Advertising and Its Effect on the Demand Curve

THE UNIVERSITY OF QUEENSLAND ECON7002 Markets in Action Advertising and its magnetic core on the essential fold Markets in Action Advertising and its heart and soul on the acquire curve Advertisement has always been an important commercialize scheme for firms to accomplish their goals. From cereal companies to airline companies, it is inevitable to go by the process of advertisement. However, what purpose does advertize serve for consumers and suppliers in the market? In this report, it is to examine the relationship between announce and the market direct curve.Moreover, the disturb that advert brings toward the consumers and the company supplying the harvest or utility. It is no dubiousness that muckles income is always limited relatively to masss wants. Consumers therefore have to make choices among diametrical products and go (P&S) to satisfy their unlimited wants with limited income. Firms take advantage of this have intercourse by advertising the P&S they p roduce to annex their get aheads. in that respect be two primary motives for companies to advertise their products and services.The first-year motive is to swag the postulate curve to the right, meaning an increase in market conduct for a product/service. The second motive is to lower the walkover of the demand curve, meaning the demand for a product/service is less moved(p) when the price of that product/service interchanges (Sloman, Norris & Garratt 2010). There atomic number 18 a be of reasons that causes a demand curve to shift to the right. In the case of advertisement, changing the preferences and try outs of the consumers squirt have a large effect on demand.By enhancing the taste and preference of consumers, it draws new-fangled and in jazzd customers to purchase the product/service (Acharyya & Mukherjee 2003). Therefore, advertising brings a firms product/service to more pots attention and increases the peoples desire for acquire it. Advertisements can a lso eliminate the possible limitations in the knowledge of consumers and familiarize them with new nurture about the product/service. Consumers can not review the qualities and set for most products and services in the market until it is purchased, such as kitchen appliances or automobiles.With providing information about the product/service by advertisements, the firm aims to exploit the purchasing decision and raise the bequeathingness to pay of the consumers (Erdem, Keane & Sun 2007). For example, SONY can change the consumers purchasing preference and taste by conducting a computing machine technology exhibition that displays the relevant technology information about the computers. an different(prenominal) example is McDonalds creating a television commercial about shaker fry to inform customers about this new product. Below is a figure representative that shows the effect of advertising by a rightward shift in the demand curve.With the supply curve unaffected, it can be s een that the quantity demanded increases from Q to Q when the demand curve shifts to the right. As for the price of the product/service, it increases from P to P. Figure1. Effect of advertising by a rightward shift in the demand curve cost pushover is the responsiveness of consumer demand when the price of the product/service boot outs or falls. Firms therefore use advertisements to affect consumers purchasing decisions by compelling people to buy their product/service over competitors. This means to make their product/service highly springless relatively compared to their competitors substitutes.So what factors knead the price elasticity of demand? In this report, five determinants are examined. The first factor is the number and closeness of substitute product/service. For companies that have monopoly world-beater such as oil and electricity, an advertising scheme is usually supererogatory as consumer demand are already consistent regardless of a change in price. On the othe r hand, firms that have competitors attempts to use advertising schemes to create product differentiation. The second factor is the proportion of income spent on the product/service.Product/service purchases which have a small portion to entire expenditure tends to have a lower elasticity, since consumers has less difficulty with the trim expenditure when prices go up. For example, salt and pepper. The third factor is whether the product/service is a sumptuosity or a necessity. Products/services which are need goods tend to be more inelastic as they are use to fulfill the basic needs of a consumer even if the prices go up. Whereas luxury goods are more elastic as purchases can be postp atomic number 53d to the future. For example, wash detergent is a necessity and Tiffany & Co jewelry is a luxury.The ahead factor is whether or not the product/service is addictive. Products/services that are clothes forming tend to be inelastic as they are required to satisfy the habit of th e consumer. For example, cigarettes and alcohol beverages are addictive goods. The last however not the least factor is the amount of clock time consumers have to move to a change in the price. With a longer time period, the elasticity of demand is more elastic as consumers have more time to adjust their purchasing habit (Welker 2010). In a competitive diligence such as electronic products and clothing, the demand curves are most promising elastic.Advertising attempts to make the demand curve of the product/service more inelastic by utilizing the first and third factor in the previous paragraph. Creating more product differentiation to their substitutes and making their products as a necessity. A study method of product differentiation is to instill consumers with bell ringer lealty. With brand loyal consumers, they are willing to purchase at higher price for the intangible asset effects of the product/service. Slogans and Logos are popular schemes to familiarize consumers with brand names and increase brand loyalty (Patti 1977).For example, Because you are worth it by LOreal Cosmetics and Buy it, sell it, love it from eBay (Oak 2011). Advertisements can change the consumers relative evaluation of substitutes by leading them to believe that the substitute brands are inferior. For example, commercial battles between Apple and blackberry. Nowadays, persuasive advertisements have reshaped the purchasing habit of consumers with culture and life background, leading consumers to think products/services are a necessary good such as cereals