Private costs of advertising

Posted by Alexander Ginzburg on September 28, 2007
Filed Under Advertising |

I’ve mentioned two types of costs caused to the consumers by advertising: public and private. In my previous posts I’ve extensively discussed the public costs that are embodied in the product’s price and paid at the occasion of a purchase. These costs are called public since all of the consumers must pay them, regardless of the degree of their exposure to advertisements. In this post I will refer to the other kind of costs, which are called private due to their dependence on the amount of a persons exposure, they are caused each time he bumps into a commercial ad.

This kind of costs is less measurable since the nature of their effect is psychological rather than financial. The essence of this effect is the influence on the consumer’s judgment with a purpose of convincing him to take irrational actions, such as preferring one product to another regardless to their quality. Although people might think that besides getting on their nerves and wasting their time advertisements have no effect on them whatsoever, thousands of studies, millions of companies and publicity budgets of billions would say otherwise. Furthermore, this state of mind of not being influenced by advertising is one of the clues that it is actually very effective.

For instance, many buyers were probably thinking that Nike’s Air Jordan sneakers were the best sport shoes ever. If they were indeed of such high quality, we should wonder whether the same shoes would make such a success with Scottie Pippen instead of Michael Jordan on the front. If you haven’t heard of Pippen, you may take it further and imagine how Air Ben-Laden would sell. I guess that probably not so well. In this case the advertisers used the immense admiration towards a legendary basketball player to sell shoes. They had bound between Jordan’s skills and the brand in order to satisfy the fans’ who wish to resemble their idol. Someone who hadn’t seen the commercial with Michael Jordan wearing those shoes wouldn’t understand why it costs 50% more than another product of the same quality. Eventually, the private costs include the differences between the benefits of rational and irrational decisions. Avoiding advertisements can save those costs.