Is Advertising Wasteful?

JULES BACKMAN

Does advertising repre-sent a dissipation of eco-nomic resources or their ef-ficient use? Economists gen-erally have been lined up onone side of this question andmarketing men on the other.In this article, an economistdisagrees with his col-leagues. The main criticismsare reviewed and analyzed.The informational role of ad-vertising is emphasized. Thefact that advertising is usedgenerally when it is the mostefficient tool in the market-ing arsenal is underlined. Thequantitative dimensions ofso-called compet i t i ve orpersuasive advertising areindicated. The relationshipsto competition, costs, eco-nomic growth, and the de-gree of affluence of a soci-ety are reviev/ed.

Journal of Marketing, Vol. 32 (January,1968, pp. 2-8.

W ITH some exceptions, economists generally have criticizedadvertising as economically wasteful. All the criticisms are

not so extreme as one widely used economics text which states:"Overall, it is difficult for anyone to gain more than tempo-

rarily from large advertising outlays in an economy in whichcounteradvertising is general. The overall effect of advertis-ing, on which we spent $14 billion [actually $15 billion—JB]in 1965, ia to devote these productive resources (men, ink, bill-boards, and so forth) to producing advertising rather than toproducing other goods and services."^Most critics do not go this far in condemning advertising. How-

ever, they do emphasize that advertising may be wasteful in severalways: by adding unnecessarily to costs, by an inefficient use ofresources, by promoting excessive competition, and by causing con-sumers to buy items they do not need. This article brings togetherthe scattered criticisms of advertising and answers to them andthus presents an overview of the debate in this area. The natureof these criticisms and the significance of waste in a competitiveeconomy are first reviewed. Attention is then given to the vitalinformational role played by advertising, particularly in an ex-panding economy. Advertising is only one alternative in the mar-keting mix, and hence its contribution must be considered amongalternatives rather than in absolute terms.

Variations on a ThemeThe criticism that advertising involves economic waste takes

several forms.

Competition in AdvertisingThe attack usually is centered on competition in advertising which

some critics state flatly is wasteful- Others have been concernedabout the relative cost of advertising as a percentage of sales.Sometimes an arbitrary percentage, such as 5%, is selected asthe dividing line between "high" and more "reasonable" levelsof expenditure.^

1 George Leland Bach, Economics, Fifth Edition (Englewood Cliffs,New Jersey: Prentice-Hall, Inc., 1966), p. 437. See also KennethBoulding, "Economic Analysis," Volume 1, Microeconomics, FourthEdition, Vol. 1 (New York: Harper and Row, 1966), p. 513.

2 Nicholas H. Kaldor, "The Economic Aspects of Advertising," TheReview of Economic Studies, Vol. 18 (1950-51), p. 6.

3 Joe S. Bain, Industrial Organization (New York: John Wiley & Sons,1959), pp. 390-91. See also Report of a Commission of Enquiry IntoAdvertisiyig (London, England: The Labour Party, 1966), p. 42.The Reith Report defined "substantially advertised products" at 5%or more.

Is Advertising Wasteful?

Such cutoff points are meaningless, since theproper relative expenditures for advertising are afunction of the product's characteristics. It is notan accident that relative advertising costs are high-est for low-priced items which are available frommany retail outlets and subject to frequent repeatpurchases (for example, cosmetics, soaps, soft drinks,gum and candies, drugs, cigarettes, beer, etc.).

Particularly criticized are emotional appeals, per-suasion, and "tug of war" advertising where it isclaimed the main effect is to shift sales among firmsrather than to increase total volume of the industry.For example, Richard Caves states: "At the pointwhere advertising departs from its function of in-forming and seeks to persuade or deceive us, it tendsto become a waste of resources." ^

In a competitive economy competitors must seek topersuade customers to buy their wares. We do notlive in a world where a company stocks its ware-house and waits until customers beat a path to itsdoors to buy its products. If this is all that a busi-ness firm did, we would have economic waste in termsof products produced but not bought as well as inthe failure to produce many items for which a mar-ket can be created. In the latter case, the wastewould take the form of idle labor and unusedresources.

