Nick Weingartner

Exam Two – Essay Two

Professor Ronald V. Bettig

The Advertising Effect: How Advertising Alters the U.S. Economy, Media and

Culture

Advertising is currently an essential social institution in the United States. It

affects the U.S. economy, media structure, the form and content of our media, and is

showing no signs of slowing, as it continues its reach into every aspect of a citizen and

consumer’s life.

Advertising emerged as a social institution with the advent of industrialization, as

a means to offer comforting faces like Aunt Jemima, Uncle Ben and the Quaker Oats

Quaker to help consumers move from buying from their local shopkeepers to trusting

these mass-produced homogenous goods (“No Logo”). Norris argues that this was also a

method of altering the supply chain, giving manufacturers the ultimate power, instead of

the distributors, allowing them to set the prices themselves (Norris, pg. 280). He argues

that advertising creates artificial product differentiation, which allows companies to

create a monopoly through brand loyalty and create high barriers for entry by any

potential competitors. This, he argues, leads to a “private taxation” that transfers wealth

from the consumers to the manufacturers (Norris, pgs. 289-290). This idea of brand

loyalty has been amplified in the modern age, where companies have become obsessed

with the idea of a brand as a lifestyle, to the point where products are secondary (Klein,

pg. 16). “These companies didn’t wear their image like a cheap shirt – their image was so

integrated with their business that other people wore it as their shirt” (Klein, pg. 16).

Examples of this are everywhere – with Virgin, who is “selling… the Virgin-type person.

The Virgin-type person kind of bucks authority, sees themselves very much as an

individual, they’re in their late twenties, early thirties, they see themselves as a non-

conformist” (“No Logo”). Virgin has no set product, instead selling their brand in the

forms of airlines, music stores, clothes and commercial space flight. Starbucks has said

they are “not a coffee company… [but] a community company” (“No Logo”). Nike CEO

Phil Knight does not see Nike as a shoe company, but rather a sports company who sells

shoes that market their company (Klein, pg. 22). This trend has major effects on the U.S.

economy, which has been significantly altered by the arrival of the logo-oriented society.

There are three major effects that advertising has on the U.S. economy –

extremely large advertising budgets, the proliferation of predatory pricing and the

advancement of the idea that price can be used as an index on quality. U.S. advertising

budgets are enormous. PepsiCo spent $1.239 billion in 2009 alone, and they are only 23rd

on the list of top advertisers in the nation (“Advertising Age,” HO). Wal-Mart spent

$1.659 billion, making them 15th, and the top advertiser, Proctor & Gamble, spent $4.838

billion in 2009 (“Advertising Age,” HO). All three of these companies sell mass-

produced homogenous goods, which are largely indistinguishable from non-branded

alternatives. Predatory pricing – the act of selling goods below the cost of production in

order to bankrupt competitors -- has also increased as a result of advertising. The practice

was popularized by John D. Rockefeller of Standard Oil, who would ask to buy out a

company, and if they refused, would use Standard’s mass economies of scale to lower the

prices of his oil in the companies area, pushing them to bankruptcy where he would buy

them anyway (“The Prize”). Other producers and distributors of mass-produced

homogenous goods use the same tactic, using the aforementioned monopoly produced by

brand loyalty. An example can be found in Folgers Coffee, who in order to break into the

Pennsylvania market, sold their coffee below the cost of production and put out 230

independent coffee producers in the state. After the competition was gone, Folgers raised

prices to a monopoly level (Smith). This monopoly creation leads to a monopoly drain on

the majority of consumer goods. Smith calculated that in the mid-1970s, producers of

mass-homogenized goods made over $15 billion in the food market alone. In the 1980s, it

was estimated that $180 billion was made in monopoly profits in total (Fusfeld). The

third effect, the advancement of using price as an index of quality, is dependent on

uniformed consumers. “The scope for advertising depends on the ignorance of the people

to whom it is addressed. The more ignorant the buyer, the more he relies on advertising”

(Scitovsky, pg. 380). Scitovsky argues that advertising creates a lack of true product

differentiation, and it is not in the producer’s self-interest to inform the consumer

