I have no special expertise in the economics of advertising, so I’m probably reinventing the wheel here, or at least the pogo stick. But here goes anyway:
In marketing and economics, the functional explanations of advertising seem to fall into two broad categories: (1) informing people, and (2) fooling people. Economists working in the rational-choice framework usually focus on the informational function. Behavioral economists say that explanation is laughable; as any marketing executive knows, advertisements stoke desires, create illusions of worth and value, make people want things they didn’t want before, and so on.
But I think there’s a third sort of function that “fooling people” doesn’t really capture. Here’s one example that I posed to a marketing professor who gave a guest lecture to my students last week: Why does a beer advertisement that features hot women in bikinis sell more beer? The “fooling people” explanation implies the beer-drinkers have been duped into thinking this beer will make them more fun to be around, even more attractive to women. But I give the beer-drinkers more credit; I suspect most of them realize their beer gut doesn’t become suddenly become sexy when they down another Heinie. Instead, I think drinking that brand of beer evokes fond memories of the bikini-clad girls and party atmosphere in the ad, thereby making the beer more enjoyable.
To generalize, I think at least some ads actually enhance the associated products. Not by changing their physical characteristics, but by changing the images and feelings associated with them. The consumer of this product doesn’t just buy the physical item, but the mental experience that goes with it. And this is a real gain to the consumer, not an illusory one – he really does enjoy the product more as a result of the atmosphere created by its marketing.
Status-building strategies provide another nice example. Firms that successfully associate their products with higher-status lifestyles will generate greater demand. Is that because people are fooled into thinking the product is more enjoyable than it really is? Maybe. But it’s also true that people enjoy status and are willing to pay for it. Status-based marketing enhances the value of the product for such people. (And before anyone throws Robert Frank at me, I’ll observe that status is not a zero-sum game. There are different status niches, and different products exploit them. Day spas and diamond earrings provide one sort of status; high-end skateboards and surfboards provide another.)
Behavioral economists often focus on “framing effects” as per se evidence of irrationality. Framing effects occur when people make different decisions in analytically identical situations, simply because the situations are presented in a different manner or with different context. Marketers take advantage of framing effects by carefully choosing how to present their products; this is often characterized as a form of manipulation. But if people do in fact care about certain aspects of presentation and context, then irrationality is not necessarily involved, and the manipulation can improve the consumer’s welfare by supplying desired frames of mind.
I don’t mean to claim that consumers are never irrational and never duped. I do think, however, that many forms of advertising currently dropped into the fooling-people box belong in the product-enhancement box instead.