Unemployed Highway Billboards



Does outdoor advertising pay? It just did!
Anyone who has traveled by automobile in the south, especially the I-35 corridors, has noticed this slogan on a rather large highway billboards. These billboards have a rather high unemployment rate, so this slogan is repeated many times in a long trip. I call them unemployed not because they are blank or empty, but rather the childish “caught you looking” attitude they hope to use to persuade us to purchase their advertising help. But, does your viewing of this billboard indicate success for its patron? Or is the advertising equation more complicated than that? As small businessmen we are offered advertising as varied as billboards to tee shirts with everything in-between. Advertising seems important, but is it?

Why Advertise
Perhaps it would be useful to remind ourselves of the impact our firm type has on our need to advertise and otherwise brand our businesses. As we recall from the discussions of pricing and non-standard pricing, firm type determines many aspects of both pricing and the need for advertising. If the three most common firm types are: competitive (farm), monopoly (utility), and competitive monopoly (restaurant); we can easily see who needs how much advertising. The competitive firm sells exclusively on price, he will sell all he can at the prevailing price, and would not benefit from advertising. The monopoly also will sell all he wants, but at the price he determines; advertising for him is largely unnecessary and largely for improved consumer relations. The competitive monopoly, (I have the market cornered on MY firms drycleaning), will advertise in an effort to have consumers prefer his particular brand of drycleaning, hamburgers or denim jeans….whatever the case may be. The competitive monopoly alone needs to create a belief that their product is different and superior to his competitors. My Dad used to say, “everyone cannot go to the same cleaners, and it’s your job to make your customers feel they go to the best”. Although the advertising major in university today will learn about the different kinds of knowledge, knowledge acquisition and the best ways to put a message into a consumer’s conscious mind, basically, advertising can be summed up as the art of telling your story in a way that will be memorable to the consumer.

Advertising as signaling

Philosophically, advertising has been accused of creating demand for things that may or may not be socially useful, but certainly advertising is not likely to become closely managed by the government so such discussions are not fruitful. However advertising has benefits that cannot be ignored. It could be said that advertising has a signaling effect. Signaling is a Nobel winning concept coined by Michael Spence. Spence reasoned that even if a college education had no “productive” value to make employees more productive, employers might use a degree to demonstrate which employees would be most likely to work hard in the future. In the employment model, the employer (without a signal) would pay all employees an intermediate wage, (halfway between the degreed and non-degreed wage). In this unsignaled model one employee is underpaid, and one if overpaid; in business, the unsignaled firm might fail. Trade associations have been reminding us for years to tell our customers why they should keep trading with us; the alternative could be the demise of any unsignaled business model especially a premium product or one with less easily definable benefits.

Advertising as Rent seeking

Rent, in this context is the surplus that a producer receives from “profitable” operations. Rent seeking is an activity with a more sinister sub-text. Some have defined it more as an activity that uses resources to enable profit, wherein the consumer will never see any improvement in product or service because of the expenditures. For example, lobbying and-or, out and out bribery is considered rent seeking. Although, I concur with many of you that products with little social usefulness have been sold thru the use of clever or timely ad programs; it is a slippery slope indeed to suggest that advertising be limited (by government or whoever) in any way.

If we have come to the conclusion that advertising is a necessary “evil”, then we should do it with as much vigor as we can afford. So, as to the affording part. I have heard different rules of thumb utilized, usually expressed as percentages of sales, as the optimum to purchase for a small business to optimize sales. I won’t repeat these here, as this is not my forte or purpose.

The Calculus of Advertising

As we said in the beginning, we as small business are offered opportunities as varied as there are salesmen. Some offerings are so obtuse as to be obviously in effective at getting out any message or relaying any consumer incentive. These must be construed as public relations at best or out-n-out charity at worst. Also we find ourselves the target of schoolchildren’s (and their parents) fundraising, which might include some kind of recognition; these too should not be considered advertising.

Legitimate advertising pedagogy could be as varied as coupon-based advertising, to grocery store shopping cart signs, to the highway billboard example. How do we live within our ad budget and still maximize our impact? The answer is two fold. First we must find what types of advertising are effective in our own area and business nitch. We can find this out by study or networking with others in our industry (easiest solution). Budgetary, we need to learn to do our own math calculations. The billboard salesmen would say that perhaps 10 thousand people per day see a billboard, and he might throw out a number that you might want to pay “per impression”; but this equation is incomplete. We have ignored the function that has the greatest importance, “How likely is the viewer to purchase my product?”. If ten thousand people drive by and cannot exit to purchase our product, then how much are these impressions worth to us? Another factor worth mentioning is: what is the profit we can expect per transaction? The shopping cart advertisement is an excellent one for this example. If the cart viewers are potential customers, and many see the cart, the remaining factor is the ratio of ad cost to total profit potentially realized from the ad. Usually realtors purchase these shopping cart ads because they alone can expect one transaction to pay for the ad. A drycleaner might need several hundred extra (remember marginal?) transactions to pay for such an ad.
I am not putting forth a formula because there are many variables to consider that might change the equation. Potential variables are how big geographically is the market, what is our penetration of the market, how profitable is our operation, how many firms are there in the market…and so on. The important thing is that you alone can know your firms calculus. Don’t let a salesman do the math for you, He’ll choose factors that make the project look like a necessity for you. Do your own math, and stand by it.