‘If advertising doesn’t work, why do companies spend so much money on it?’ This is the zinger that is supposed to end all argument about whether marketing increases the consumption of certain products. The products under discussion are usually things that one side of the argument would prefer people did not buy and, to that end, think should not be advertised.
One can reply by saying that advertising is not coercive. One can point out that no amount of advertising can sell a bad product. One can argue that advertising is primarily aimed at making users of a product switch to a different brand. You can explain any of this, but the retort will always be the same. “Ah, but if advertising didn’t work, they wouldn’t do it!”
For example, an organisation called Alcohol Action Ireland currently wishes to ban alcohol sponsorship in sports. ‘Alcohol sponsorship of sports works in terms of increasing sales and, as a result, alcohol consumption,’ it asserts. ‘If it didn’t the alcohol industry simply would not spend so much money on it.’ They assume that the drinks industry hopes and expects advertising to increase consumption.
However, advertisers are not spending their money as an industry, but as rival firms trying to sell their own brands. Their battle for market share may or may not coincide with a growing market for alcohol as a whole, but an individual company does not need a growing market in order to become more profitable. There are plenty of heavily advertised products in markets that are static or declining. Imagine ‘Toilet Paper Action’ Ireland declaring that ‘Toilet paper advertising works in terms of increasing sales and, as a result, toilet paper consumption. If it didn’t Andrex simply wouldn’t spend so much money on it.’ Such a statement would be patently absurd.
Secondly, it is an empirical fact that advertising generally doesn’t increase the size of the market. The exception is if the entire product category is new. An advertisement for a T-model Ford in 1915, for instance, may have encouraged more people to buy a motor car, but an advert for a BMW today is unlikely to do so even if, as intended, it encourages more motorists to buy a BMW.
Earlier this year, another study confirmed what economists have always known. Looking at sales of alcoholic beverages in the US over 40 years, it found ‘changes significantly correlated to fluctuations in demography, taxation and income levels – not advertising. Despite other macro-level studies with consistent findings, the perception that advertising increases consumption exists. The findings here indicate that there is either no relationship or a weak one between advertising and aggregate category sales. Therefore, advertising restrictions or bans with the purpose of reducing consumption may not have the desired effect.’
The authors of the study found that the amount of money spent on alcohol advertising in the US has increased by almost 400 per cent since 1971. During that time, they noted, ‘per capita alcohol consumption has not changed much’. In the UK, it is estimated that £800 million is spend on alcohol marketing each year and yet per capita alcohol consumption has dropped by a fifth since 2004.
If the aim of advertising is to increase the size of the market, it doesn’t seem to be working very well. Instead of asking the supposedly rhetorical question ‘If it didn’t work, why would they spend so much money on it?’, single-issue campaigners should look at the evidence from alcohol and other markets and ask themselves the more searching question: ‘It doesn’t work (as we define “work”) so why are they spending so much money on it?’ Economists do have some answers to this.
Christopher Snowdon is the IEA's Director of Lifestyle Economics. Recomended reading: Advertising in a Free Society.