Economic implications of advertisements

Effect on the value of products or services: advertising sets off a chain reaction of economic
events. In a free-market system, consumers have the option of choosing the desired value in
the products or services they buy. If price is more important to consumers, they have options
of buying less expensive alternatives. Others looking for luxury and status may choose more
fancy and expensive alternatives. Advertising contributes to the self-interest of both
consumers and advertisers by adding value to products and services in a free-market system.
Further it encourages competition, which adds to serve the consumer’s self-interest.

Effect on prices: advertising also adds cost and affects prices. This means that if companies
stop this expensive advertising, products would cost less and be available at lower prices. This
is a major area of continuing debate among economists, advertisers consumer advocates and
policy makers. However, this view is not totally correct. While some advertised products do
cost more than the unadvertised products, and the costs are at least partly borne by consumers,
the opposite is true. Advertising may actually help lower the overall cost of a product and keep
down the prices because of economies of scale in production.

Effect on consumer demand and consumer choice: it is generally agreed that the effect of
advertising and other promotions is an increase in aggregate consumption but to what extent it
effects consumption, is a highly debatable issue. Besides advertising, there are other important
forces such as technological advances, level of education, increases in population, level of
income, changing lifestyles etc. That exert a powerful influence on aggregate consumption.
Advertising can help stimulate demand of new products by communicating relevant
information and facts. Advertising restricts the choice of alternatives to a few heavily
advertised brands.

Effects of competition: economists are critical of advertising because it creates a ‘barrier to

entry’ of smaller firms, which have fewer resources, and cannot match the power of large firms
with huge advertising budgets. High costs may inhibit their entry and brands of large firms
probably benefit greatly from the barrier. There is a possible that adverting may discourage
competition.

Social implications of advertisements

It is generally agreed that advertising exerts a powerful social influence and is criticized for
encouraging materialism in society.

Advertising is blamed for manipulating consumers to buy things for which they have no real
need, depicting stereotypes and controlling the media.

Materialism is the tendency to accord undue importance to material interests and this tendency
perhaps, lessens the importance of freedom, love and intellectual pursuits of society, which are
non-material.

People from many countries and cultures believe that materialism tends to be negatively
related to happiness and hence is considered undesirable.

Advertisements should not attempt to persuade consumers by playing on their emotions,

anxieties and psychological needs, such as self-esteem, status, being attractive, etc, thus
fostering discontent and exploiting them to purchase products and services that they do not
need.

Stereotyping in advertising: stereotyping ignores differences among individuals and presents

a group in an unvarying pattern. Critics often point out that advertising perpetuates
stereotyping of women. The charge is that advertising has failed to portray the changing role
of women in society. Visuals and copies of ads present stereotypical images of indian women
in settings such as family illness, children, cooking, neighbours etc. Or they are shown as
dependent on men, subservient, less intelligent etc. They are also shown as decorative objects
or sexually provocative figures. There is perceptible improvement in this regard as advertisers
have started to recognize the role of working women in family affairs and decision making.

Ethical implications of advertisements

Ethics are moral principles and values that govern the actions and decisions of an individual
or group.

Many laws and regulations are put into force that determines what is permissible in advertising.

Cigarette smoking, for example, has been shown to be associated with high levels of lung
cancer and other respiratory tract diseases and many people would consider cigarette
advertising as unethical.

Sex appeal and / or nudity used simply to gain consumers’ attention and not even appropriate
to the product or service being advertised is in poor taste.

The primary criticism of advertising is that it is misleading and deceives consumers.

“puffery” is advertising that praises the product or service to be sold with subjective opinions,
exaggerations or superlatives without stating any facts and, for this, advertisers have a right.
This further complicates the issue of deception.

In india, advertising standards council of india (asci) enforces the ethical code for advertisers.
The council is a non-profit organization set up by 43 founder members and has developed a
regulating code. It proposes to adjudicate on whether an advertisement is offensive or not.
The council’s decisions are binding on its members and in case of any disputes; it proposes to
deal with the government.

Asci guidelines are as follows:

 To ensure the truthfulness and honesty of representation and claims made by the
advertisements and to safeguard against misleading advertising.
To ensure that advertisements are not offensive to generally accepted standards of
public decency.
To safeguard against indiscriminate use of advertising for promotion of products,
which are regarded as hazardous to society or to individuals to a degree or of a type,
which is unacceptable to society at large.
To ensure that advertisements observe fairness in competition so that the consumers’
need to be informed on choices in the market-place and the canons of generally
accepted competitive behaviour in business are both served.

Advertising principles of american advertising federation

Truth – advertising shall reveal the truth, and shall reveal significant facts, the omission of
which would mislead.

Substantiation – advertising claims shall be substantiated by evidence in possession of the

advertiser and the advertising agency prior to making such claims.

Comparisons – advertising shall refrain from making false, misleading, or unsubstantiated

statements or claims about a competitor or his products or services.

Bail advertising – advertising shall not offer products or services for sale unless such offer
constitutes a bona fide effort to sell the advertised products or services and is not a device to
switch consumers to other goods or service, usually higher priced.

Guarantees and warranties – advertising of guarantees and warranties shall be explicit, with
sufficient information to apprise consumers of their principal terms and limitations or, when
space or time restrictions preclude such disclosure, the advertisement shall clearly reveal where
the full text of the guarantee or warranty can be examined before purchase.
Price claims – advertising shall avoid price claims that are false or misleading, or savings
claims that do not offer provable savings.

Testimonials – advertising containing testimonials shall be limited to those of competent

witnesses who are reflecting a real and honest opinion or experience.

Taste and decency – advertising shall be free of statements, illustrations, or implications that
are offensive to good taste or public decency.