardise consumers trust and undermine the very purpose of advertising. These expectations are recognised in the self-regulation codes which the industry sets for itself. Slide XXI. Contributions of the marketing industry The marketing industry contributes directly to a better society: Advertising helps address societal challenges through social marketing; Advertising helps promote sustainable development; The marketing industry ensures responsible advertising through a model of effective and responsible selfregulation; The marketing industry is actively engaged in teaching media literacy. Slide XXII. Social marketing for a better society Public service announcements (PSAs) have been proven to be effective in raising awareness about social issues and changing societal behaviour for the better.

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UK Department of Culture, Media and Sport Also the author of Olympic Turnaround 16 European Sponsorship Association http://www.europeansponsorship.org/brochure.asp 17 AMR Research Report, The CIO's Guide to the PERFECT Product Launch: Translating Innovation to Business Benefit , June 2005. Page 5 of 6
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Examples include reducing the casualties of road accidents by encouraging the use of seat belts, educating citizens about the risks of drunk driving, encouraging the use of hot-lines for depression, fighting domestic violence and increasing AIDS awareness. Proof-point: Many national governments are among the largest advertisers.

Slide XXIII. Advertising for Sustainable Development Companies too are using advertising to help address societal challenges. They are increasingly conscious that, beyond selling brands and ideas, advertising can be used to show how their products and their initiatives can help make a difference. Advertising enables companies to differentiate themselves on basis of their ethical, environmental and social credentials. Proof-point: Procter & Gamble s Ariel consumers in the UK are twice as likely as the average consumer to reduce their wash temperature to 30 since the launch of the Ariel Cool Clean UK Campaign.18 Slide XIV. A model of effective and responsible industry self-regulation The industry sets the common global standards for marketing communications in the International Chamber of Commerce Consolidated Code on Advertising and Marketing Communication Practice (2006).19 All marketing communications have to be legal, decent, honest and truthful. Self-regulation also allows fast, free and flexible consumer protection. It is paid for by the marketing industry at no charge to the consumer. The advertising industry has been commended on its self-regulatory system by the European Commission.20 Governments from India to Brazil rely on the advertising industry to help ensure responsible advertising through self-regulation. Proof-point: Comprehensive, independently-verified monitoring of self-regulatory systems shows compliance rates above 95%.21 Slide XXV. Teaching media literacy Media Smart is an educational program designed to help children ages 6-11 understand and interpret advertising22. The content and pedagogic methods are developed by independent experts. All costs are covered by the industry. Over 4 million has already been spent on this program. Media Smart has been endorsed by the WHO, European Commission, the UK & Dutch Governments, and teachers. Proof-point: An expertly written resource that will encourage children to engage with the world around them at a more sophisticated level. John Dabell, primary school teacher23 Media Smart is currently used in the UK, Germany, Belgium, The Netherlands, Sweden, Finland, Hungary and Portugal, with more to follow. Similar initiatives exist in other major markets. Proof-point: Today, materials are in use in 20,000 schools across Europe, reaching 3 million students.

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www.scienceinthebox.com/en_UK/programs/Cool_savings.html http://www.iccwbo.org/uploadedFiles/ICC/policy/marketing/Statements/330%20Final%20version%20of%20the%20Consolidated%20Code %20with%20covers.pdf 20 European Commission, Self-Regulation in the EU Advertising Sector: A report of some discussion among Interested parties , July 2006, downloaded: http://ec.europa.eu/consumers/overview/report_advertising_en.pdf 21 See e.g. http://www.efrd.org/communication/docs/Monitoring%20Report%202007.pdf 22 http://www.mediasmart.org.uk/index-2.html 23 Primary Choice Magazine, January 2008 Page 6 of 6
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