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Effects of Advertising on Consumer Buying Behavior

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  • 0:04 Advertising
  • 1:25 Advertising and Market Share
  • 3:12 The Effects of…
  • 4:40 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
How does advertising influence the process of consumer buying behavior? What impact does advertising have on a company's market share, and how does this shape the marketing budget? This lesson describes why advertising is so important - particularly for newer companies.

Advertising

In this lesson, you will learn how advertising affects the consumer-buying-behavior process. We will discuss advertising's far-reaching impact in addition to the ways that advertising can be used to shape the consumer's view of certain products.

Did you know that the average American child watches over 40,000 commercial ads a year? That's a lot of ads. Some companies such as Procter & Gamble, AT&T, and Time Warner spend close to $4 billion a year on advertising in the United States. The official definition of advertising is an impersonal one-way mass communication about a product or service that is paid for by the marketer.

Advertising, public relations, sales promotion, and personal selling all are essential parts of the promotional mix of a marketing plan. Advertising is everywhere and reaches consumers all day - every day! The amount companies spend on advertising is amazing. For instance, pharmaceutical companies spend double on advertising than they do on actual research! The companies that spend the highest amount overall on advertising would be the toy and gaming industries. Advertising also plays an important role in developing sales and market share.

Advertising and Market Share

In general, most companies need to spend an enormous amount of money on advertising to maintain their market share. Ninja Corp owns 52% of the market, and is constantly threatened by competitors. In order to keep Ninja Corp and its products on top of their consumers' minds, they need to use advertisements as reminders. If not, the competitors will be able to steal some of the 52% of market share and sales. Ninja Corp's competitors are Martial Arts Incorporated and Musclebound University Incorporated. Both have market share of only around 15% each.

Advertising is used by companies to maintain their market share.
Advertisements Maintain Market Share

Traditionally, companies that are either new or smaller in market share have to spend a larger amount in advertising than their big competitors. The reason behind this is called advertising response function. This is when spending for advertising does increase sales up to a particular market share, but then the company receives a drop in sales due to diminishing returns.

Following this logic, Ninja Corp spends a basic amount on their advertising to act more as a reminder to their customers. Meanwhile the smaller competitors do see sales results with a larger increase in an advertising budget. Martial Arts Incorporated and Musclebound University Incorporated both have a large advertising budget to help create awareness and increase sales and market share. Musclebound University Incorporated has the largest advertising budget of all of the companies since it's brand new. According to the advertising response function, new products and companies need to invest in a large advertising budget in order to maintain exposure to their target market, and cause a purchase to occur.

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