Advertising and Product Information-Becker

Posner raises interesting and important issues, and even paradoxes, about the nature of advertising by airlines and other sectors. The specific question that starts his analysis is why airlines with relatively good on time performances do not advertise that fact? To discuss this and related issues, it is necessary to consider the nature of advertising and the role of information in advertising. The essential points of my discussion are that much advertising conveys essentially no information about characteristics of the products being advertised, that this does not mean that consumers are irrational, and that some advertisers do provide information to compare their products with those of competitors. Advertisements for soap, perfume, and many of the other products with large scale national advertising provide very little information, but try to get potential consumers to associate their products with pleasant images. A good example is the large fraction of products advertised on national television. Such ads may seem to cater to the "irrational" side of consumers, but preferences of consumers get formed in many ways, including reiteration by parents of values and morality without providing much information. Given this, it would be not surprising if advertisers often could persuade customers to buy their product without supplying a whole lot of information. Economists have generally not been friendly toward persuasive advertising since it is much easier with the usual economic analysis to discuss advertisements that provide information or misinformation. Yet tools are also available for considering the persuasive formation of attitudes and preferences with rational consumer behavior - see my book of essays, Accounting for Tastes, 1996. Although such an analysis of preference formation is dependent on some underlying psychological mechanisms that are not well understood, the process appears to be quite rational. The role of information in advertisements is complex, and varies greatly across different products, and even over time for the same ones. For example, while as Posner indicates, airlines almost never mention their online times or offer comparisons of their online records with the records of competitors, airlines do use comparisons with other airlines when advertising other characteristics. They mention sometimes how their coach seats have more room than the seats of rivals, or that their business class seats fold into a flat bed while competitors' business class seats do not, or compare their food and other service with that of others. They usually do not mention competitors by name because that is thought to give valuable publicity to rivals. Recall the old saying of politicians: "I don’t care what you say about me as long as you spell my name right." However, some advertisements show no reluctance to make invidious comparisons with the performance of rival products, and sometimes even name the rival products. Competitors to Viagra mention that the effects of their products on sexual performance last longer than Viagra does while many other drug advertisements compare the performance of these drugs with those of leading brands. In these advertisements, considerable information is provided, and usually it is pretty accurate as far as it goes, although they do not mention those aspects where the drugs advertised do not do as well as competitors. In many industries, newer products that are trying to break into a market dominated by a few leaders show no hesitation in using their ads to criticize the performance of the leading brands compared to their own brands. Then why don't airlines point out the greater delays by competitors when these exist? Of course, it would be misleading unless it was done for comparable routes since delays are more common in and out of major cities, especially during peak travel times and days, but airlines do not want to make such refined and informative comparisons. One problem is that delays usually occur on a whole air traffic grid, so that an airline that was lucky one month in having fewer delays on a grid might be unlucky the following month. This would open an airline to attack and ridicule by competitors if they tried to exploit a short-term on time advantage. Moreover, delays are so extensive mainly because slot takeoffs and landings are not sold, but are given away free to different airlines. Since many airlines benefit from free slots, they may not want to highlight delays because they fear that would cause a reaction toward selling them to airlines to cut down on delays. That said, challenging puzzles remain in using economic analysis to explain the types of information used and not used in advertisements, whether or not there are comparisons to the products of rivals. However, given all the professional time and thought that goes into advertisements, I am reluctant to claim that advertisers are not rational in what they do, for we do not understand all the relevant considerations that enter into the determination of the types of persuasion and information that are highlighted.

Comments

[neilehat]

In my opinion, the "Airline Industry" is one of the classic examples of the failure of "deregulation, free trade, and free markets" ideology group. What does one expect when you put control into the hands of the likes of MBA's, Bean counters and Marketing Moguls? Truth and fact takes a backseat to Maraketing and Ad campaigns now required to keep customers engaged and share holder value intact.

Have we reached a point where through deregulation, where it was once said, "At least Mussolini made the trains run time".

