The advertising industry has an awkward relationship with price. We rarely set price objectives with our clients – let alone celebrate price effects – although our industry’s own studies conclude that this is the very basis of profitable long-term returns for an advertiser.
We are, perhaps understandably, uncomfortable rather than surefooted in the whole area of advertising and prices. The prosaic conclusion of ‘the man in the street’ and of many commentators and even policymakers – that advertising puts prices up, if only to pay for the cost of the activity itself – is accepted without argument.
In reality, as we shall see, advertising’s relationship with price – and prices, more generally – is more nuanced than it might appear to be on first inspection. There are concrete arguments to be made that advertising serves to both increase and reduce prices, depending on our chosen lens (whether we see advertising as a ‘persuasive’ activity or merely an ‘informative’ one), and whether we are looking at this activity at a general or advertiser-specific level.