Since the Colonial period, advertisements have provided an important source of information on the American economy. In addition to its contribution to sales and GDP in the United States, according to new research from IHS Economics, advertising supported 20 million American jobs in 2014.
Advertisements help the economy by stimulating purchasers’ behavior. Advertising increases a people’s consumption and increases the flow of money. The movement of money throughout the economy increases the rate of productive activity and enhances the material enjoyment of a society’s members.
A new report from IHS Economics provides a comprehensive assessment of advertising’s contribution to domestic, state, and regional economic activity in 17 industries. Advertising contributed $3.4 trillion to U.S. GDP in 2014, comprising 19% of the nation’s total economic output, according to a new report.
Advertisements Represent a Massive Expenditure
U.S. ads represent approximately 2.5 percent of our nation’s $14 trillion Gross National Product. We have known for some time that advertising’s economic value bleeds over to other sectors such as manufacturing, agriculture, healthcare, retail, and countless other areas of U.S. economics.
Most often, advertising improves the efficiency of markets by providing consumers with useful information and enabling firms to advertise attributes of their products and services, and thus to better compete against one another. Advertising by itself provides helpful information to consumers, telling them about the choices for products and services, and about comparing features, benefits, and prices.
Advertising includes comparisons and testimonials, reducing the risk that consumers will buy poor-quality products and services. It helps to generate more income for sellers, which they can spend on improving products and services. Advertising helps the economy directly (through jobs created by producing ad messages) but also indirectly because it drives demand and provides information about other products and services. Advertising is profitable because it generates employment opportunities, increases exports, and educates customers about new products.
How Advertising Works
Advertising informs consumers on how to use a product, thus increasing the value of a product in consumers’ minds. Advertising helps to raise product value by showing positive images about a product, which, in turn, helps in persuading customers to purchase.
The money spent advertising goods does not improve the quality or the number of goods and services in an economy. Advertising costs that do not increase a good, but end up increasing prices to consumers. As each brand wants to succeed, hence, spends a lot of money on advertisement, this increases awareness about products, which leads to more competition. Companies spend money on advertising because it increases sales of existing products, helps increase the acceptance of new products, builds brand loyalty, and takes sales from competitors.
Advertising does not just move business but also drives consumption, which increases the overall economy. Yes, advertising drives mass consumption, which, in turn, drives mass production, which, ineluctably, leads to more jobs and a strengthened economy. By encouraging greater purchasing, advertising encourages both employment and productivity gains, both to help satisfy increased demand and so that every consumer has more money to spend.
Advertising Accelerates Expenditures
In a nation where consumer spending drives economic development, advertising inspires individuals to spend more. When consumers see effective, relevant ads, they form the decision to select certain products and services. Advertising is one type of information service which allows consumers to make a proper purchasing decision. Consumers also receive a variety of other information, like features and sources about the products, via advertisements.
Advertising provides accurate information on product prices and attributes, which decreases the time and energy consumers have to spend searching for a product best matches their needs. The FTC Act requires not only that advertisements are truthful, but that they do not mislead reasonable consumers as to material and objective aspects of the products or services they reference.
By recognizing that truthful, non-deceptive advertising is a powerful force for good in the marketplace, state regulators can help to ensure that businesses advertising efforts enhance useful information available to consumers. Advertising can be used to promote goods and services that enhance public health, such as use of birth control.
Advertising Helps stimulate Technological Innovation
Another major impact of advertising is its capacity to stimulate innovation by providing firms with an effective means to communicate with consumers about the availability of new products, or about novel uses of existing products. Just think, while other brands scale back advertising, and thus decrease brand recognition, you could ramp up your own marketing efforts, gain greater exposure, and diminish the importance of competitors even more.
For example, you know that during economic slowdowns, most people are looking for a good deal, so you should promote your products in this way. If the market has increased the competition in certain advertised products, then prices need to go down, like canned fruit juices of different brands. Some products are not advertised a lot, and they do not require a lot, even though they are expensive, yet still are leaders in the market because of their brand names.
One of the reasons is that spending that much money on ads makes it really hard for a new company to get into the market. Initially, you might think that advertising is something to spend money on (after all, it is not directly related to production, nor does it involve getting your products to market). Without advertising, the output of your company is doomed to significant sluggishness (far worse than the recession-induced sluggishness) and can grind to a halt.
Proving that you understand your customers’ needs will foster brand loyalty with existing customers, as well as attract new consumers, who are quick to forget your competitors who are not advertising. The study on cereal ads conducted by the Federal Trade Commissions Bureau of Economic Affairs, which Commissioners have previously alluded to, shows that ads really can include information that is actually valuable to consumers.