PERSUASIVE & COMPLEMENTARY ADVERTISING
As mentioned in the case description, Sir Dickey Beardson was clear that persuasive advertising would be the correct direction for the next campaign of his Smoochy fashion products. In addition, Beardson also considers complementary advertising. In order to understand why, this section will outline the general principles of the persuasive and complementary views of advertising, how they can change demand and make it less elastic at the same time. While these two theoretical views differ, their economic effects are similar, as will become apparent. Informative advertising is a distinctive entity and is therefore covered on a separate page.
THE SITUATION
Let us assume the following: In 2012, Smoochy was recognised by most consumers as a luxury UK fashion label. Smoochy products were sold in UK and Europe in highly regarded retail stores such as Harrods (London), Galeries Lafayette (Paris) or KaDeWe (Berlin). The demand for Smoochy products was relatively elastic, as illustrated by point a on the demand curve for a Smoochy bag (D1) in Figure 1. Why? Beardson knew that the main reason for the relatively elastic demand of Smoochy products was a deficit of brand loyalty among consumers. There existed a great number of close substitutes for Smoochy bags, so consumers could easily switch to similar brands were Beardson to increase prices. Given the relatively high price of Smoochy bags, which ranged from GBP 200 to 600, there were many alternatives consumers could choose. As a result, Beardson was determined to increase demand and create greater brand loyalty through an extensive advertising campaign in 2013. To understand how, let’s us now have a (relatively concise) look at the persuasive and complementary views advertising. |
THE THEORY
In his paper “Economics of Advertising”, Bagwell summarizes persuasive advertising as the attempt to effect demand by changing buyers’ tastes and brand loyalty. There are two strong determinants of demand: Firstly, the more desirable people find a product or service, the more they will demand of it (Sloman 2012: 34). Secondly, the more loyal people are to a particular brand, the more likely they are to purchase that brand (AMA 2012). By contrast, the complementary view of advertising holds that advertising does not attempt to persuade buyers to change their tastes. Instead, it teaches that advertising builds on predefined tastes, offering a stimulus to receive more of something that customers already value, for example “social prestige” (Bagwell 2001: 4).
For the purpose of this mock case, let us assume that Sir Dickey Beardson decides to combine both the persuasive and complementary view of advertising with one campaign. That is, he wants the 2013 advertising campaign to (i) attract consumers that had not yet been considering Smoochy products (persuasive view) as well as (ii) consumers that had already been purchasing similar products (complementary view) but from different brands. Secondly, in addition to increasing the demand for his products, Beardson also wants to enhance brand loyalty, by leading people to believe that competitor’s brands are inferior and by making Smoochy products appear more distinctive from previous alternatives (Sloman 2012: 63).
In his paper “Economics of Advertising”, Bagwell summarizes persuasive advertising as the attempt to effect demand by changing buyers’ tastes and brand loyalty. There are two strong determinants of demand: Firstly, the more desirable people find a product or service, the more they will demand of it (Sloman 2012: 34). Secondly, the more loyal people are to a particular brand, the more likely they are to purchase that brand (AMA 2012). By contrast, the complementary view of advertising holds that advertising does not attempt to persuade buyers to change their tastes. Instead, it teaches that advertising builds on predefined tastes, offering a stimulus to receive more of something that customers already value, for example “social prestige” (Bagwell 2001: 4).
For the purpose of this mock case, let us assume that Sir Dickey Beardson decides to combine both the persuasive and complementary view of advertising with one campaign. That is, he wants the 2013 advertising campaign to (i) attract consumers that had not yet been considering Smoochy products (persuasive view) as well as (ii) consumers that had already been purchasing similar products (complementary view) but from different brands. Secondly, in addition to increasing the demand for his products, Beardson also wants to enhance brand loyalty, by leading people to believe that competitor’s brands are inferior and by making Smoochy products appear more distinctive from previous alternatives (Sloman 2012: 63).
THE ECONOMIC EFFECTS
Let us now illustrate Beardson’s advertising goals and their economic effects. Figure 2 shows the relatively elastic demand curve for a Smoochy bag in 2012 (D1) we saw earlier. If the 2013 campaign succeeds as planned, the demand curve for a Smoochy bag will shift to the right to become D2. Point b shows that, at the previous price (P1), people will demand more Smoochy bags (Q2). This can occur because the (i) market has grown from changing people’s tastes (persuasive aspect advertising), as well as from (ii) increasing people’s desire for Smoochy products (complementary aspect of advertising). Furthermore, if the campaign succeeds in creating greater loyalty for the Smoochy brand, demand will become less elastic as is illustrated by the steeper gradient of D2. This would allow Beardson to raise the price for a Smoochy bag to P2 and reach point c. As Smoochy is favoured over substitute products (remember, the campaign aimed to lead people to believe that there are less close substitute products), sales will be substantially above Q1 even if Beardson decides to increase prices for Smoochy bags. You can see the gained revenue by the shaded area equalling P2 x Q3 – P1 x Q1 (based on Sloman 2012: 63). |
CONCLUSIONS
As you saw, persuasive and complementary advertising can do three things:
REFERENCES
As you saw, persuasive and complementary advertising can do three things:
- Shift a product’s demand curve to the right and thus increase demand
- Create greater brand loyalty, lessen the substitution effect and thus reduce price elasticity
- Allow revenue gains by increasing price and quantity demanded
REFERENCES
- AMA (2012) Dictionary (Online), Available from: http://www.marketingpower.com/_layouts/Dictionary.aspx?dLetter=B [Accessed 28 December 2012].
- Bagwell, K. (2004) “The Economics of Advertising, Introduction” (Online), Available from: http://www.stanford.edu/~kbagwell/Bagwell_Web/advertisingintrofv2.pdf [Accessed 28 December 2012].
- Sloman, J., Alison, W., Garrat, D. (2012) Economics, 8th ed., Pearson.