February 2, 2015
The discussion below has been taken – with approval – from “The Behavioral Economics Guide 2014” (pdf). This is the first of two posts from this document of over 100 pages of information.
It gives two points of view – manipulative or value-add. As a marketing person I had a hard time swallowing the “manipulative” story. Have a read and tell me what you think.
Does marketing provide in-kind benefits?
Certainly some advertising is entertaining; indeed, some people I know watch the Super Bowl for the ads, in extreme cases recording the whole event then skipping over the scant moments of actual sports squeezed in between the ads. Advertising also supports media; Google searches, Facebook and all sorts of other services, and provides employment to countless individuals. Of course, if they weren’t employed in marketing they would probably be engaged in other forms of gainful employment, but it is difficult to imagine exactly where a lot of the smart, creative, artistic, intuitive people who populate the marketing profession would find an alternative demand for their talents – maybe teaching or consulting?
How inherently good is the product?
To the extent that there are real differences in quality between products, marketing is beneficial if it disproportionately drives consumers to high-quality products. There is an old ‘signaling’ theory of marketing from the economist Philip Nelson which proposes that marketing provides valuable information—that marketed products are disproportionately good ones, because it wouldn’t make economic sense for a seller to propel buyers to an inferior product that shoppers would only buy once. On the other hand, many products, like bottled water, fancy liquors, perfumes, and BMWs, are highly valued only because, and to the extent that, they are successfully marketed.
Does advertising enhance pleasure from the product?
Even if Evian tastes, in actuality, no better than London or New York tap water, it could be argued that marketing is beneficial to the degree that it makes people feel that it does taste better, at least if doing so enhances pleasure from consumption.
Is the product good or bad for the consumer’s welfare?
Some products, such as exercise clubs and highbrow cultural items such as books, movies, and plays, are arguably good for people in the sense of developing their minds or bodies. Others, such as alcohol, cigarettes, and highly processed foods, impose ‘internalities’—health or other costs those consumers fail to internalize. Advertising could be argued to be beneficial, to the extent that it promotes products with positive internalities, and detrimental, to the extent that it promotes those with negative internalities.
Is the product good for society?
Analogous to—and much better known than—the concept of internalities are externalities, costs that people impose on others but fail to internalize. Most products, like big cars, airplane travel, and heavily packaged take-away lunches (which in this country, bizarrely, are exempt from the taxes applied to food eaten in), produce externalities, if only in the form of carbon gas emissions.
In addition, as Robert Frank has written about so eloquently, products that are consumed conspicuously produce a kind of consumption ‘arms race’ between consumers, with not much greater benefits than the more familiar type of arms race from which the metaphor derives. One person’s fancy car, large house, or incredible vacation is, for observers, a source of envy, very likely driving them to competing conspicuous purchases in a never-ending cycle that promotes waste, encourages debt, and discourages saving (neither of which is typically observable by others).
What are the market forces?
Another form of arms race occurs in the commercial sphere. An increase in one company’s marketing forces other companies to also increase their own marketing, or risk losing business. The end result may be a huge boon to marketers, but it is of questionable value to consumers or society as a whole.