Industrial Economics - The Advertising Debate

Academic year: 2001/2002

group member responsibility

Virginie GAUTHIER theoretical part, French market, Danone

Carine FERNANDEZ theoretical part, French market

Antonia HAVADI-NAGY theoretical part, German market

Bettina SCHULTE theoretical part, German market, layout

Andreas LOREK theoretical part, German market, layout, Danone

Table of  Content  

  Introduction  2

  I The Advertising debate  

   3

  I 1 What is Advertising  3

  I 2 Why should we advertise  4

  I 3 and how much is useful  4

  I 4 Advertising in the market  5

  I 5 How much has an enterprise to spend  5

  I 6 What are the different views of Advertising  6

  I 7 What are the consequences of Advertising  6

  a) on the market  7

  b) on the product  8

  I 8 Conclusion  9

  II The French and German Advertising Market an overview  

   10

  II 1 Germany one of the first members of Europe  10

  II 2 Advertising and Society in Germany  10

  II 3 Restrictions of the government  11

  II 4 The Media Landscape  12

  II 5 France an important country in Europe  15

  II 6 Socio-economic profile  15

  II 7 Government s restrictions  15

  II 8 Advertising industry in France  16

  II 9 The Media Landscape  17

  III The product Danone Actimel as example for different Advertising in Germany and France  

   20

  III 1 Danone Group  20

  III 2 France home country of Danone  20

  III 3 Danone GmbH Danone in Germany  21

  III 4 Actimel one of the most successful products of functional food  21

  III 5 Advertising for Danone Actimel  22

  www actimel de - the German Internet presence  22

  III 5  1

  III 5 1 a design and navigation  22

  III 5 1 b Content features  23

  III 5 1 c Conclusion  23

  www actimel tm fr - Actimel s internet presence in France  24

  III 5  2

  III 5 2 a design and navigation  24

  III 5 2 b content features  25

  III 5 2 c conclusion  25

  III 5 3 www actimel dewww actimel tm fr  26

  III 5 4 an example for a French print advertisement  26

  III 5 4 an example for a German television spot  26

  1  27

Introduction

“Always Coca-Cola” who does not know this catch phrase? Advertising largely influences the consumer behaviour. The aim of advertising is to push the consumer to buy and for companies it is a good way to increase their benefits and to have a well-known brand name. The advertising debate deals with the way of seeing advertising: as a mean of persuasion or as a mean of information?

At first, we would analyse the meaning of advertising within the advertising debate part. Moreover, we will focus on the French and German advertising market. At last, we would compare, the different ways of Advertising in France and Germany of the product Danone Actimel.

I. ....... The Advertising debate

I.1. What is Advertising?

There are different views: for some economists, it is a waste of money, for others, it is really important for the market economy.

Advertising is useful when the potential market is important. There are different kinds of advertising:

The three goals of advertising are:

to inform the consumers.

media distribution of advertising expenditures in 1999

Advertising could be combined with other kind of promotion so it could be a substitute or a complement. According to Doffman, advertising could influence the position of firms demand curve.

I.2. Why should we advertise …

Advertising is useful when the product is not well known in order to inform consumers about quality, characteristics or to push them to buy a product and of course to increase the sell of the company. Advertising permits to attract new consumers, keeping old ones and to prevent the entry from other competitors. There are two points of view about advertising. On the one hand, the industrial economists do not consider that advertising has an effect on the demand curve. But on the other hand, the neoclassical ones think that advertising is useful in order to maximise company profits.

I.3. … and how much is useful?

Advertising is much more common in industrialised countries due to their purchasing power. The expenditure on advertising depends on the type of goods; for example, firms spend much more money in advertising for consumers’ goods than industrial goods.

Moreover, concerning the consumer goods, a company spends more money on non- durable goods. A company could make more margins thanks to advertising because it is the cheaper mean to promote a product The product and the market characteristics could influence the efficacy and the cost effectiveness of advertising. As the consumer goods market is huge and worldwide presence compared to the industrial goods market, which is smaller and more specific. So the firms spend more money in consumer one.

The consumer behaviour is different according to the kind of goods. For example, consumers do not pay attention to the information about non-durable goods but they need a lot of information concerning the durable goods. Moreover, for durable goods, the companies have to advertise more on the price than on the product itself. According to Stigler, the concept of search explains that the consumer choice could be better when they could find information about the price, the availability and the quality of the product. There are different kinds of research like magazines, exhibitions, and phone enquiries. But the problem is: if the consumers collect too much information, he will not find the lower price.