Inefficient Use of ResourcesEconomists have criticized advertising most vigor-

ously as involving an inefficient use of resources. Thiscriticism has been directed particularly against ad-vertising where the main effect allegedly is a "shuf-fling of existing total demand" among the companiesin an industry. Under these conditions, it is stated,advertising merely adds to total costs and in timeresults in higher prices. There undoubtedly is ashifting of demand among firms due to many factorsincluding advertising. But this is what we shouldexpect in a competitive economy. Moreover, thereare many products for which total demand is in-creased (for example, television sets, radio sets, cars,toilet articles) for multiple use in the same home.In the sharply expanding economy of the past quarterof a century there are relatively few industries inwhich total demand has remained unchanged.

It must also be kept in mind that the resourcesdevoted to competitive advertising usually are con-sidered to be wasteful "in a full-employment econ-omy" because they may be utilized more efficientlyin other ways. Thus, the extent of "waste" involvedalso appears to depend upon whether the economy isoperating below capacity. This point is consideredin a later section.

Adds to CostsSometimes, it is stated that if advertising succeeds

in expanding total demand for a product, the resultis a shift of demand from other products, the pro-ducers of which will be forced to advertise to attemptto recover their position. The net result of such"counter-advertising" is to add to costs and to prices.

But all increases in demand do not necessarily rep-resent a diversion from other products. Thus, anexpanded demand for new products is accompaniedby an increase in income and in purchasing powerflowing from their production. Moreover, during aperiod of expanding economic activity, as is notedlater, the successful advertising may affect the rateof increase for different products rather than resultin an absolute diversion of volume.

Creates Undesirable WantsAnother variation is the claim that advertising is

wasteful because it ". . . creates useless or undesir-able wants at the expense of things for which thereis greater social need. When advertising makesconsumers want and buy automobiles with tail fins,tobacco, and movie-star swimming pools, there isless money (fewer resources) available to improvepublic hospitals, build better schools, or combat juve-nile delinquency." •'• It is claimed that many of thesetypes of products are useless and anti-social. Criti-cism of advertising is nothing new. In the late1920s Stuart Chase claimed: "Advertising creates nonew dollars. In fact, by removing workers from pro-ductive employment, it tends to depress output, andthus lessen the number of real dollars." "

•* Richard Caves, American Industry: Structure, Con-duct, Performance (Englewood Cliffs, New Jersey:Prentice-Hall, Inc., 1964), p. 102.

» "Advertising and Charlie Brown," Business Review,Federal Reserve Bank of Philadelphia (June, 1962),p. 10.

fi Stuart Chase, The Tragedy of Waste (New York:Macmillan Company, 1928), p. 112.

• ABOUT THE AUTHOR. Jules Backmanis Research Professor of Economics atNew York University and has been on Itsfaculty for 30 years. In May, 1967, hislatest book, ADVERTISING AND COM-PETITION [New York University Press),was published. This volume reflectsthe results of a year-long study under agrant from the Association of NationalAdvertisers. He has made many otherstudies of business economics, particu-larly of pricing, and Is the author of PRICE PRACTICES ANDPRICE POLICIES (Ronald Press), ECONOMICS OF THEELECTRICAL MACHINERY INDUSTRY (New York UniversityPress), STUDIES IN CHEMICAL ECONOMICS (ManufacturingChemists' Association}, and WAGE DETERMINATION (D.Van Nostrand). He has acted as economic consultant to majorcompanies and to federal, state, and local governments, andtestified before many Congressional Committees on pricing, anti-trust problems, wage policy, etc. He is a member of TheNational Marketing Advisory Committee, Department of Com-merce, and was on Governor Rockefeller's Committee on MilkMarketing.

