THE ECONOMICS OF ADVERTISING.
-1--T is estimated that as much as a hundred millions sterling is spent every year in the United Kingdom on adver- tising, and five or six times as much in the whole world. This is a tremendous expenditure, of which it is both interesting and important to tram the workings and the effects. It is time that the subject was studied fully by economists. Take the case of some article that is advertised on every hoarding and in nearly every newspaper, so that a certain picture or a certain catchy phrase presents itself before oin eyes morning, noon, and night. Knowing people are tempted to say "Too much is spent on advertising. It is obvious that the buyer pays for the greater part of it. What ought to he spent on improving the quality of the article is spent on making it popular. This sort of adver- tising is a trap for gulls. The over-advertised article is the one for wise people to avoid." This argument seems to have some reason, and in the case of quack medicines and such-like rubbish it may often be true. But it certainly is not neces- sarily true—not true in any sense that would satisfy the tests of a scientific economist. A very little consideration will show how much this argument omits. Advertising brings the seller into relation with buyers, and the more he is brought into that relation the more his sales increase. Bat the more his sales increase the more cheaply he can produce. Large sales enable him to improve his plant, buy labour- saving machinery, and standardize his methods. At 'what point advertisement ceases to cheapen production is a question for individual trades. Great as the expenditure is, it is not yet great in comparison with the national income. Advertising succeeds, and is therefore certain to increase in magnitude and ingenuity. No one can doubt it at a time when the War Office (quite rightly, as we think) has taken to advertising the Army, when seaside towns are trying to get a Parliamentary Act passed to enable them to spend ratepayers' money on advertising, and when newspapers are daring one another to prove that they enjoy the confidence of the advertiser.
Any scientific treatment of the subject is opportune, and we welcome a little book, Adverlising a Study of a Modern Business Power, by Mr. G. W. Goodall (Constable and Co., is. 6d. net), which is one of the series called "Studies in Economics and Political Science," written by men connected with the London School of Economies. The book does not carry us very far, but it states the facts and points the way Who gets the money spent ? Who spends it? What does the community obtain in return ? These are the questions which Mr. Goodall asks himself. In a preface Mr. Sidney Webb offers the opinion that "the question of where the cost of advertising finally falls" cannot yet be said to be answered to the satisfaction of economists. We do not suppose that it ever will be answered so as to silence dispute. Those who are sure, for instance, that a Protective tax on foreign imports would be paid ultimately by the British consumer could hardly hope ever to persuade to their own way of thinking, on any question of the incidence of taxation whatsoever, the type of people who believe that such a Protective tax would see wholly borne by the foreigner. Mr. Sidney Webb says:—
"It is easy to see that advertised goods are not necessarily, or even usually, more expensive than unadvertised goods. The consumer of much-advertised soap or cocoa or motor-cars, cannot reasonably be supposed to be bearing tll'e very heavy cost of advertising these commodities. Without advertising they would certainly be no cheaper. Nor is the vendor, on the average, at any loss by advertising: on the contrary, it is plainly adver- tising which builds up many of the largest fortunes made in business. More plausible is the suggestion that the expenditure of successful advertisers is really made at the cost of those trade rivals who are distanced, or in many cases ruined, by their more enterprising competitors. The three million pounds which the late T. J. Barrett spent in advertising a particular soap represents, on this hypothesis, the value of the wrecks to which the com- petition of this giant soap-manufacturer has reduced so many small old-fashioned soap-boilers. Not a few staid and respectable carriage builders in county towns, and in Long Acre itself, most have 'gone under' in the competition which has brought to the top the successful advertisers of motor-cars. There is no record of ruined businesses, no account of the destruction and waste of capital which, on our present individualist system, the warfare of commerce involves. And the internecine conflict is not wholly between rival commodities of the Barna kind. There are such substitutions as bicycles for books, or books for bicycles, according not only to the season of the year, but to the strength of the influences that are brought to bear on the purchasers. The con- sumer's outlay may be diverted, by incessant advertising, from food and clothing to tobacco and Continental holidays ; or from cement expenditure, good or bad, to the taking out of an insurance policy or the purchase of a house through a building society. We may regard the advertisers, in short, as