(Scitovsky, pgs. 305-306). This leads to artificial price discrimination, where companies

sell the same good at different prices and the consumer is led to believe the high price

correlates with a higher quality. This can be seen the bottled water industry, where the

product is virtually the same regardless of the brand (“Natural Resources Defense

Council”). Price discrimination is also a hallmark within Hollywood and the hotel

industry, where the product is priced depending on the intensity of the individuals

preference – those who want to see the movie first, or make sure they have the suite on a

weekend, will pay more than those who come or book their rooms later. While

advertising effects the U.S. economy greatly, its presence within the media is even more

drastic.

Most forms of media draw a large amount, if not all, of their revenue through

advertising. Therefore, the effects of advertising on media structure are large, with the

ability to kill or harm media, and/or change their form and content. With more than 80

percent of U.S. ad spending being controlled by eight major firms, an incredible amount

of power lies with their decisions (McChesney). This has lead to an increase in

importance of demographics. Advertisers wish to reach the ‘most desirable’ demographic

possible, which is a young, often white, male with disposable income – making

advertising often classist, ageist, racist and sexist. An example of their desire to reach

individuals of an upper class can be found with the 1967-1974 period the New Yorker,

where the magazine, under the direction of editor William Shawn, took an anti-Vietnam

stance, attracting younger readers and causing their median age to drop from 48.7 to 34.

Although readership for the publication increased, advertisers pulled their ads because the

New Yorker no longer presented an upper class demographic (Bagdikian, pgs. 223-224).

Advertisers ageism can be exemplified by NBC’s 1992 prime-time schedule change,

where they dropped and replaced three highly watched shows because their viewers were

largely older, and advertisers did not want such a “mature” audience (Elliot, HO).

Advertisers also have a history of not supporting minority-focused media. The FCC has

found that advertisers have placed instructions to not buy on minority-focused stations,

and if they were to buy, do so at a reduced rate. This reduced rate averaged 63 percent

lower than non-minority stations (FCC, HO). Their preference for males is seen through

the case of Ms. magazine, a feminist publication, which upon it’s founding could not get

automobile or consumer electronics advertisements (Steinem). It eventually went ad-free.

As shown in these examples, advertising preferences put any material outside of

advertisers desirable demographic at risk, forcing it to change it’s content. In fact, the

advertiser’s power is so great that media often screen their content to them before sending

it to audiences. An example of this can be seen with Saturday Night Live, who in 1992

had to change a skit that critiqued GM and Ford because of advertiser pressure

(“Entertainment Weekly,” HO). This pressure also promotes self-censorship, as Tom

Arnold of the sitcom Roseanne admitted that they would never think of doing a skit of

critical nature because of their desire for advertising (“Entertainment Weekly,” HO). The

desire for advertising, however, has not subsided, and has caused media to change its

structure and form to please them. Changes in structure can be seen in the form of media

concentration. Time Warner, for example, has signed large contracts with Mazda Motors

promoting cross-media ad packages, to draw advertisers back into the realm of magazines

by way of television (King, HO). Advertising also drives the one newspaper town trend.

For example, in 2001 the award-winning Atlanta Journal was forced to merge with the

Constitution, because advertisers were not pleased with it’s demographic-base (Barringer,

HO). The physical form of media has also changed, with the advent of the three-minute

pop song, glossy magazines, spot advertising and radio blocks. Regardless of the

enormous effects on the U.S. media structure because of advertising, advertisers are still

not content with their reach.

