DOES ADVERTISING PAY?
By BERNARD HOLLOWOOD
THE recent rumpus over Mr. Dalton's proposal for a tax on advertising (subsequently dropped by Sir Stafford Cripps) showed afresh how little is know.n about the inner workings and economics of this industry. Voices raised in opposition to the proposal spoke of advertising as "the life blood of commerce," a key industry, almost a basic industry. Defenders of the tax spoke of it in the contemptuous terms and tones usually reserved for attacks on spivs, drones and similar fauna. And even in the House of Commons the debate was singularly discursive and alarmingly devoid of facts.
Mr. Dalton's tax was undoubtedly a bad tax ; it would have proved either unworkable or thoroughly inequitable. But the main objects of the tax—if we ignore the fanciful notion that it was intended as a vile and vicious stab at the Press—were unexception- able. At a time when it is more blessed to save than to spend, when labour, skill and materials are everywhere scarce and when the nation is struggling to achieve a more purposeful system of industrial priorities, it is not unreasonable to urge that the nation's expenditure on advertising should be pruned. If this pruning can be achieved by the voluntary method, through the special working committee set up by the Federation of British Industries, so much the better.
Another main object of the tax—to employ more advertising in support of the export trade and less at home—has aroused very little comment and practically no enthusiasm. Why is this ? Is it because the newspapers have a direct and vital interest in domestic advertising and none, or only a vague indirect interest, in the advertising of British goods abroad ? Or is it an indicatinn that industry is not export-minded enough and still regards competition in the home market as its primary consideration ? Or is it a bit of both ? The recent heaVy cuts in imports and the capital invest- ment programme are intended to reduce the volume of goods available for the .British customer and to increase the volume of British goods available for sale abroad. These changes call for a corresponding readjustment in the direction of advertising. But more than mere adjustment is needed. Expenditure on British advertising abroad is in no way commensurate with the new export targets, and is much smaller, proportionately, than expenditure on advertising for the home trade. And, unfortunately, the same is true of expenditure on market research and design research, which are in many ways the satellites of the great world of advertising. (In all fairness, however, it should be added that chief credit for the recent improvement in British industrial design and marketing is due to the advertising agencies. Three years ago three important relief parties, the British Export Trade Research Organisation [BETRO], a parallel advertising organisation and the Government-
sponsored Council of Industrial Design, set out to feed these under- nourished limbs of the export trade, but it is too early yet to assess the value of their work.)
When we turn from the immediate problems raised by the late lamented Chancellor's tax to consider the wider problem of the role of advertising in Britain's post-war economy, we are hamstrung at the outset by lack of statistical information. The first systematic enquiry into the economics of advertising was made last year by the National Institute of Economic and Social Research (on the initiative of the Advertising Association), and while its findings are useful they give only the barest outline picture of the industry as it appeared in the single year 1935. In that year national expenditure on adver- tising was £89 million (a figure which tallies with Sir Stafford Cripps's estimate for 5947 of £80 million), and of this sum 3C5o million worth is classed as "primarily persuasive." Now this figure of L80 million does not seem very extravagant when it is expressed as i per cent. of the national income, or even as 5 per cent. (roughly) of the selling price of all advertised goods. The advertising agencies would. say that this is a very small price to pay for the enormous advantages which advertising confers upon the community.
What are those claims ? That advertising is in effect an efficient form of mass-selling and greatly reduces ordinary sales costs ; that by stimulating the demand for standardised goods it enables mass- and quantity-production methods to be introduced and maintained, and is therefore instrumental in reducing production costs ; that by promoting a demand for ready-wrapped, branded goods it contri- butes towards price stability and reduces the effort and cost of retailing, and that it helps to smooth out seasonal fluctuations in demand and so helps to maintain steady employment and the efficient Ittilisation of resources. And to this formidable list we may add the subtle claim of G. B. Dibblee (The Psychological Theory of Value) that, since production is futile without distribution, advertising and publicity can be regarded as an element of production and their costs part of the costs of production.
This is, of course, only one side of the picture, but there is clearly some substance in each of these arguments. The community may indeed get its money's worth out of advertising considered as a whole. But this does not mean that the industry is thoroughly efficient or should be left to its own devices. The figure of 5 per cent, quoted above is merely an average, and averages are notoriously misleading. When the figure is broken down we find that manu- facturers in many industries spend a truly astonishing fraction of their total outlay on advertising. In the case of patent and pro- prietary medicines, tonic wines and medicinal salts the proportion is as high as 45 per cent. The advertising of baby foods and many toilet goods often accounts for 30 per cent, of total outlay, and over the whole field of highly-advertised goods such as tobacco, food, cars and household equipment the rate is usually of the order of ro per cent. Industries whose advertising brings the average down include clothing, fuel and light. High though these percentages are, they are much lower than the average person supposes them to be. American research has demonstrated that the uninformed layman's estimate is usually from four or five times as high as reality. If you tell him that a certain product costs threepence to make and three shillings to advertise, he is not unduly surprised. For some reason or other the slogan, "It Pays to Advertise," is regarded as a canonical principle of everyday commerce, no matter what is advertised or how much is paid.
How much of British advertising can be condemned as excessive ? A moderate amount of goodwill advertising—even when it does no more than remind the public of the manufacturer's name—is reason- able enough in these awkward transitional times. And most or the competitive advertising between industry and industry (group advertising) and between rival manufacturers can be justified in an economic system based on private enterprise. But a large part of competitive advertising must cancel itself out, and there are good reasons for supposing that agreement among manufacturers of standardised and well-known brands to limit the size and frequency of their advertisements would result in very little loss of competitive appeal. There are doubts, too, about certain other aspects of adver- tising. How much waste is involved in advertising which is not completely co-ordinated with distribution and personal sales ? Advertising which is unconvincing, weak and ineffective? Adver- tising linked to businesses which are highly speculative and hazardous ? And by how much is the value of sound and truthful advertisements impaired by the company they are compelled to keep—the minority of misleading and untrustworthy advertise- ments? There is waste in all sections of the business world, and it is constantly under review and repair ; but waste in advertising has so far received very little attention.
Any considerable reduction in Press advertising would be followed, of course, by an increase in the price of newspapers and magazines, for the Press derives a large part of its income from the advertise- ments it carries. In 1943 the percentages of net revenue covered by advertising varied from 26.6 in the case of national and provincial " Sundays " to 66.7 in the case of suburban and provincial "weeklies," and these figures are considerably lower than the cor- responding percentages for 1935 when paper was unrationed. So if all considerations other than the purely economic are brushed aside, it is permissible to claim that the public gets back something of what it loses to advertising in the price of its reading matter. If we accept the main argument in favour of " persuasive " adver- tising—that it stimulates demand and reduces distributive and production costs—it is still necessary to ask whether advertising is subject to the law of diminishing returns—whether, that is, there is a point at which advertising ceases to pay for itself. All the evidence indicates that there is such a point, and that it has already been reached in many cases. In the absence of reliable information it is impossible to decide how much of current advertising is a luxury, a form of national indulgence. There is obviously room for a full- scale enquiry to determine what advertising the country can afford.
^ But can we afford another Royal Commission just flow?
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