CHAPTER 16
Advertising in the System Model of Chapter 2

In Chapter 2, the production-distribution system, which has been detailed in Chapter 15, was extended to include one aspect of the many interactions between advertising and the market. This chapter adds an advertising-market sector, which is based on consumer deferrability of purchase and how deferrability might be influenced by advertising. The implications go much further than the one facet of a market here treated. Our economy has numerous pools -- capital equipment, housing, savings, management and technical personnel, and research results -- where the "inventory" is very high compared with inflow and outflow rates and where these flow rates can be raised or lowered for substantial periods of time without creating apparent serious imbalance in the size of the "inventory." These fluctuating flow rates make possible the long-term cyclic rise and fall of industrial activity. "Prospective customers" are taken in this example as one such "inventory," whose variation gives rise to a long-period system instability.

AN EFFECTIVE approach to a company problem will often require that we first understand the industry of which it is a part. The problems of the company may be primarily the problems of the industry as a whole. The dynamics of the entire industry can often be treated without considering the intercompany relationships that determine market share. In doing so, we must deal, as an industry aggregate characteristic, with those practices arising from competitive pressures that may influence the dynamic character of the entire industry.

This chapter deals with a market-advertising interaction of a total industry such as household appliances. The situation represents advertising practices that arise primarily from intercompany competitive pressures but still have an important effect in creating an undesirable behavior of the total industry structure.

We shall incorporate a pool of "prospective customers," as shown in Figure 16-1. A prospective customer is here defined as one who is going to purchase, who is at least vaguely aware of his need for the product, and whose actual time of purchase will be somewhat affected by sales effort. (Even though the selling effort may be intended to affect market share and not to shift sales from one time to another.) It seems clear that this class of customer represents a significant fraction of the purchasers of consumer durable goods. Here is the housewife who is planning to remodel a kitchen, as well as the builder who knows as soon as he starts planning a house that he will need to purchase kitchen equipment for it.

On the average, the prospective customer will exist as such for a certain period of time before actually buying. This period may be very dif-

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