Journal of Marketing, January^ 1968

These are value judgments reached by the criticson the basis of subjective "standards" which they setup. "What is one man's meat is another man'spoison," as the old saying goes. The real questionis who is to decide what is good for the consumer andwhat should he purchase?

In a free economy, there is a wide diversity ofopinion as to what combinations of goods and serv-ices should be made available and be consumed.Obviously, tastes vary widely and most persons donot want to be told what is best for them. In anycross section of the population of the country therewill be a wide disagreement as to what constitutesthe ideal components of a desirable level of living.Each one of us must decide what purchases will yieldthe greatest satisfactions. We may be misled onoccasion by popular fads, advertising, or even adviceof our friends. But these decisions in the finalanalysis are made by the buyers and not by the ad-vertisers, as the latter have found out so often totheir regret.

Competition and "Waste"The critics of advertising are really attacking the

competitive process. Competition involves consider-able duplication and "waste." The illustrationsrange from the several gasoline stations at an im-portant intersection to the multiplication of re-search facilities, the excess industrial capacity whichdevelops during periods of expansion, and the ac-cumulations of excessive inventories.

There is widespread recognition that inefficienciesmay develop in advertising as in other phases ofbusiness." Mistakes are made in determining howmuch should be spent for advertising—but thesemistakes can result in spending too little as well astoo much.

We cannot judge the efficiency of our competitivesociety—including the various instrumentalities,such as advertising—by looking at the negative as-pects alone. It is true that competition involveswaste. But it also yields a flood of new products,improved quality, better service, and pressures onprices. In the United States, it has facilitatedenormous economic growth with the accompanyinghigh standards of living. The advantages of com-petition have been so overwhelmingly greater thanthe wastes inherent in it that we have established asone of our prime national goals, through the anti-trust laws, the continuance of a viable competitiveeconomy.

Committee on Advertising, Principles of Advertising(New York: Pitman Publishing Corp., 1963), p. 34;and Neil H. Borden, "The Role of Advertising in theVarious Stages of Corporate and Economic Growth,"Peter D. Bennett, editor, Marketing and EconomicDevelopment (Chicago, Illinois: American MarketingAssociation, 1965), p. 493.

Informational Role of AdvertisingAdvertising plays a major informational role in

our economy because (1) products are available insuch wide varieties, (2) new products are offered insuch great numbers, and (3) existing products mustbe called to the attention of new consumers who areadded to the market as a result of expansion in in-comes, the population explosion, and changes intastes.

The most heavily advertised products are widelyused items that are consumed by major segments ofthe population. This does not mean that everyonebuys every product or buys them to the extent thathe can. Some of these products are substitutes forother products. For example, it will be readily recog-nized that cereals provide only one of many alter-natives among breakfast foods. In some instances,heavily advertised products compete with eachother like, for example, soft drinks and beer. Inother instances, additional consumers can use theproducts so that the size of the total market can beincreased (for example, toilet preparations).

Potential markets also expand as incomes rise andas consumers are able to purchase products theypreviously could not afford. As the population in-creases, large numbers of new potential customersare added each year. Continuous large-scale adver-tising provides reminders to old customers and pro-vides information to obtain some part of the patron-age of new customers. The potential market is sohuge that large scale advertising is an economicalway to obtain good results.

In addition, the identity of buyers changes undersome circumstances and new potential buyers mustbe given information concerning the available alter-natives. It has also been pointed out that some ofthese products are ". . . subject to fads and stylechanges" and that ". . . consumers become restivewith existing brands and are prepared to try newvarieties." Illustrations include cereals, soaps, cloth-ing, and motion pictures.^

The consumer has a wide variety of brands fromwhich to choose. Product improvements usuallybreed competitive product improvements; the ad-vertising of these improvements may result in anincrease in total advertising for the class ofproducts.

When any company in an industry embarks on anintensified advertising campaign, its competitorsmust step up their advertising or other sales effortsto avoid the possible loss of market position. Thisis a key characteristic of competition.

