CHAP5_Presentation - Commodity Advertising Economics...

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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)
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Chapter 5 Echoing the Campaign of a Rival, Microsoft Aims to Redefine ‘I’m a PC’ Types of advertising A 11.2% B 51.4% C 23.4% D 4.7% E 9.3% A 1.9% B 60.7% C 28.0% D 4.7% E 4.7% Branded Advertising A 11.2% B 51.4% C 23.4% D 4.7% E 9.3% A 11.2% B 51.4% C 23.4% D 4.7% E 9.3% Generic Advertising Government’s role in generic advertising Authorizes mandatory assessment/check-off programs Oversight of programs No direct involvement in promoting products State government involvement is similar
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Chapter 5 The rationale for collective action in advertising Strong evidence: benefits > costs of advertising Defensive marketing strategy, e.g., milk vs. soda, soymilk A number of small producers cannot afford carrying out their own advertising Provide consumer information not provided by others Protect image in a hostile environment (against animal products, read meat, dietary cholesterol, etc.) Conditions determining success of generic advertising Commodity reasonably homogenous Commodity retains identity in processing Number of substitutes not excessive Imports subject to same advertising tax as domestic products
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This note was uploaded on 02/20/2009 for the course AEM 4150 taught by Professor Kaiser,h.m. during the Fall '07 term at Cornell University (Engineering School).

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CHAP5_Presentation - Commodity Advertising Economics...

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