Explaining advertising to an 8-year old
It's not just about awareness
This past weekend my 8-year old asked me, “Why do companies advertise if people already know about the product?”. It was a great question, one that I think most adults, and many marketers could not answer coherently. What IS the point of advertising? I think most people will say it is to “convince the viewer to buy the product”, which is kind-of-true, but not very helpful, and also kind-of-wrong, in that advertising does NOT do a very good job of convincing people to change their beliefs (No one is switching their vote from Biden to Trump based on an advertisement).
I am sure most of my long time readers (and even new readers) have a pretty good idea how advertising works, but since I have never spelled it out here before I thought it was worth doing. Maybe you can share it with your kids or our nephews and nieces when they ask.
Here is how I answered my daughter:
Awareness: The most powerful thing advertising does IS make people aware of the existence of the product. Most products are NOT Tide, McDonalds, and Ford. The un-aided awareness of most products is very low. Advertising makes viewers who are not aware of the existence of a product, aware. This explanation is a bit of a cheat, since she asked “why advertise when people already know”, but it is worth calling out that most people, most of the time, DON’T know. So don’t forget this fundamental value of advertising.
Consideration: McDonalds has a very high awareness. A few decades ago McD’s was the #1 restaurant in America for lunch and dinner by both visits and spending (still is). But most people did not consider McDonalds for breakfast. In 1971 McDonalds was the first fast food chain to offer breakfast, but it still wasn’t a choice most people considered. McDonalds solved this by running a large number of ads promoting McDonalds for breakfast (See this 1977 ad). The ads DID help raise McDonalds awareness slightly, but more importantly they increased the likelihood that viewers would CONSIDER McDonalds for breakfast the next time they were making the choice.
Price Sensitivity: You search for a hotel on Google. The first two ads are for Hotels.com and Hotels-for-you.com. Which do you click on? You go into the drug store at 11pm looking for children’s pain killer. There is Tylenol and the CVS brand. CVS is 20% cheaper. Which do you pick up? Each time you see an advertisement you know a company is spending money to ensure you remember their brand. The company is making a bet on themselves. If they have a crappy product, the ad will help ensure you remember that, and avoid buying it again. But if they have a good product, the ad helps you remember that as well. So ads, especially expensive , broadly targeted ads, are a powerful signal that the company believes in its product and is creating something of value. They still might commit fraud or a bad product, but the cost for the company to do so it now much higher. The result is that the more salient a brand is for us, the more we are generally willing to pay for it.
There are other things advertising does (drive immediate purchase, increase distribution, investor relations, employee recruitment), but starting with the three above helps ground what advertising is mostly for. The third in particular is the hardest to measure, but in many cases the most long-term value creating.
You now know as much as my 8-year old.
For more important knowledge taught to children, check out this complication from Paul Graham on what he has been teaching his kids. This recent one may be apporpriate for this post:
Keep it simple,
Edward