On the other hand, if any company decides toeconomize on its advertising budget, its exposure isreduced and its share of market may decline if its

Lester G. Telser, "How Much Does It Pay Whom ToAdvertise?", American Economic Review, Papers andProceedings (December, 1960), pp. 203-4.

^luveriistng tv astefulY

competitors fail to follow the same policy. Thus,for some grocery products it has been reported that". . . competition within a sector may have establisheda certain pattern with regard to the extent of ad-vertising, and any company dropping below thislevel faces possible substantial loss of market share.'*

These results flow particularly if the industry isoligopolistic, that is, has relatively few producerswho are sensitive to and responsive to actions ofcompetitors. However, as the dramatic changes inmarket shares during the past decade so amply dem-onstrate, this does not mean that the companies insuch oligopolistic industries will retain relativelyconstant shares of the market.'^

The informational role of advertising has beensuccinctly summarized by Professor George J.Stigler:

". . . Under competition, the main tasks of aseller are to inform potential buyers of his exist-ence, his line of goods, and his prices. Sinceboth sellers and buyers change over time (dueto birth, death, migration), since people forgetinformation once acquired, and since new prod-ucts appear, the existence of sellers must becontinually advertised. . .

"This informational function of advertisingmust be emphasized because of a popular anderroneous belief that advertising consists chieflyof nonrational (emotional and repetitive)appeals." ^Elsewhere, Professor Stigler has pointed out that

". . . information is a valuable resource," that ad-vertising is "the obvious method of identifying buy-ers and sellers" which "reduces drastically the costof search," and that "It is clearly an immenselypowerful instrument for the elimination ofignorance. . ." "

Often this information is required to create in-terest in and demand for a product. Thus, it hasbeen reported:

". . . to a significant degree General Foodsand the U.S. food market created each other.Before a new product appears, customers arerarely conscious of wanting it. There was nospontaneous demand for ready-to-eat cereals;

9 National Commission on Food Marketing, GroceryManufacturing, Technical Study No. 6 (Washington,D.C: June, 1966), p. 14.Jules Backman, Advertising and Competition (NewYork: New York University Press, 1967), Chapters3 and 4.George J. Stigler, The Theory of Price, Third Edition(New York: The Macmillan Company, 1966), p. 200.George J. Stigler, "The Economics of Information,"The Journal of Political Economy (June, 1961), pp.213, 216, 220. See also S. A. Ozga, "ImperfectMarkets Through Lack of Knowledge," QuarterlyJournal of Economics {February, 1960), pp. 29,33-34, and Wroe Alderson, Dynamic Market Behavior(Homewood, Illinois: Richard D. Irwin, Inc., 1965),pp. 128-31.

frozen foods required a sustained marketingeffort stretching over many years; instant coffeehad been around for decades, supplying a marketthat did not amount to a tenth of its presentlevel. General Foods' corporate skill consistslargely in knowing enough about Americantastes to foresee what prod ucts will beaccepted." ^Similarly, J. K. Galbraith, who has been very

critical of advertising, has recognized that:"A new consumer product must be introduced

with a suitable advertising campaign to arousean interest in it. The path for an expansion ofoutput must be paved by a suitable expansion inthe advertising budget. Outlays for the manu-facturing of a product are not more importantin the strategy of modem business enterprisethan outlays for the manufacturing of demandfor the product." ^

We live in an economy that has little resemblanceto the ideal of perfect competition postulated byeconomists. However, one of the postulates of thisideal economy is perfect knowledge. Advertisingcontributes to such knowledge. Thus, in such anidealized economy, even though advertising may bewasteful it would still have a role to play. But inthe world of reality, with all its imperfections, ad-vertising is much more important. Advertising is anintegral and vital part of our growing economy andcontributes to the launching of the new products soessential to economic growth.

How Much Is Informational?In 1966, total expenditures for media advertising

aggregated $13.3 billion. ^ It is impossible to de-termine exactly how much of this amount wasstrictly informational. However, the following factsare of interest.

