Stop advertising. Increase cost.

Blog-post Thumbnail

Advertising has always been a most commented upon subject. People love to hate advertising. It’s often termed as a necessary evil. Everybody wants to use it and criticize it as per the demands of time and whims of fancies. The situation in Nepal is no different. In recent times we have seen advertising come under attack from government, semi-government and trade bodies. Under the guise of corporate governance and consumer protection we have seen regulatory bodies placing or working to place or thinking of placing limits on advertising spends by companies and brands in various industries.

Advertising limitations were already in place on alcohol and tobacco products, reason being that consumption of such products are harmful to individuals in particular and society in general. This gets us thinking, why are these products not completely banned in the first place. You are allowed to produce such goods, openly sell them in the market place but not advertise them. Beats logic.

In recent times we have seen the regulatory bodies of the insurance sector and the education sector among others placing ridiculous limits on the advertising spend by a company. The reason: it puts unnecessary cost burden on the consumer. This leads us to review a basic question: does advertising increase cost to the consumer?

Advertising is a process of communication through which a brand can talk to its consumers. It uses mass media to connect to a large number of people. If a brand cannot create awareness among its consumers, it has no chance of surviving. Just imagine if the brand were to talk to the consumer one-on-one. It would be a rather painstaking, time consuming and costly affair. Would that reduce or increase the cost of the product? I believe the answer is pretty obvious. The per person cost of reaching out to people is the lowest in advertising.

Another effect such spending restrictions have is that it hampers growth of competition. New companies will always find it difficult to shake market positions of established brands if they are not allowed to communicate freely. This raises entry barriers in these industries and discourages new investors. We all know that competition is always beneficial for the end consumers as it raises quality and service along with reducing price. Telecom industry is a prime example. In the days of the NTC monopoly, a one minute international call to India would cost upwards of Rs.40. Today the cost for a similar call is as low as Rs.2 per minute. This goes to show that fostering competition is good for the consumer and policies that raise entry barriers are only going to lead to more monopolistic market situations that benefit only a few big players in the industry rather than the given argument that they protect consumer rights. Are such policies being influenced by few big players in these industries is up for debate.

Another reason given for such restrictive policies is that advertising misleads consumers. Brands over-communicate and under deliver. This could be true but the point is whether the solution is right. It is almost like saying if the government does not perform, we should abolish having any sort of government at all. Or if the justice system is not delivering we should do away with the courts. It does not make any sense. A better solution would be to have advertising content regulated rather than putting restrictions on the advertising spend as a whole.

Whatever the reasons, advertising is necessary in today’s age. It is required to keep the economy healthy and moving. It is important for facilitating companies and brands to connect with their consumers, it is important for helping media remain independent through revenues, it is important for fostering competition that in turn benefits consumers to get better products and services at better prices. For brands, not being able to communicate is suicidal. We need to ensure an environment that allows our local brands to be competitive and not let them die in seclusion. We need to take care of the rights of consumers and the most basic right is the right of choice.