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Monday, April 30, 2007

How much does it take to sell soap?

From Advertising Age:
Revenue for U.S. marketing-communications agencies jumped 8.8% to $28.2 billion in 2006, the strongest growth since ad spending began to rebound from
recession in 2002. The hot growth came from marketing services, fueled by digital. Traditional ad agencies, grappling with a shift from old media, saw tepid growth.

To spend only $28.2 billion to "market" soap, cars, and all the other stuff sold in a $12 trillion economy seems like a steal. If explicit marketing accounts for 0.00235 of the economy, and if implicit marketing accounted for another 0.002 of the economy, this suggests to me that most economic activity is on autopilot - either immune from marketing efforts or prohibitively costly to change.

My recollection is that ad agency revenue does not include such things as air time (television, cable, radio), or advertising charges for print (magazines, newspapers). It probably also does not include charges for on-line spots. Nor does it include a whole host of other marketing expenditures (e.g., free samples, couponing, etc.). Many local ads are self-produced by the business involved (local car ads leap to mind, as do grocery store and drug store ads),

Still, even if you multiply the ad agency revenue by 5, it's not a large expense.
This is a good point. The revenues of advertising agencies do not include the expenditures on the actual air times, print space, and so forth. I have been amazed at the amount of money spent by companies like GM to market their product. Other companies spend very little on advertising. Later today I will try to dig up the total amount spent on advertising efforts, my recollection is that the number is still puny compared to the overall economy.

Another interpretation, however, is that a little bit of advertising goes a long way, i.e., the amount of advertising it takes to "market" a $12 trillion economy is relatively little because advertising is very effective. My previous research (and that of others) would tend to go against this interpretation, but it is a possibility.
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