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Having been given our topic ‘The Economics of Advertising’ we scratched our heads for a while and pondered how to produce an interesting yet informative overview of the subject. Then we had an idea...
We know how everyone misses the opportunity to read and discuss case studies, so we decided to write one of our own! This homepage provides a brief company overview and outlines the decisions that must be made.
We know how everyone misses the opportunity to read and discuss case studies, so we decided to write one of our own! This homepage provides a brief company overview and outlines the decisions that must be made.
THE ECONOMICS OF ADVERTISING CASE STUDY
INTRODUCTIONSir Dickey Beardson, CEO of UK based ‘World Holdings Of Retail Enterprise’ (or ‘WHORE’ as it was affectionately know), was a happy man. As he sat in his wood paneled office, sipping a large whisky, he reminisced over his business achievements. As a young man, Beardson had been academically inept. However, after founding a small record label aged 16, he discovered an entrepreneurial talent that would later flourish. Today, WHORE was a multinational holding company, owning a diverse range of subsidiaries. These subsidiaries produced a range of products for the consumer market, from electronics to high-end fashion accessories. In recent years business in many of these sectors had boomed.
However, the diverse range of products brought with them their own difficulties. The challenge lay in marketing the products. As each company was so very different, producing radically different products, a ‘one size fits all’ approach to marketing would never have worked. Though it was usually the responsibility of each company’s marketing manager to decide on a suitable plan, Beardson enjoyed a hands-on approach when it came to dealing with his investments. |
SIR DICKEY BEARDSON &
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ONE OF THE NEW SMOOCHY BAGS FOR 2013ONE OF THE NEW PHONY ALPHA CAMERAS FOR 2013 |
At that moment the mobile on his desk started squawking. It was Alotta Saile, Marketing director of Smoochy fashion label. Her Russian tone was somewhat challenging for Beadson to interpret:
“Dickey, I need ze confirmation on our marketing direction. Next season’s product line is designed and ready- we sink it could be really fabulous! However, ze ad campaign is critical! We must present good brand image. Our customers expect ze best, and zis is what zey shall get. Listen - I know you are busy, but I need zose budget figures ASAP!” After discussing a few other admin points, Dickey hung up. This was the second conversation with a marketing manager he had taken today; Aye Win Wii of Phony Digital had also been enquiring along a similar vein. Phony, one of Japan’s leading electrical goods manufactures, had released a number of innovative products in time for the Christmas rush, and needed a set of adverts that demonstrated all the new features that Phony’s engineers had worked so hard to refine. |
Beardson was no stranger to the power of advertising and the economic effects these adverts would have on the entire company. While a well-designed campaign could increase product demand and boost brand image, a poor campaign could not only waste money (many of the traditional advertising methods were extortionately expensive) but would also have lasting effects on customer perception. Experience told him that products from the fashion label Poochy (handbags, hats, shoes etc.) should be advertised in a very different manner than those from Phony (Digital cameras, lenses, and photography accessories).
THEORIES
Academic literature also suggested a disparity among advertising methods: The Persuasive view of advertising relied on creating an exclusive aura around the brand. The customer’s would be willing to pay a high price just to be associated with the brand. Other top end fashion labels such as Chanel and Prada would sell the majority of their products at ridiculous prices. This way, when a customer saw a bottle of perfume from these ‘exclusive’ brands for only £60, it seemed a bargain (“usually items from this brand are hundreds of pounds!”). Academics would refer to this phenomenon as price inelasticity. It was clear to Beardson that this would be the correct direction that the Smoochy campaign should be headed.
Phony Digital was a different kettle of fish. These products would have to prove their superiority among tough competition. Consumers in this segment were notoriously fickle, displaying little brand loyalty. Here an informative advertising style seemed more appropriate. It was important that the campaign showed customers that Phony really did make technologically superior products that offered value for money. Unlike the persuasive theory, the informative theory was often associated with price elasticity.
DECISIONS
As he pondered the day’s conversations, Beardson started weighing up the attributes of each advertising theory. A number of questions played on his mind. How would the different advertising styles affect customer perception? How would the chosen campaign affect brand image? Should he go ‘all-out’ on advertising and hope that selling a large volume of products would equate to more efficient economies of scale? Were there other theories he had missed? He was aware that at least some academics referred to a complementary theory or even a reminder style of advertising. It was clear that Beardson had a number of decisions to make which would have lasting effects on his company.
THEORIES
Academic literature also suggested a disparity among advertising methods: The Persuasive view of advertising relied on creating an exclusive aura around the brand. The customer’s would be willing to pay a high price just to be associated with the brand. Other top end fashion labels such as Chanel and Prada would sell the majority of their products at ridiculous prices. This way, when a customer saw a bottle of perfume from these ‘exclusive’ brands for only £60, it seemed a bargain (“usually items from this brand are hundreds of pounds!”). Academics would refer to this phenomenon as price inelasticity. It was clear to Beardson that this would be the correct direction that the Smoochy campaign should be headed.
Phony Digital was a different kettle of fish. These products would have to prove their superiority among tough competition. Consumers in this segment were notoriously fickle, displaying little brand loyalty. Here an informative advertising style seemed more appropriate. It was important that the campaign showed customers that Phony really did make technologically superior products that offered value for money. Unlike the persuasive theory, the informative theory was often associated with price elasticity.
DECISIONS
As he pondered the day’s conversations, Beardson started weighing up the attributes of each advertising theory. A number of questions played on his mind. How would the different advertising styles affect customer perception? How would the chosen campaign affect brand image? Should he go ‘all-out’ on advertising and hope that selling a large volume of products would equate to more efficient economies of scale? Were there other theories he had missed? He was aware that at least some academics referred to a complementary theory or even a reminder style of advertising. It was clear that Beardson had a number of decisions to make which would have lasting effects on his company.
CONTENT OVERVIEW
PERSUASIVE & COMPLEMENTARY ADVERTISINGLearn how persuasive and complementary advertising create more demand and brand loyalty for Smoochy products.
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INFORMATIVE ADVERTISING
Learn how informative advertising can lower prices and how this can help Beardson in selling more Phony products .
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QUICK CASE
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TRENDS
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ECONOMICS OF ADVERTISING QUIZHaving read the case and the corresponding theories, it’s time to see how much you’ve taken in.
Our short Economics of Advertising Quiz will test your knowledge of advertising theory. |