Advertising and Its Effect on the Demand Curve

THE UNIVERSITY OF QUEENSLAND ECON7002 Markets in border advertizing and its pith on the requisite mold Markets in Action Advertising and its effect on the quest reduce Advertisement has always been an important market place dodge for firms to accomplish their goals. From cereal companies to respiratory tract companies, it is inevitable to go through the process of advert. However, what purpose does advertise serve for consumers and suppliers in the market? In this report, it is to examine the consanguinity between publicise and the market beg trim.More everywhere, the impact that advertise brings toward the consumers and the company furnish the harvest-home or divine attend. It is no surmise that populates income is always limited relatively to messs wants. Consumers accordingly fuck off to set choices among different w bes and organize (P&S) to satisfy their unlimited wants with limited income. Firms produce advantage of this issue by announce the P& S they produce to make up their profits. There ar two un getd motives for companies to advertise their products and attends.The first motive is to pouch the deal curve to the right, meaning an enlarge in market train for a product/ expediency. The encourage motive is to disdain the pushover of the fill curve, meaning the ask for a product/ aid is little(prenominal) adverted when the bell of that product/service trades (Sloman, noris & Garratt 2010). There argon a subroutine of reasons that ca determinations a demand curve to sideslip to the right. In the case of advertizing, changing the preferences and tastes of the consumers toilette expect a signifi tooshiet effect on demand.By enhancing the taste and preference of consumers, it draws young and inexperienced customers to purchase the product/service (Acharyya & Mukherjee 2003). Therefore, advertize brings a firms product/service to more(prenominal) heaps attention and additions the peoples desire for purchase it. Advertisements can in any case eliminate the possible limitations in the acquaintance of consumers and familiarize them with new predicateation more or less the product/service. Consumers can not check up on the qualities and values for to the highest degree products and work in the market until it is purchased, such(prenominal)(prenominal) as kitchen appliances or automobiles.With providing information about the product/service by advertisements, the firm aims to influence the purchasing decision and raise the leave behindingness to pay of the consumers (Erdem, Keane & solarise 2007). For example, SONY can change the consumers purchasing preference and taste by conducting a computer technology exhibition that displays the applicable technology information about the computers. most different example is McDonalds creating a television mercantile about shaker fries to inform customers about this new product. Below is a figure illustration that fates the ef fect of publicize by a rightward shift in the demand curve.With the supply curve un equaled, it can be seen that the standard demanded increases from Q to Q when the demand curve shifts to the right. As for the bell of the product/service, it increases from P to P. Figure1. accomplishment of advertising by a rightward shift in the demand curve Price e extremeicity is the reactivity of consumer demand when the price of the product/service rises or falls. Firms then use advertisements to affect consumers purchasing decisions by compelling people to buy their product/service over challengers. This means to make their product/service highly springless relatively compared to their competitors substitutes.So what fixingss influence the price breeze of demand? In this report, five determinants are examined. The first factor is the number and niggardliness of substitute product/service. For companies that have monopoly prop whiznt such as oil and electricity, an advertising sche me is usually un incumbent as consumer demand are already self-consistent regardless of a change in price. On the other hand, firms that have competitors attempts to use advertising protrudes to create product note. The second factor is the proportion of income spent on the product/service.Product/service purchases which have a small portion to total disbursal tends to have a lower pushover, since consumers has less difficulty with the extra expenditure when prices go up. For example, salt and pepper. The third factor is whether the product/service is a luxury or a demand. Products/ go which are necessary goods tend to be more inelastic as they are used to receive the basic needs of a consumer pull down if the prices go up. Whereas luxury goods are more elastic as purchases can be postponed to the future. For example, laundry detergent is a necessity and Tiffany & Co jewelry is a luxury.The off factor is whether or not the product/service is addictive. Products/ work that ar e substance abuse forming tend to be inelastic as they are required to satisfy the usage of the consumer. For example, cigarettes and alcohol beverages are addictive goods. The last but not the least factor is the amount of time consumers have to serve to a change in the price. With a longer time period, the cinch of demand is more elastic as consumers have more time to adjust their purchasing habit (Welker 2010). In a agonistic industry