If the consumers are searching hardly for a lower price when the firm will have to reduce its investment on advertising in order to get a more competitive price on the market.

For usual goods, consumers do not search a lot of information and satisfy themselves with advertising in part for unknown characteristic product. Nelson divides the goods in two categories:

experience goods: goods that consumers could evaluate after purchasing (car servicing) The role of advertising for search goods is to inform the consumers although concerning experience goods, the advertising role is to signal the presence.

According to Davis, for the consumer, advertising is a synonym of quality, so the company has to advertise a lot if they want that the consumers trust in them and therefore they could sell more.

According to Telser, some kinds of goods (baby milk) are volatile; that is why companies have to advertise heavily in order to inform the new consumers. A firm will also have to advertise a lot if its product characteristics could change rapidly or if it is on a market where they are a lot of new entrants.

To conclude, it is very important to advertise in order to inform and push consumers to buy.

I.4. Advertising in the market

There have to be different advertising levels because of the differences in market structures.

The optimal level of advertising depends on the market structure. For example the level of advertising intensity in monopolies depend on the responsiveness of the customer to advertising messages and to changes in the product price. The goal in monopolies is that people buy more expensive products because of advertising. ( Dorfman and Steiner) In Oligopolies the advertising intensity varies with the level of concentration. (Cable) Reasons why in Oligopolies it is better to change the advertising intensity than the product price are:

it can more easily be reversed without costumer complaining The optimal advertising intensity depends in how rivals react (Cowling) e.g. the optimal amount of advertising is lower if rivals hold their price constant and moot their own campaign.

I.5. How much has an enterprise to spend?

The costs of advertising depend on the advertisement repetition and on the combination of the advertising media. Advertising threshold could be one reason why unit-advertising costs decrease.

Threshold effect means that a certain amount of advertising has to be undertaken before any increase in sales is noted.

Once past this threshold advertising costs per unit output will fall. (Albian and Farris) Others disagree, suggesting that each time a message is repeated the number of new contacts made diminishes.

Increases in the expenditures in advertising can be coupled with changes in the type of advertising and one can also organise the advertising more effectively. Advertising is most effective if there is either a big target group or a variety of advertising channels.

I.6. What are the different views of Advertising?

Focusing on different views of advertising, one distinguishes between the “Persuasion” and “Information” view.

The “advertising as persuasion” view was advanced by Bain in 1968, Comanor and Wilson in 1974.

By advertising goods, one hopes that consumers will be persuaded and will therefore tend to change their preferences in favour of the advertised product. Promoting goods will cause that consumers get a distort view thinking that the advertised product will bring more benefit and satisfaction to them than other products.

The altered consumers’ behaviours concerning advertised goods and the fact that the consumers develop a brand-loyalty will effect that the demand of these particular goods becomes less sensitive to price changes. Another effect is the reduction of cross-elasticity between the demand of the advertised goods and its substitutes. Besides, using advertising can build entry-barriers for new firms on a particular market, as consumers tend to stick to the advertised goods that they are familiar with. The market structure will remain unconcentrated and the existing firms can offer their products at higher prices.

According to these advantages firms can achieve by using advertising, the rival firms who do not advertise or who are new in the market have either to heighten the advertising pressure or have to convince with substantial price discounts in order to face the firm who advertises.

The “advertising as information” view, which was advanced by Stigler in 1961, Telser in 1964 and Nelson in 1978 focuses on the aspect of given information in advertising. As the consumers have an imperfect knowledge concerning goods, advertising is used in order to provide information.

Looking at the point of view of consumers, they need to compare, distinguish and to be aware of other alternatives if they want make the best choice; Stigler even mentions that there is an optimal amount of knowledge for each product. Finally, the consumer benefit by buying the product that matches best.

By giving consumers information on an imperfect knowledge market, one will enable better purchase.

As the consumers are very conscious and concerned, especially focusing on the prices, the demand will get more price and cross-price elastic. This will cause that more and more firms are forced to offer more attractive prices.

Besides, advertising facilitates the entry for new firms, as they can inform and make their potential customers aware. The reduced entry barriers will increase concentration and competition, which is another reason why the prices will eventually decrease.

I.7. What are the consequences of Advertising?

Now we have seen the different views of Advertising. But the discussion between ‘advertising as persuasion’ and ‘advertising as information’ is not completely right. Advertising has different influences, mainly on the market and on the product.