Ok, back to the serious stuff again… (ugh) I have been reading this study on advertising on economics, while I am on the train. (it keeps the crazy people away) Advertising and Economic Growth by Maximilien Nayaradou and prepared by the World federation of Advertisers. (I guess there is a federation for everything) It is very interesting, and as always I am looking for clues and insight into my own market and analysis category by way of these theories and research. I am only 1/2 way through it but 2 things have struck me thus far.
1. The consumption trend for the US is crazy high compared with the rest of the world. The people here are really living on thin ice financially. There is very little saftey net if you spend 70% of your income (considered consumption in the chart). The formula is More Advertising $ Spent = More Consumer Consumption. But notice the law of diminishing returns, and how high the spending had to get just to move the needle that little bit between the UK and the US which are already at the highest end.
2. The correlation they talk about between higher advertising rates and higher economic growth rates are not really true in my opinion. I do not think extra advertising raises growth rates, I think it speeds up and condenses a product life cycle in a shorter time. The result is that things get old faster, out of fashion faster and people want new stuff faster. Therefore excessive and mass advertising would condense a product’s lifecycle from 5 years to maybe 2 at best. You train people to want something new every 2 months and your product won’t sell at all in 3. It all leads to a faster churn of companies growing booming and later failing and going under. That’s not new growth, that’s growth that would have happened anyway, you just made it faster, and it will drop off just as fast when people get tired of it and stop buying. No one talks about the downward slide on the other end, or how this creates a turblulent economy where people get laid off from jobs every 2 years and companies have to get bailed out all the time.
Don’t get me wrong, I like advertising in general. I have always been fascinated by it and love it’s news like ability to reach consumers and inform them about new priducts, information and entertainment when it is relevant and benificial. But I HATE over-advertising spammy companies that think that with enough money spent plastering their name on everything that moves, they will be able to keep that upwards growth trend going. You have to realize that people are over sensitized and will block it out after a certain point, and if they have a bad experience with the product they are not going to be very willing to give it another chance. Unless they aren’t that smart, but then as a country we have even bigger problems.