for breakfast (Acharyya & Mukherjee 2003).Next page is a figure illustration that shows the effect of advertising by a reduction in elasticity in the demand curve. With the same price rise P to P, it can be seen that the quantity demanded subsides by a larger amount from Q to Q1 when the demand curve is elastic (curve D). On the other hand, the more inelastic curve (curve D) has a relatively little quantity decrease fr om Q to Q2. Figure2. Effect of advertising by a decrease in elasticity in the demand curve Figure3. Effect of advertising by a change in the demand curve With two a decrease in elasticity and a rightward shift in the demand curve, gross revenue are increased from Q?P to Q? P. This is ascribable to firms can now charge a higher price in a less competitive environment. So how do companies advertise their products/services? Firms advertise advertisement through a number of mediums, including emails and mails such as Dominos pizza, magazines such as Marc Jacob, bulletin boards such as Billabong, receiving set announcements such as AAMI, television ads such as Optus and Yellow pages etcetera Companies spend a significant amount of capital and time to plan a strategy to persuade people to purchase products.Some common strategy techniques includes celebrity testimonial, claiming that their products is desirable and consumed by many people, authority endorsements, slogan and boy etc (G laden 2008). An advertising strategy of Apple is to gain brand loyalty of consumers duration charging at a higher price. Apple posts new advertisements continuously on the internet with branding strategy that focuses on peoples emotion such as lifestyle, imagination, aspirations, passion and dreams. It also uses advertisements to show an indefinable cool element associated with any new innovation devices that they produce.The demand for Apple products will therefore inevitably be increased by bringing in new customers and increase the desire of purchase. Another technique is to show that competitors such as Microsoft PCs and Blackberry phones are an inferior product. For example, Apple created the ad mackintosh vs. PC (Deny or allow) to indicate that it is worth paying higher price for a virus-free Mac then a Microsoft PC (Marketing minds, 2011). For cosmetic brand overlie Girl, one of their strategies is to create a slogan to facilitate brand recognition. This leads to product demand curve becoming more inelastic.Almost all firms create a queer slogan to bolster and augment its business branding. Cover Girl uses Easy, Breezy, Beautiful, Cover Girl as their slogan in advertisements. Moreover, they use celebrity endorsements including Rihanna, Taylor Swift, Jennifer ONell and etc. as the face of their brand. Cover Girl also has a $100,000 US contact with Americas next top sham every season (the most global popular modeling realness TV show). Celebrity enforcements work in a way that consumers invest themselves with the celebrity in the advertisements, and are mostly likely to increase demand in targeted consumers (Wikipedia, 2011).Advertisements have both advantages and disadvantages towards the consumers and the company supplying the products/services. The advantages for consumers include warning signal people to products/services that fulfills the niche requirements they have such as tastes, preference, lifestyle and etc. Moreover, consumers have be tter access to the product/service information and guidance. On the other hand, disadvantages include overstating the effectiveness of the product/service and demoralize the consumers to make bad purchasing decisions.It also creates dissatisfaction for some people as their income cannot afford the desired product. Advertising appeals can also affect peoples health by promoting alcohol and cigarettes. For companies that supplies the products and services, advantages include increasing the image and awareness of the new developed products/services to consumers. Increase sales and profit if advertising scheme is successful. The form of online advertising using YouTube and other pictorial matter sharing websites decreases the costs of supply.However, disadvantage includes spending excessive money on celebrity endorsements or on AFL half-time broadcast with no significant profit gains (Akrani 2010). Successful firms have a good understanding in who purchases their products, why consum ers purchase their products and what advertising strategy to utilize to influence consumers purchasing decision. From this report, it can be seen that companies use a variety of advertisement plans to increase the demand of their products/services as well as to reduce the elasticity of the products/services.By changing the demand curve with a rightward shift and with a steepish slope, the main goal that firms are trying to achieve is to increase the sales and profits. Some advertising strategies might induce disadvantages to consumers and suppliers, but with suppliers applying the most qualified strategy by research and evaluation, it is more likely that both parties will benefit from the advertising result. Reference Sloman, J, Norris, K & Garratt, D 2010, Principles of economics, 3rd edition, Pearson Australia, NSW Australia Acharyya, R & Mukherjee D 2003, Advertisement and Markets, Economic and political weekly, Vol. 8, No. 50, pp. 5236-5239 Erdem, T, Keane, MP & Sun, B 2008, T he impact of advertising on consumer price sensitivity in experience goods markets, Quant market economics, Vo. 6, pp. 139-176 Patti, CH 1977, Evaluating the power of advertising, Journal of advertising, Vol. 6, No. 4, pp. 30-35 Welker, J 2010, The role of advertising in determining price elasticity of demand, viewed 27 family 2011, http//welkerswikinomics. com/blog/2010/10/04/im-proud-to-be-a-canadian-and- i-like-beer/ Oak, M 2011, Famous commercial slogans, viewed 27 phratry 2011, http//www. buzzle. com/ articles/famous-commercial-slogans. tml Gladen, NR 2011, Advertising and persuasive strategies, viewed 28 family line 2011, http//naomi- rockler-gladen. suite101. com/advertising-persuasion-techniques-a52647 Marketing Minds 2010, Apples branding strategy, viewed 28 Sep 2011, http//www. marketing minds. com. au/branding/apple_branding_strategy. hypertext mark-up language Wikipedia 2011, Cover Girl, viewed 28 Sep 2011, http//en. wikipedia. org/wiki/CoverGirl Akrani, G 2010, Adve rtising-Advertising management features and benefits, viewed 29 Sep 2011, http//kalyan-city. blogspot. com/2010/07/5-ms-of-advertising-advertising. html