such as electronic products and clothing, the demand curves are most probable 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 preeminence to their substitutes and making their products as a necessity. A major method of product differentiation is to instill consumers with brand hard-corety. With brand loyal consumers, they are willing to purchase at higher(prenominal) price for the intangible set up of the produ ct/service. Slogans and Logos are customary schemes to familiarize consumers with brand names and increase brand consignment (Patti 1977).For example, Because you are outlay it by LOreal Cosmetics and Buy it, carry on it, love it from eBay (Oak 2011). Advertisements can change the consumers relative evaluation of substitutes by starring(p) them to believe that the substitute brands are inferior. For example, technical battles between orchard apple tree and Blackberry. Nowadays, persuasive advertisements have reshaped the purchasing habit of consumers with culture and brio 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 decrease in elasticity in the demand curve. With the equivalent price rise P to P, it can be seen that the quantity demanded decreases by a larger amount from Q to Q1 when the demand curve is elast ic (curve D). On the other hand, the more inelastic curve (curve D) has a relatively smaller quantity decrease from 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 some(prenominal) a decrease in elasticity and a rightward shift in the demand curve, sales are increased from Q?P to Q? P. This is due to firms can outright charge a higher price in a less warlike environment. So how do companies advertise their products/services? Firms advertise advertisement through a number of mediums, including emails and mails such as dominoes pizza, magazines such as Marc Jacob, bulletin boards such as Billabong, Radio announcements such as AAMI, television ads such as Optus and white-livered pages etc. Companies spend a pregnant amount of capital and time to plan a strategy to persuade people to purchase products.Some common strategy techniques includes eminence testimonial, claiming th at their products is desirable and consumed by many people, position endorsements, guide word and logos etc (Gladen 2008). An advertising strategy of Apple is to gain brand loyalty of consumers while 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, fretfulness and dreams. It also uses advertisements to show an indefinable assuredness element associated with every new founding 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 mack vs. PC (Deny or allow) to indicate that it is expenditure paying higher price for a virus-free Mac then a Microsoft PC (Marketing minds, 2011). For cosmetic b rand penetrate lady friend, one of their strategies is to create a slogan to despatch brand recognition. This leads to product demand curve becoming more inelastic.Almost all firms create a unique slogan to embroider 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 neighboring top model every conciliate (the most global popular molding reality TV show). Celebrity enforcements work in a way that consumers locate themselves with the celebrity in the advertisements, and are by and large 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 alerting people t o products/services that fulfills the niche requirements they have such as tastes, preference, lifestyle and etc. Moreover, consumers have fall in access to the product/service information and guidance. On the other hand, disadvantages include overstating the strong point of the product/service and mislead 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 characterization and awareness of the new developed products/services to consumers. Increase sales and profit if advertising scheme is successful. The form of online advertising victimization YouTube and other video sharing websites decreases the be of supply.However, disadvantage includes spending excessive funds on celebrity endorsements or on AFL half-tim e broadcast with no evidentiary profit gains (Akrani 2010). Successful firms have a good understanding in who purchases their products, why consumers purchase their products and what advertising strategy to implement 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 steeper slope, the primary(prenominal) goal that firms are trying to accomplish is to increase the sales and profits. Some advertising strategies might induce disadvantages to consumers and suppliers, but with suppliers applying the most suitable strategy by look for 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, The impact of advertising on consumer price sensitivity in experience goods markets, Quant market economics, Vo. 6, pp. 139-176 Patti, CH 1977, Evaluating the map 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 line 2011, http//welkerswikinomics. com/ intercommunicate/2010/10/04/im-proud-to-be-a-canadian-and- i-like-beer/ Oak, M 2011, Famous commercial slogans, viewed 27 Sep 2011, http//www. buzzle. com/ articles/famous-commercial-slogans. tml Gladen, NR 2011, Advertising and persuasive strategies, viewed 28 Sep 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, Advertising-Advertising management features and benefits, viewed 29 Sep 2011, http//kalyan-city. blogspot. com/2010/07/5-ms-of-advertising-advertising. hypertext markup language