Advertnomics

Recently, a friend pointed me in the direction of this article: http://www.voxeu.org/article/advertising-and-consumer-prices He’s an economist, and I’m not. Which means one thing. I spent the best part of 10 minutes trying to decipher it.

But once I did decipher it, some of the things mentioned in it came as a surprise to me, a humble ad creative. ­­The article states that the presence of advertising can affect prices. The increase of consumers’ information increases competition and lowers consumer prices. So, advertising in certain products can actually decrease prices of products. This isn’t always a bad thing if you’re shifting several million more units but it is an interesting point to note. I think as an ad creative you often think any positive effect your ads are having just increase units sold. You don’t stop to consider the other factors you might be affecting as well.

Also, and this is where it starts to bend your mind a little, advertising can affect certain products differently. For some products advertising can change consumers preference and increase demand and / or decreasing the elasticities of substitution (the angle of the demand graph). This would effectively mean that advertising would increase the price of the products to consumers. Essentially, they can react to changes caused by advertising in the opposite way.

In terms of examples, research tends to suggest advertising decreases prices for eye-glasses and breakfast cereal, but can increase prices for things like beer.

It’s not really the role of the creative to delve into the world of economics but I think it is an interesting point to stop and consider what influence you are having on the market the next time you buy a successful product you’ve been working on only to discover its price has increased.