Classified advertising was $1.3 billionOther local newspaper advertising, largely retail,

was $2.6 billionBusiness paper advertising was $712 millionLocal radio and TV advertising was $1.1 billionSpot radio and spot TV advertising was $1.2

billionNational advertising on network TV, network

radio, magazines and newspapers was $3.7billion

Direct mail was $2.5 billionClassified advertising and local advertising are

overwhelmingly informational in nature. Certainlysome part of national advertising also performs thisfunction. These figures suggest that substantially

3 "General Foods Is Five Billion Particulars," Fortune(March, 1964), p. 117.

n J. K. Galhraith, The Affluent Society (Boston, Massa-chusetts: Houghton Mifflin Company, 1958), p. 156.

!>' This total excludes a miscellaneous category of $3.3billion.

Journal of Marketing, January, 1968

less than half of total advertising is of the type thatthe critics are attacking as wasteful i* the exactamount cannot be pinpointed. Moreover, it must bekept in mind that a significant part of national ad-vertising is for the promotion of new products forwhich the informational role is vital.

From another point of view, even if there is waste,the social cost is considerably less than suggested bythese data. Thus, in 1966 about $10 billion wasspent on advertising in newspapers, magazines, radio,and television; another $746 million was spent onfarm and business publications. Without these ex-penditures, these sources of news and entertainmentwould have had to obtain substantial sums from othersources. It has been estimated that ". . . advertisingpaid for over 60% of the cost of periodicals, for over70% of the cost of newspapers, and for 100% of thecost of commercial radio and TV broadcasting." 'Thus, advertising results in a form of subsidizationfor all media of communication. Without it, thesemedia would have to charge higher subscription ratesor be subsidized by the government or some combi-nation of both.

Advertising and Expanding MarketsEconomic growth has become a major objective of

national economic policy in recent years. Risingproductivity, increasing population, improving edu-cation, rates of saving, and decisions concerning newinvestments are the ingredients of economic growth.In addition, there must be a favorable political cli-mate including tax policies and monetary policies de-signed to release the forces conducive to growth.

Advertising contributes to economic growth and inturn levels of living by complementing the efforts tocreate new and improved products through expendi-tures for research and development. One observerhas described the process as follows:

". . . advertising, by acquainting the consumerwith the values of new products, widens the mar-ket for these products, pushes forward their ac-ceptance by the consumer, and encourages theinvestment and entrepreneurship necessary forinnovation. Advertising, in short, holds out thepromise of a greater and speedier return thanwould occur without such methods, thus stimu-lating investment, growth, and diversity." ^^Among the most intensive advertisers have been

16 For the United Kingdom, the "disputed proportion"of advertising expenditures has been estimated atabout 30% of the total. Walter Taplin, Advertising,A New Approach (Boston, Massachusetts: Little,Brown & Co., 1963), p. 126.

17 Fritz Machlup, The Production and Distrihiiiion ofKnowledge in the United States (Princeton, NewJersey: Princeton University Press, 1962), p. 265.

1 David M. Blank, "Some Comments on the Role ofAdvertising in the American Economy—A Plea forRevaluation," L. George Smith, editor. Reflections onProgress in Marketing (Chicago, Illinois: AmericanMarketing Association, 1964), p. 151.

toilet preparations (14.7% of sales), cleaning andpolishing preparations (12.6%), and drugs (9.4%).The markets for these products have been expandingat a faster rate than all consumer spending.

Between 1947 and 1966, personal consumption ex-penditures for these products increased as follows :i»

Toilet articles &preparations

Cleaning, polishing &household supplies

Drug preparations& sundries

1947 1955 1.966(millions of dollars)

1,217

1,523

1,313

1,915

2,480

2,362

4,690

4,487

5,062

As a share of total personal consumption expendi-tures, the increases from 1947 to 1966 were asfollows:

Toilet articles and preparationsfrom 0.76% to 1.01%Cleaning, polishing and householdsupplies from 0.94% to 0.97%Drug preparations and sundriesfrom 0.82 ;- to 1.09%

These increases in relative importance are based upondollar totals. However, the retail prices of theseproducts rose less than the consumer price indexduring the postwar years.