[fred]

Many years ago, Shell Oil ran a television ad showing the "extra miles" advantage of its gasoline, containing "platformate", over gasoline without platformate. As far as it went, the ad was accurate, however, it failed to mention that all brands of gasoline contain platformate. Naturally, there would not have been an ad if Shell had decided to mention that fact.

[Chuck Toombs]

Consider This. I was born and raised in Chicago, and attended the GSB, I have lived in Portland OR for 20 years. In that time I have seen the advance of Southwest Airlines on the Chicago Market, and today I will never fly into O'Hare for any reason because the delays and inherent problems associated with the ariport. Southwest, on the other hand has a dominant position at Midway, and flights are much more reliable. The reason the conventional airlines that fly into O'Hare do not advertise flight times is because they would have to advertise the same problem, which is O'Hare, and continue to loos market share to Southwest out of Midway.

[David]

I did not see it on the site yet, but congratulations to Professor Becker for the Presidential Medal of Freedom.

[neilehat]

Chuck, Southwest is more reliable as long as they can keep their planes on the runway and out of the streets of Chicago. Is that a "Moo" I'm hearing from the back of the SW cattle car?

As for O'hare, that airport has been in need of expansion for forty years and the FAA knows it. Maybe they will build a new one down in Peotone, if they can get the farmers off the land. Or maybe one over in Gary or perhaps Milwaukee. Perhaps old man Daly had it right. We need to build that airport in the Lake.

[ben]

Yes, congratulations on your award.

[blake]

it seems to me one aspect in which persuasive advertising might be viewed as more rationally persuasive, is that in order to afford the high price of mass market saturation advertising, the advertiser has to have money coming in from somewhere. Presumably this money either comes from investors or customers who were convinced by other means that the product had value.

[DanC]

The advertising the airlines do does tell a story. Clearly their research indicates that price and availability are the two biggest considerations for consumers. Followed by comfort on the plane and amenities. Next would be lost luggage.

I would assume that consumers view flight delays as a function of the entire system i.e. all airlines tend to suffer as part of the system rather then failings of the individual airline. This may not be true but attacking others for things that consumers think is beyond the airlines control could backfire.

Lastly, airlines may not want to educate consumers, or increase the demand for on time flights, because competing on the basis of being on time may be more expensive (and harder to accomplish in all markets) then competing on other factors.

[Jack]

Dan sez: "Lastly, airlines may not want to educate consumers,"

.... Ha! no truer words can be said!! I guess we've all become used to a change in reservations being anywhere from fifty bucks to "sorry that fare is no longer available" in which case what has been paid already becomes nearly worthless. Or that a one way costs the same as a round trip and there are time limits on how long one could be away on a round trip and, tickets unused expiring on fairly short fuses and so on............. but can you imagine typical restaurants, trains or anyone else getting away with the biz practices of airlines?

I see the "logic" of having advanced fares for leisure travellers and hooking business guys with higher prices on shorter notice, but it would also seem to make sense to fill the remaining seats at advanced prices on a stand-by basis; ie getting something for the empty seat is better than flying it empty.

[Jim]

It would be a frustrating world if every business engaged in such practices. Airline companies are unique in the sense that they utilize a freakish level of operating leverage (i.e., large fixed costs relative to variable costs), which is probably what results in such practices. Trains are less hectic, being somewhat of an outdated form of human transportation. I agree with Dan when he says that "consumers view flight delays as a function of the entire system" and that "competing on the basis of being on time may be more expensive." Even if some companies are able to curb delays better than others, the uncontrollable elements of flight delays cannot be ignored.

[Jack]

Comments about flight delays and hassles at the airport, along with the soaring fuel prices reminds us that we are FAR behind Europe and many others in developing light rail.

For trips of 500 miles even a 100 mph train would be competitive with air and offer continuous wireless access for phone and internet, a nice meal could be ordered etc.

Even for longer trips an over night sleeper with individual TV and a shower before stepping off in the city a short cab ride from a meeting may be better than getting up 4 hours early for a two hour flight that leaves the traveller outside the target city.

Fuel would be negligible and likely paid for just by light freight such as Fed Ex 2nd day delivery etc.

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