The impact of advertising on pricing
With increasing price competition in the market, the question of the influence of advertising on the pricing process becomes more and more important. How is advertising related to the pricing process? How does the demand for goods change after they are advertised? Find the link in the profile header to answer these questions. In this article, we will try to understand in more detail and answer these questions.
Advertising is a source of information about a product or service. This information increases the degree of competition in the market and lowers consumer prices. Advertising informs the consumer about the existence of a certain product with a set of its main functions, and we also find out where exactly we can buy it, etc. And this is what destroys monopolies - the availability of substitute products. This leads to price competition even if the price itself is not disclosed.
On the other hand, there is an opinion that advertising changes consumer preferences and, on the contrary, can increase the monopoly power of brands in the market. Therefore, advertising contributes to the formation of the brand image and leads to a decrease in price elasticity. This contributes to the growth of market prices. In this case, advertising increases the willingness of consumers to pay for the brand.
Since the market is crowded with different products, there is no one right solution for everyone. There are products that already have many competitors when they enter the market, then the purpose of advertising is to convince the consumer to buy from them. And if the products have few analogues in the market, then it is important to create the right idea about the product for buyers with the help of advertising. Thus, consumers are initially unaware of the product. Therefore, the only way to find out about it is through advertising.
It follows that advertising must have a clear purpose. This will help not only to highlight the necessary information for the client about the product, but also to measure the result. It depends on your preparation for the advertising campaign and the overall readiness of the product to enter the market.
Theoretically, the more money a business spends on developing effective advertising campaigns, the more products consumers buy. An increase in consumer demand through advertising can compensate for a decrease in consumer demand due to higher prices.
Properly chosen advertising helps the business grow and get more customers. It promotes product differentiation, increases brand loyalty and increases the price elasticity of demand.
Price changes and advertising campaigns can have unpredictable consequences. For example, if your competitors are quick to adapt to your pricing strategy, they may lower your sales. In addition, you can invest significant resources in an advertising campaign, and as a result, find that advertising does not find the desired response from consumers. But in general, it's safe to assume that investing in advertising is an effective way to drive customer demand and stay in the market.