The Economics of Advertising     Anthony J. Pennings, PhD       New York University
3 Roles of Advertising• Persuasive• Informative• Complementary• Informative?
What is Advertising?Advertising informs the perception ofgoods and services to influenceconsumers and to reassure investor...
Advertising Industry Structure• Advertising traditionally has been  dominated by four major conglomerate  holding companie...
Advertising Industry Structure• Google quickly became a powerhouse in the  advertising field reaching revenues of over  US...
Why Advertise?Advertising is best seen within a context ofcompeting against other companies withsimilar goods or services ...
Why Advertise?The more competition in an environment, the more  the need to advertise?O – market structure
John Kenneth Galbraith• As a famous economist on modern industrial  society Galbraith pointed out the two major  reasons f...
MySpace vs. FacebookAdvertising or technological innovation?
Why AdvertiseDetermine what brands rather than what products people will buy
Why Advertise?Differentiate a productDraw attention to brands
Why Advertise?Brands as “symbolic thirds”?
Why Advertise?• As a barrier to entry to gain competitive  advantage• Impose high start-up costs on new  entrants• Especia...
Why Advertise?• Brand proliferation• Pepsi One, Coke Zero
Economics of advertising
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Economics of advertising

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  • Economics of advertising

    1. 1. The Economics of Advertising Anthony J. Pennings, PhD New York University
    2. 2. 3 Roles of Advertising• Persuasive• Informative• Complementary• Informative?
    3. 3. What is Advertising?Advertising informs the perception ofgoods and services to influenceconsumers and to reassure investors aswell as distributors and retailers
    4. 4. Advertising Industry Structure• Advertising traditionally has been dominated by four major conglomerate holding companies: – Omnicom and Interpublic of New York – WPP of London – Publicis of Paris• These advertising groups account for some 250,000 employees and own subsidiaries spread among many countries throughout the world
    5. 5. Advertising Industry Structure• Google quickly became a powerhouse in the advertising field reaching revenues of over US$20 billion by 2010
    6. 6. Why Advertise?Advertising is best seen within a context ofcompeting against other companies withsimilar goods or services for sale. It isuseful for companies that may want toincrease competitive advantage in acrowded market
    7. 7. Why Advertise?The more competition in an environment, the more the need to advertise?O – market structure
    8. 8. John Kenneth Galbraith• As a famous economist on modern industrial society Galbraith pointed out the two major reasons for advertising: – Manipulate market demand – Guard against sudden shifts in demand
    9. 9. MySpace vs. FacebookAdvertising or technological innovation?
    10. 10. Why AdvertiseDetermine what brands rather than what products people will buy
    11. 11. Why Advertise?Differentiate a productDraw attention to brands
    12. 12. Why Advertise?Brands as “symbolic thirds”?
    13. 13. Why Advertise?• As a barrier to entry to gain competitive advantage• Impose high start-up costs on new entrants• Especially in a digital environment? – No natural economies of scale to ward off competitors
    14. 14. Why Advertise?• Brand proliferation• Pepsi One, Coke Zero

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