Between 1947 and 1966, the price increases wereas follows:

Total consumer price index 45.4%Toilet preparations 14.6Soaps and detergents 2.6Drugs and prescriptions 22.8

Thus, the increase in relative importance of thesehighly advertised products has been even greater inreal terms than in dollars.

Between 1947 and 1966, the increase in real per-sonal consumption expenditures has been;

Toilet articles and preparations from 0.68% to1.12%.Cleaning, polishing and household supplies from0.877. to 1.05%Drug preparations and sundries from 0.82% to1.24%

Clearly, advertising appears to have contributedto an expansion in the demand for these products andto the growth of our economy with the accompanyingexpansion in job opportunities and in economic well-being. There may have been some waste in thisprocess—although all of such expenditures cannot becharacterized as wasteful—but it appears to havebeen offset in full or in part by these other benefits.

The charge of large-scale waste in advertising ap-pears to reflect in part a yearning for an economywith standardized, homogeneous products which are

The National Income and Product Accounts of theUnited States, 1929-1965, Statistical Tables (Wash-ington, D.C: United States Department of CommerceAugust, 1966), pp. 44-49; and Survey of CurrentBusiness (July, 1967), pp. 23-24.

/laverttsing Wasteful? 7

primarily functional in nature. An illustration wouldbe a refrigerator that is designed solely to be tech-nically efficient for the storage of food. However,customers are also interested in the decor of theirkitchens, in convenience and speed in the manufac-ture of ice cubes, in shelves that rotate, and inspecial storage for butter. These are additions tofunctional usefulness which "an aflluent society" canafford but which a subsistence economy cannot.

Advertising in a High Level EconomyThe concept of waste must be related to the level

achieved by an economy. Professor John W. Lowehas observed that "Perhaps a good deal of the 'waste-fulness' assigned to advertising springs from thefact that a large part of the world's population cannotconsider satisfying psychological loants when most oftheir efforts must be devoted to needs''-^ (Italicsadded.)

In a subsistence economy, scarcity is so significantthat advertising might be wasteful, particularlywhere it diverts resources from meeting the basicnecessities of life. Such an economy usually is a"full employment economy" in the sense that every-one is working. But the total yield of a full employ-ment subsistence economy is very low, as is evidentthroughout Asia, Africa, and South America.

Professor Galbraith has noted that "The opportu-nity for product differentiation . . . is almost unique-ly the result of opulence . . . the tendency for com-mercial rivalries . . . to be channeled into advertisingand salesmanship would disappear in a poorcommunity."-^

In the high level American economy, there usuallyare surpluses rather than scarcity. The use of re-sources for advertising to differentiate products,therefore, is not necessarily a diversion from otheruses. Rather, it frequently represents the use ofresources that might otherwise be idle both in theshort run and the long run and thus may obviate thewaste that such idleness represents.

The Marketing MixThe concept of waste cannot ignore the question—

waste as compared with what alternative? Adver-tising cannot be considered in a vacuum. It must beconsidered as one of the marketing alternativesavailable. Generally it is not a question of adver-tising or nothing, but rather of advertising or someother type of sales effort.

It is a mistake to evaluate the relative cost of ad-vertising apart from other marketing costs. It isonly one tool in the marketing arsenal which alsoincludes direct selling, packaging, servicing, product

20 John W. Lowe, "An Economist Defends Advertising,"JOURNAL OF MAKKETING, Vol. 27 (July, 1963), p. 18.

21 John K. Galbraith, American Capitalism: The Con-cept of Countervailing Power (Boston, Massachusetts:Houghton Mifflin Company, 1952), pp. 106-07.

planning, pricing, etc. Expenditures for advertis-tising often are substituted for other types of sellingeffort. This substitution has been readily apparentin the history of the discount house. These houseshave featured well-advertised brands which werepresold and, hence, virtually eliminated the need forfloor stocks and reduced the need for space and manysalesmen.