One of the most alarming trends in advertising is ad creep – ads are encroaching

more and more on cultural, traditionally non-commercialized space. This includes the

arts, schools, and the public sphere. For example, in the arts, television sitcoms are

including more and more product placement within the episode itself – The Drew Carey

Show, for instance, averages nine minutes of advertising in the 30-minute program

(McChesney). In the UPN show Seven Days, objects like Coca-Cola products and Wells

Fargo billboards are being digitally added after the show is produced (“Centre Daily

Times,” HO). Product placement has become prevalent in ad-free art forms, such as

books and theater as well. Carole Matthews, a “chick-lit” novelist, made a deal with Ford

to include the Ford Fiesta in her novel The Sweetest Taboo (Hakim, HO). The Amazon

Kindle recently announced it would be lowering the price of its device by way of adding

advertisements in the screensavers of their e-reader, showing ads from companies such as

Proctor & Gamble, Buick and Visa (Miller). Chrysler sponsored the Broadway play Will

Rogers Follies where the play was rewritten to mention the Jeep Cherokee, and cut outs

of the car, if not the car itself, would appear in lobby of every performance (Lipman,

HO). Schools have also been targeted, by way of sponsored educational materials,

incentive programs and exclusive agreements (Bettig and Hall, pgs. 111-113). Companies

like Primedia Inc. offer schools $25,000 of TV and VCR technology for a school, but

require that they screen their program ChannelOne to 80 percent of their students 90

percent of all school days – ChannelOne being a “news” program, featuring heavy

product placement and advertising for Fortune 500 companies (Bettig and Hall, pg. 112).

Duracell created an incentive program contest for local creators, but all devices had to be

run on batteries (Bettig and Hall, pg. 113). Fast food companies often sign exclusive

agreements with public high schools, not only to advertise, but to sell their food within

the school cafeteria (Klein, pg. 90). Taco Bell, for instance supplies 20,000 schools with

frozen burritos, and Burger King and Pizza Hut have not only set up kiosks in many

schools, but also contractually ban school cafeterias to sell “generic versions” of it’s

food, such as pizzas or hamburgers – and these companies do not accept vouchers from

the federal lunch program, effectively shutting out the poor from exclusive

establishments (Klein, pg. 91). The public sphere has also been heavily assaulted by

advertising. Companies like Tommy Hilfiger have signed deals with established

philanthropic events like Penn State’s Interfraternity Council/Panhellenic Dance

Marathon, or THON, giving them a certain amount of money in exchange for holding a

fashion show featuring Tommy Hilfiger clothing on students, as well as the right to

rebroadcast the event on Tommy.com (Bettig and Hall, pg. 124). Even alternative,

independent movements have been marginalized – with brands like Coca-Cola and Old

Navy launching mock pirate radio stations, in order to capture a brand-conscious yet

rebellious youth (Klein, pg. 77). Public places like the traditional town square have been

replaced by the mall, which Klein argues is essentially a privatized town square. This

privatization becomes apparent when workers from GAP attempted to form a union and

picket their store in a mall, but were immediately escorted off by mall police (“No

Logo”). Ad creep into cultural space leaves citizens with few areas left untouched by

advertising, seemingly strangling society.

However, there are a number of alternatives to freeing society and the media from

the hold of advertising. Williamson, who argues that consumerism leads to economic

instability for the non-ruling classes and decreases quality of life, states that the mission

Adam Smith set out in The Wealth of Nations for capitalism has been obtained, and is a

proponent for an institutional shift in economic practice, a post-consumerist society

(Williamson, pg. 14). Willamson doesn’t offer any clear sense of what this system will

look like, but sees a possibility for its existence. Smith, however, offers a more solid

proposal, arguing a 4-for-40 percent rule – that the top four firms in any industry should

not own more than 40 percent of the given market. This would promote a truly

competitive marketplace that would award normal profits to a variety of firms and put a

stop to the monopoly drain. Klein argues that culture jamming is a possible answer to

bring down the power of the brand. For media, McChesney suggests an increase in

nonprofit and noncommercial radio, increased funding to public broadcasting, tougher

regulation on current media companies and the application of antitrust laws to the media.

McChesney emphasizes that for these movements to succeed they must come

democratically and from a strong base (McChesney, pg. 24).

In our current age, advertising in the U.S. is an essential social institution.

However, its effects on the U.S. economic and media structure are largely negative, and

its encroachment on the public sphere is alarming. Although these movements seem

permanent, they are not, and there are many options available to free society and the

media from the influence of advertising.