struggling both among t hemselves, and with the non-advertisers, for the contents of the consumers' pockets, and—carrying the matter to the utmost point —for the allocation among different needs and desires of the whole of the nation's income." . This view of commerce as a scene of carnage, massacre, and destruction, only to be rehabilitated by the beneficent hand of authority thrust down from above, is highly characteristic of Mr. Sidney Webb. Anyone reading these words, who had not kept Lis eyes open to what has actually happened in England during the past generation, would suppose that a few vampire capitalists, masters of the world of soap, had sucked the blood of their rivals dry, and secured for themselves all the profits that there were or are to he made out of soap. As a matter of fact, there were never so many varieties of soap to be bought as there are now, nor so many firms making soap. Those who are not yet old can look back to the time when they would haws been hard put to it to name more than two well-known makers of soap; now they could probably mention a dozen. Their names confront us in every chemist's shop. No doubt some firms have gone under. If they did not keep abreast of the times and manufacture the soap that was wanted, they deserved their fate. The danger of such a doom is a large part of the incentive of commerce, and must be so as long as the instinct of self-preservation is implanted in man. Mr. Sidney Webb either ignores this instinct or hopes to get rid of it—we are not quite sure which, nor in the end does it very much matter.
A hundred millions seems a vast sum to spend on adver- tising, but, as Mr. Goodall points out, it is not more than four or five per cent, on the national income. In some trades expenditure on advertisement is obviously essential, however doubtful the economics of it may be in some others. Take the case of a seller of a knicknack likely to catch the public fancy, who cannot make the article known except by advertise- ment. The seller we are imagining lives in an obscure street or in a back mom two or three storeys high. By advertisement (whether in newspapers or by letters through the post) he establishes communication with his public. Be could not have done so otherwise, as he has no attractive shop window in an important street where his goods could be displayed. As Mr. Goodall puts it, he "gets behind" the law of rent. His expenditure on advertisement is a saving in rent. If he successfully builds up a business, he may prefer to alter the ratio of his expenditure on rent and advertisement—so far as one can really be distinguished from the other, for of course the rent of a shop in a fashionable street is nothing but a payment for advertisement—but at the beginning he could not have proceeded in any other way than he did. Mr. Goodall is wiser than Mr. Webb when he says :— " As regards the monopoly or Trust in its Anglicized fonn, it is sometimes urged that advertising, by favouring large-scale pro- duction, is hastening the development of the industrial Combine, and that the Combine will itself extinguish advertising. It is, however, not necessarily the case that large-scale production leads to monopoly. The ' law of increasing returns' operates 'within limits.' In some industries, a large firm gains little in economy of production by becoming a very large firm, so that the tendency of advertising, viewed in this way, may well be to assist small firms to become larva ones, and largo firms to maintain their position, rather than to bring about monopoly organization."
Advertising creates a demand quite as often as it reshapes the course of an existing demand. It is said that advertising frequently succeeds by a kind of mental suggestion. People of sensitiveness or fastidious taste like to assure themselves that they are holding out against having some article thrust upon them by a blatant advertiser. They are sick of the very name of what he offers, and are resolved never to have it in their houses. But in an unguarded moment, when giving orders in a shop or by letter„that name, and that name only, will spring up in the mind. If it does not, their children, their servants, or their friends will sooner or later order on their behalf the thing with the nooses infandion. Advertisement is bad to beat.
Mr. Sidney Webb foresees a future collectivist organiza- tion of society in which advertising will aim "at what is believed to be some advantage to the community as a whole; it will not be swayed by any individual gain ; it will be directed by persons acting only as the servants of the particular branches of public administration concerned." What he foretells, in fact, is not the abolition of advertisement, but the "elitnina. tion from it of all motives of personal self-interest and private gain." May we long be spared that day, when, instead of advertisements written by men with a tumult of ambition compelling their pens or the light of commercial battle shining in their eyes—advertisements keen, personal, and
alive, with all their defects—we shall have lack-lustre depart- mental droning. The day of redone administrative will be a dull one indeed; the advertisements will be the slavish productions of slaves for slaves.
Previous page