Advertising is undertaken where it is the mosteffective and most economical way to appeal to cus-tomers. It is a relatively low cost method of commu-nicating with all potential customers and this ex-plains its widespread adoption by many companies.To the extent that less efficient marketing methodsmust be substituted for advertising, we would reallyhave economic waste.

Summary and ConclusionsThere is wide agreement that the informational

role of advertising makes a significant contributionto the effective operation of our economy. There isalso agreement that inefficiency in the use of adver-tising is wasteful, as are other types of inefficienciesthat are part and parcel of a market-determinedeconomy. The gray area is so-called competitive ad-vertising, largely national, which is the main targetof those who insist advertising is wasteful. Al-though precise data are not available, the estimatescited earlier indicate that the charge of competitivewaste applies to substantially less than half of alladvertising expenditures.

Competition unavoidably involves considerable du-plication and waste. If the accent is placed on thenegative, a distorted picture is obtained. On balance,the advantages of competition have been muchgreater than the wastes.

Advertising has contributed to an expanding mar-ket for new and better products. Many of these newproducts would not have been brought to marketunless firms were free to develop mass marketsthrough large-scale advertising. There may be somewaste in this process, but it has been more than offsetby other benefits.

Where burgeoning advertising expenditures areaccompanied by expanding industry sales, there willtend to be a decline in total unit costs instead ofincrease, and prices may remain unchanged or de-cline. In such situations, it seems clear that adver-tising, while adding to total costs, will result in lowertotal unit costs, the more significant figure. Thisgain will be offset to some extent if the increase involume represents a diversion from other companiesor industries with an accompanying rise in unitcosts. Of course, such change is inherent in a dy-namic competitive economy.

Advertising expenditures have risen as the econ-omy has expanded. At such times, the absolute in-crease in sales resulting from higher advertisingexpenditures need not be accompanied by a loss in

8 Journal of Marketing, January, 1968

sales in other industries. This is particularly true if anew product has been developed and its sales are ex-panding. In that event, new jobs probably will becreated and help to support a higher level of economicactivity generally.

The claim that resources devoted to advertisingwould be utilized more efi iciently for other purposesignores the fact that generally we have a surpluseconomy. All of the resources used for advertisingare not diverted from other alternatives. Rather, itis probable that much of the resources involved wouldbe idle or would be used less efliciently. Even more

important would be the failure to provide the jobswhich expanding markets create.

Finally, advertising does not take place in a vac-uum. It is one of several marketing alternatives.The abandonment of advertising could not representa net saving to a company or to the economy. Instead,such a development would require a shift to alterna-tive marketing techniques, some of which would beless efficient than advertising since companies do notdeliberately adopt the least effective marketing ap-proach. On balance, advertising is an invaluablecompetitive tool.

MARKETING MEMO

Purposes of Research in Business . . .

Essentially we look upon research as a productive means to accomplish threegeneral purposes.

The first, of course, is to provide the basic means by which we may develop thebest products possible. This requires a continually increasing knowledge aboutthe products we sell or might sell. It is our objective to try to know more aboutthe products we make than anyone else in our spheres of industry, and researchis vital to achieving this goal.

Second, we are interested in research as a means of reducing cost, which isanother way of saying it helps to maintain price stability in a time of advancingcosts—no matter whether costs are increasing because of a general inflationarysituation or because of product or packaging improvement.

Third, research is valuable in narrowing the areas of decision which requirehuman judgment. This is true with respect to all types of decisions which mustbe made in an organization such as ours. There is no way to eliminate entirelythe need of human judgment, but research makes it possible to substitute factualinformation in areas where judgment used to be the only available management tool.

—Neil McElroy, excerpts from a talkbefore the Super Market Institute,January 9, 1967.