Chapter 5Commodity Advertising EconomicsCommodity Advertising EconomicsObjectives:1.Provide an overview of U.S. commodity advertising economics2.Discuss background on advertising and basic economic theory of advertising3.Examine programs in the United States4.Study evolution of promotion programs5.Study empirical measurement of economic impacts(Introduce Benefit Cost Analysis)Individual firm’s effortHeterogeneous productFocus on specific attributesPrimary purpose: gain market shareBrand Advertising
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Chapter 5Source: Industrial Organization, Pepall et al. 2005Advertising-to-sales ratio(advertising intensity) = Adv Expenditures / Total $ SalesGeneric advertisingGeneric advertising is “the cooperativeeffort among producers of a nearly homogeneousproduct to disseminate informationabout 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 effortNearly homogenous productDisseminate information about underlying attributes of the productPurpose: 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)