U.S. businesses are expected to spend $285 billion on advertising in 2008. To put that amount into perspective, the Iraq war costs a measly $100 billion a year. With the amount spent on advertising, we could conduct 3 Iraq wars simultaneously. The following table was put together from a Robert Coen presentation on projected U.S. advertising expenditures for 2008. Mr. Coen is with Universal McCann.
When we spend $285 billion on something, we should ask if it is worth it. The answer in this case is no. Most advertising is, in fact, a nuisance to be avoided as much as possible:
Advertising does provide something of value, however: information. It tells us what products and services are available, why we need them, and where we can get them. Without advertising, we wouldn't know what to do with our money. We'd let it accumulate in our bank accounts until we die, hoping that our children can figure out what to do with it. Although advertising provides information, it does a lousy job of it. Its intent is to sell rather than help the consumer make the best choice on how to spend his money. Although in the end that $285 billion comes out of consumers' pockets, advertising is for the benefit of the vendors. Another problem with advertising is that it is broadcast. Instead of going just to people who want the information, it goes out to an audience of which only a small percentage might really be interested. To the rest of us, it is noise - an unwelcome intrusion, a waste of time, an assault on our quality of life. I am proposing that we change the way we pay for product information. With advertising, we pay indirectly - $285 billion a year. I propose that we pay directly. There are many ways to do this, but the best - for those of us with an Internet connection - is to subscribe to an online product information service. We know that where there is consumer demand in the U.S. of A., business leaps into action to meet that demand. Online product information services will quickly become available - for a fee - to provide such information as:
If you use the service a lot, you might choose to pay a monthly fee. If you use it infrequently, you could pay by the minute. To calculate how much money you've got to spend on product information, divide $285 billion (the amount currently spent on advertising) by 306 million (the current U.S. population). The result is $931, the yearly cost of advertising for every man, woman and child in the U.S. You would never spend that much if you did so directly, and for what little you did spend, you'd actually get useful information, something you hardly ever get from advertising. And when you pay directly, you choose how much information you buy - if any at all. With advertising, you pay $931 per person whether you want to or not. Some of the money you save by paying directly for product information will be offset by the increased cost of TV, magazines, the Internet and other media currently supported by advertising. But here again, you will have a choice. You can shop around for the best buy, or choose not to buy. Changing the system by which we get product information will not be difficult. All it will take is a small change in tax policy: we'll stop allowing businesses to claim advertising and other promotion as a business expense. At the corporate tax rate of 35%, $1000 spent on advertising now costs the business $650. If advertising can't be considered a business expense, it will cost the full $1000. That is a 54% increase. Businesses will decide that these expenditures are no longer cost-effective, and will either reduce them or stop them altogether. Many businesses will be relieved to no longer have to advertise. They can focus their energies on production, confident that success will depend on the utility and quality of their product. Many now advertise only because their competitors do. Consumers pay the bill for advertising in two ways. One is through extra income taxes. If we assume that the entire $285 billion is claimed by businesses as an expense, their tax is reduced by 35% of the amount spent, and the rest of us have to pay extra taxes to make up the lost revenue. 35% of $285 billion is $99.8 billion. What we don't pay in extra taxes we pay for in the increased cost of advertised goods and services. And beyond the cost of the advertising itself, there are societal costs caused by advertising:
Tobacco companies spend over $415 million on marketing in Michigan, more than 115 times the amount spent by the state on tobacco prevention (LSJ, 12/26/07). Beyond the horrendous cost of advertising, there is a moral issue. Products and services should be paid for by the people who use them. TV, radio, magazines, newspapers and Internet are free or cheap because the cost is spread to the population in general, partly as increased taxes - to make up for the tax revenue lost due to the deductibility of advertising as a business expense - and partly as higher prices for advertised products. People are paying for these media who don’t use them or who, if they had a choice, might prefer to spend the money on something else - food, for example. There is also the issue of human dignity. We have enough annoying things in our lives that we can do nothing about. But where is our self-respect when we voluntarily allow ourselves to be constantly pestered by pitchmen? We can congratulate ourselves for creating the “do not call” list, which put a stop to telephone solicitation. Let’s further increase our quality of life by ending the subsidy for advertising. Over and above the $285 billion spent on advertising is the money spent on sales, promotion, and other activities to sell the product and improve the company’s image. The promotion industry itself thinks spending on promotion now exceeds spending on advertising. These figures are from PROMO Magazine's industry trends report:
The report also lists the "tactics" that PROMO includes in its definition of "promotion" and gives the amount spent (in billions) in 2005:
Advertising, promotion and “other marketing” are all a misuse of resources. Consumers should not be getting their product information from the producer or vendor. It should come from an independent, unbiased, reliable source, and the only way to get it is to pay for it directly. By allowing business to deduct the cost of advertising and promotion as an expense, we are subsidizing those expenditures. Ending that subsidy would reduce their cost-effectiveness to the point that businesses will quit self-promotion and concentrate on creating value. I had a letter to the editor published on this subject on February 22, 2000. |
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