March 17, 2011

How Advertisments Impact Us

I just made you want a burger, didn't I?.
I would say a relatively common theme in personal finance is to criticize marketing and advertisements and blame them for encouraging over spending and consumerism mentalities.   The basic argument seems to be that advertisements pitch items we don't really need and individuals then are swayed to spend money they shouldn't.    I don't think that advertisements are as evil as some people make  them out to be. 

Of course advertisement can sway peoples opinions about products or companies.   If nothing else advertisements help promote brand awareness among consumers that may help steer more consumers towards the company in question.   Personally I think that most ads don't do much at all for most viewers except getting the company more exposure.

Mmmmm... Asbestos.
Ads that don't apply to me

When I'm watching TV and see the ads they offer  it seems that about half the ads are for stuff I'd never need or want.   There are ads for prescription drugs for ailments I don't have, feminine hygiene products, products for children which I don't have, ads to settle debt that I don't have, etc.   Sometimes when I'm watching an NBA game I'll see ads in Chinese.  Many ads are pitching things I've already bought or buy.   I see ads for movies that I've already seen.  There are ads for the TV show that I'm currently watching.   There are also PR type ads for the electric utility that we get our electricity from.   It seems that the majority of ads on TV are for stuff I don't need or already buy.

Ads with Information I actually want

That leaves some goods or services on TV commercials that I am interested in.  I must admit that I like seeing TV ads for new cars and movies.   I like cars.   I find it interesting to see the new cars on the market.   A flashy ad for the new Mustang will draw my attention.   But I am not in the market for a new car and do not expect to buy a new car any time soon.   These ads educate me on the brands and models available but they are not going to compel me to run out and buy a new car.   If I'm entirely honest with myself I should admit that the ads may raise my desire for a nice fancy new car.   
Ads for movies on the other hand can definitely have an impact on my spending.   I like seeing trailers and ads for movies to know what movies are coming out and get an idea if I'd enjoy watching them or not.  If I don't see ads for movies on TV commercials then I'm likely to purposefully seek out movie trailer videos online.   A very good movie commercial can definitely influence my decision to go spend money to watch the movie.

Must.. buy... BMW...

Another category of ads are for things that I may already be looking to buy or might have some interest in.   My wife and I have been talking about some remodeling projects around the house so if I were to see an ad pitching a remodeling service that specializes in doing work we're interested in then that might influence our spending decisions.   These ads basically educate me on goods or services that I may not be aware of but are actually interested in purchasing.   I don't think this is a bad thing.   If I'm in the market to buy a new dishwasher and am only considering two local shops that I know of then see an ad for a third shop who I didn't realize carries dishwashers then that expands my options.   Or if I'm looking to buy a dishwasher and see an ad that a store has dishwashers on sale then I really don't see the harm in that ad.

Sometimes Its just about Brand Awareness.

Would you rather buy Levi's jeans or Smith jeans?   Would you be more likely to drink a Coca-Cola or a Jones soda?   Would you invest your money with Schwab or with Miller?    For all three of these questions I bet that the vast majority of people would go with Levis, Coke and Schwab purely because these companies are known entities.   You are at least aware of the company if not already a customer.   All three of them have pretty high brand awareness.   A lot of time I think the primary purpose of advertisements is just to raise brand awareness.   You're a lot more likely to buy items or purchase services from companies you've heard of versus companies you aren't aware of.

Take that Hertz!
Competing Ads Negate Each other

Lets say you're in the market to buy a car.    You turn on the TV and watch a few shows.   Over the course of a few hours you might see several advertisements of cars.  You are now equally aware of all the different makes and models of cars that you saw on those ads.   A particularly good or bad ad may change your view for or against a particular car model.   But for the most part all these ads do is to raise each option to a level playing field.  

Lets do a little experiment

Taking a random sample of about a half dozen web pages that I happen to have open right now, I see web ads for the following :

Groupon, Netflix, A tax preparation service, E*trade, Tradeking, TD Ameritrade & Scottrade as well as a big ad for VanguardOracle ad about downloading WSJ for Ipad.  I'm not really clear who the ad is for, Oracle, WSJ or Apple, online access to the WSJ, Pfizer PR type ad, ad for unnamed company offering 'perfect celebrity skin without injections and recovering from back surgery in 5 days, Lendingtree advertising refinance for a low APR  and finally an ad for Progressive insurance.

Thats about 14 different companies.
3/ 14 : Already a customer : I already purchase services from three of the companies: Netflix, Scottrade and I'm already signed up for Groupon. 
5/ 14 : Could be interested : Tradeking, TD Ameritrade, Vanguard, Lendingtree and Progressive might be of interest to me if I was currently shopping for a brokerage account, mortgage or insurance.
6 / 14  NO interest. : I hate E*trade and won't touch em with a 20' pole.   I don't have an Ipad nor any interest in Oracle and I don't want or need to read the WSJ.   The Pfizer ad doesn't do anything to me and only seems to want to get their name known in a positive light.   The celebrity skin item is of no interest to me at all.

Most of the ads, 9 out of 14, I either already purchase or have no interest in.    The other 5 ads are potentially interesting but didn't compel me in anyway.

This is all just my personal opinion.    I'm sure that other people see ads much differently than I do. 

What do you think?    Do advertisements compel people to spend money on product or services in general?   How much impact do ads really have?

Photos : In N Out by caccamo, asbestos by Marxchivist, BMW by mroach & Avis by Bidgee.

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