Effect of Advertising

by jkaufman jefftk2 min read26th Nov 201924 comments

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I've recently had several conversations around whether advertising is harmful, and specifically whether ads primarily work by tricking people into purchasing things they don't need. One way to think about this is, what would the world would be like if we didn't allow advertising? No internet ads, TV ads, magazine ads, affiliate links, sponsored posts, product placement, everything. Let's also assume that enforcement is perfect, though of course edge cases would be very tricky. Here's my speculation about how this would change people's purchasing:

  • Products would be a lot stickier. A lot of advertising tries to move people between competitors. Sometimes it's an explicit "here's a way we're better" (ex: we don't charge late fees), other times it's a more general "you should think positively of our company" (ex: we agree with you on political issue Y). Banning ads would probably mean higher prices (Benham 2013) since it would be harder to compete on price.

  • Relatedly, it would be much harder to get many new products started. Say a startup makes a new credit card that keeps your purchase history private: right now a straightforward marketing approach would be (a) show that other credit cards are doing something their target audience doesn't like, (b) build on the audience's sense that this isn't ok, and (c) present the new card as a solution. Without ads they would likely still see uptake among people who were aware of the problem and actively looking for a solution, but mostly people would just stick with the well-known cards.

  • A major way ads work is by building brand associations: people who eat Powdermilk Biscuits are probably Norwegian bachelor farmers, listen to public radio, or want to signal something along those lines. Branded products both provide something of a service, by making more ways to signal identity, and charge for it, by being more expensive to pay for clever ad campaigns. Without ads we would probably still have these associations, however, and products that happened to be associated with coveted identities would still have this role. The way these associations would develop would be less directed, though brands would probably still try pretty hard to influence them even without ads. You can also choose to signal the "frugal" identity, which lets you avoid the brand tax.

  • Reviewers would be much more trustworthy. There's a long history of reviewers getting 'captured' by the industry they review.

  • Purchases of things people hadn't tried before would decrease, both things that people were in retrospect happy to have bought and things they were not. One of the roles of advertising is to let people know about things that, if they knew about them they would want to buy. But "buy stuff they don't need" isn't a great gloss for this, since after buying the products people often like them a lot. On the other hand I do think this applies to children, and one of the things people learn as they grow up is how to interpret ads. Which is also why we have regulations on ads directed at kids.

Don't put too much stock in this: I work on the technical side of ads and don't have a great view into their social role, and even if I was in a role like that it would still be very hard to predict how the world would be different with such a large change. But broad "we'd see more of X and less of Y" analysis gives a way to explore the question, and I'm curious what other people's impressions are.

(Disclosure: I work in ads but am speaking only for myself. I may be biased, though if I thought my work was net negative I wouldn't do it.)

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