Chapter 5
Commodity Advertising Economics
Commodity Advertising Economics
Objectives:
1.
Provide an overview of U.S. commodity advertising
economics
2.
Discuss background on advertising and basic
economic theory of advertising
3.
Examine programs in the United States
4.
Study evolution of promotion programs
5.
Study empirical measurement of economic impacts
(Introduce Benefit Cost Analysis)
Individual firm’s effort
Heterogeneous product
Focus on specific attributes
Primary purpose: gain market share
Brand Advertising
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Chapter 5
Source:
Industrial Organization
, Pepall et al. 2005
Advertising-to-sales ratio
(advertising intensity)
= Adv Expenditures / Total $ Sales
Generic advertising
Generic advertising is “the
cooperative
effort among producers of a
nearly
homogeneous
product to
disseminate information
about
the underlying attributes of the product to existing and potential
consumers for the purpose of strengthening demand for the
commodity
” (Forker and Ward 1993)
Cooperative effort
Nearly homogenous product
Disseminate information about underlying attributes of the product
Purpose: strengthen demand for commodity
•
Many agricultural and food commodities (e.g., beef, cotton, fluid
milk, grapes, orange juice, peanuts, pork, and raisins) and
nonagricultural commodities (e.g., aluminum, life insurance,
natural gas, newspapers, propane, and steel) use generic
advertising.
Table 12.1. Funds Available under National Check-Off Programs
and
Implied Promotion Intensities, 2001
Program
Budget (million
$)
Farm Value
(million $)
Intensity %
Dairy
244.0
21,950
1.11
Fluid Milk
109.5
10,500
1.04
Beef
87.9
25,050
0.35
Soybeans
61.4
14,700
0.42
Cotton
60.2
5,278
1.14
Pork
54.6
10,267
0.53
Eggs
18.8
4,380
0.43
Peanuts
18.7
985
1.9
Potatoes
8.6
2,660
0.32
Honey
3.6
145
2.48
Mushrooms
2.6
NA
NA
Watermelons
1.6
286
0.56
Popcorn
0.4
NA
NA
Source: Kinnucan
and Zheng (2005)