In the view of advertising as market power, advertising’s main role is product differentiation. In other words, advertising helps change consumer tastes and establishes brand loyalty. Consumers are fairly passive, easily influenced by advertising. They tend to be loyal to a few brands and are therefore less sensitive to price fluctuations. This makes it difficult and expensive for competitors to win over their allegiance. The price of entry into the market remains very high, which leads to a few firms dominating the market and controlling prices. Those companies enjoy higher profits through increased sales. They also charge higher prices for the brand name, further enhancing their revenues. And because people are choosing a product because of the brand name, ads focus on image rather than price.
This model of the marketplace assumes concentrations of power within the market; as a result, it tends to be somewhat static. That is, if a few firms dominate and the price of entry for new competitors remains high, then it becomes difficult for changes to occur or for new products to be offered to consumers. In reality, however, people’s tastes and preferences change, product improvements and innovations take place, and technology changes, all of which can lead to new entrants in the market and shifts in market shares.
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Marketing Power – Advertising
