Advertising Does Not Increase Cost Of Goods
( Originally Published 1902 )
In answer to the question from The Dry Goods Chronicle, as to whether or not advertising increases the cost of goods to the consumer, I said:
If by this question you mean the simple proposition whether the expense of advertising an article increases its cost to the consumer, I answer in the affirmative.
If you ask the more involved question: — " Has modern publicity in the aggregate the tendency to increase the aggregate cost of advertised articles?" I answer in the negative.
Look at the first proposition. Be it a soap, perfume, dress shield, dictionary or what not, in computing the percentage of profit, the cost of manufacture, storage, with the selling and advertising expense must be taken into nice consideration. Having arrived at an estimate as to the entire cost of production and handling, the seller insists upon a profit of ten, twenty or thirty per cent., as the case may be. The one to pay for this profit as well as the cost of production, storage, with the selling and advertising expenses, is the consumer.
The second proposition is quite another matter. The mass of advertising today represents a force that accentuates every law of competition. The publicity of prices forces prices to stand on their own selling merits, and when smaller prices are advertised on the same line of goods, all selling force is taken out of higher figures.
There is scarcely a line of production not advertised by two or more competing concerns. Look in the magazines and you will find cigars, furniture, clothing, shoes, etc., advertised by rival houses. Is there a woman in New York to-day who will say that Wanamaker's, Adams', or Macy's advertised offerings are dearer by reason of advertising? Money can travel farther today than ever. Retail houses cut each other's prices on advertised articles. Goods advertised are the cheapest. The cost of advertising leaders is borne by the main establishment, and from my experience and observation, I would say that the benefits to the purchaser in purse and convenience far outweigh the cost of advertising.
The second proposition swallows up the first. The inevitable conclusion is that advertising does not increase the cost of goods to the consumer.
Referring to the above, I would like to say that in the course of a lecture on advertising, delivered by me before the Prospect Union, Cambridge, Mass., I touched upon the same subject, and at the conclusion of my talk, I was struck with the interest with which the Harvard College contingent and Cambridge and Boston business men present discussed this very point.
It is an interesting point in economics for Harvard young men or any other young men to consider. But advertising has come to stay.