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A challenge for marketers and economists
E. SCOTT MAYNES
THE POWER OF CONSUMERS A challenge for marketers and economists
The author is a professor o f economics at the University o f Minnesota.
Consumers, in the macro sense, possess considerable power. They can, in the aggregate, confound economic forecasters and policymakers. But in the micro sense, the individual consumer is less potent. He cannot obtain relevant price-quality information and cannot or will not act upon the information he does possess. To deal with the former problem, the author suggests that the development o f interpersonally and intertemporally valid measures o f subjective variables should have high priority. To deal with the latter, the author suggests heavy penalties for false or deceptive advertising or the creation o f an independent public corporation, which would produce and disseminate price-quality information to consumers. Business marketers, he observes, are likely to play according to new rules in the near future.
This article is concerned with the macroeconomic power and the microeconomic
JUNE, 1972
impotence of consumers and the challenges they pose for marketers and economists. In the aggregate, consumers possess the power to bedevil economic forecasters and policymakers. Aggregate consumption expend i t u r e s - d o m i n a t e d b y purchases of new automobiles-constitute a cyclically dynamic factor; standard economic models, however, do a poor job of predicting its behavior.. In contrast, consumer anticipations approaches do not depend on extrapolation of historic data, and are therefore admirably suited to the prediction of turning points in spending on new cars. To date, the potential and actual successes of the consumer anticipations" approaches pose two challenges: to perfect the measurement of anticipations as well as other subjective variables, and to achieve their optimal formulation in econometric models. The impotence of consumers in'the micro sense relates to the fact that they often cannot obtain relevant "price-quality information and cannot or will not act upon the information they possess. Obviously, the reward-punishment mechanism at the heart of our market e c o n o m y works badly. The consequence can be both high and low prices and both good and poor performance by sellers. For c o m p e t e n t consumers, badly performing markets raise the possibility of large pay-offs in terms of lower prices and/or better quality. This diagnosis challenges economists in two ways: to integrate the cost of information into the' theory of markets, and to make the case for a public interest in better consumer information. The challenge to marketers is formidable: to learn how to better predict consumer preferences so that businesses can plan to produce the products which consumers "really" want, and to communicate better price-quality information to consumers.
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POWER IN THE MACRO SENSE Consider the following question: Which is the most volatile component of GNP in the postwar period: Business expenditures on structures or durables? Household expenditures on structures or durables? E x p e n d i t u r e s o n n o n d u r a b l e s and services?
A Keynesian would probably choose the two business investment components as the most volatile. Such a choice would be wrong. Household expenditures on structures and durables rank first and third, respectively, in terms of relative volatility. 1 Indeed, it is the volatility of household expenditures on both structures and durables that has bedeviled economic forecasters and policymakers since World War II. And it is this instability that has prompted the development of new approaches to forecasting changes in consumer investment.
78 Approaches to Forecasting George Katona was among the first to .argue the instability of aggregate consumption expenditures in the short run. Working from a background of gestalt psychology, Katona argued that large expenditures were discretionary-"genuine decisions"-as contrasted with "habitual behavior. ''2 Hence, large expenditures cannot be viewed as automatic responses to changes in the values of such "standard" economic values as "disposable income."
1. F. Thomas Juster, Household Capital Formation and Financing, 1897-1962 (New York: Columbia University Press for National Bureau of Economic Research, 1966), p. 84. 2. George Katona, P~ychological Analysis of Economic Behavior (New ¥ork: McGraw-HiU 'Book Company, 1951 ). See also George Katon~ and Remis Likert, "Rdationship Between Consumer Incomes and Savings~ the Contribution o f Survey Research," Review of Economic Statistics (November, 1946).
This discretionary view of large expenditures led almost directly to the invention by Katona and his associates of consumer anticipations approaches to the short-run forecasting of discretionary expenditures, especially automobiles. If people make conscious decisions in advance on large purchases, it should be possible to ascertain through interviewing the unconditional subjective probability of purchase for some specified time period (three to twenty-four months ahead). Suitably aggregated over a sample of the entire population, the time series of an index formed from these data in successive quarterly surveys should predict rather well the time series of aggregate expenditures on automobiles (or some such variable) lagged by six, nine, or twelve months. This, in essence, is the buying intentions variant of consumer anticipations approaches that has been embodied in the quasi-quarterly surveys of the Survey of Research Center of the University of Michigan since their inception in 1946. A second variant is the consumer attitudes approach. This approach asserts that a consumer, in deciding to undertake a discretionary purchase, takes into account not only such objective factors as income, stock of durables, and liquid assets but also such subjective factors as his evaluation of his own current and prospective financial position, of current and expected business conditions, and of the market for consumer durables. Objective factors held constant, the more favorable these relevant subjective attitudes, the higher the probability of purchase. It should be possible, using recurrent consumer surveys, to measure such consumer attitudes directly. In general, the more optimistic the attitudes of the population, the greater the number of purchases that will be undertaken. When suitably quantified and aggregated into an Index of Consumer Sentiment, the time series of data on consumer attitudes should predict subsequent changes in aggregate expenditures on automobiles.
BUSINESS HORIZONS
The P o w e r o f Consumers
Almost all "scientific" systems of forecasting-even the most sophisticated econometric m o d e l s - r e p r e s e n t some form of extrapolation These techniques assume that parameter values remain constant or change in prespecified ways. Such an assumption is not necessary in consumer anticipations approaches. Since buying intentions and consumer attitudes are both subjective, they are open-ended, permitting the decision maker to take account of any variable and to be able to change its assigned weight at any time.
Successes and Challenges If shifts in parameter values and variable weights do in fact occur at cyclical turning points, then the consumer anticipations approaches should be well-suited to detect such points. Such has been the statistical record. Consumer anticipations approaches have successfully predicted the following turning points in automobile expenditures that were badly forecast by conventional models: the 1949 downturn, the 1953-54 downturn, the 1955 peak, 1957-58 recession, the 1962 aborted recession, and the 1969 downturn. In recognition of its potential, the SRC Index of Consumer Sentiments has been included in the Wharton School e c o n o m e t r i c m o d e l ? The reader should be warned, however, that the SRC Index, when placed in a sophisticated econometric model, is statistically significant only at the 2-sigma level. Most recently, only the consumer attitudes approach detected the sizable downturn in aggregate automobile expenditures that started in the fall of 1969 and continued through 1970 and into 1971. Models with
3. Michael K. Evans and Lawrence R. Klein, The Wharton Econometric Forecasting Model (Philadelphia: Economic Research Unit, University of Pennsylvania, 1967).
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extrapolative logic failed'totally. This suggests that mainstream economists, though understandably attached to entirely economic explanations and extrapolative models that represent the core of economic and econometric training, must explore and master the nether region of the consumer anticipations approaches if forecasting fiascoes like 1969-70 are not to be repeated. This is a challenge to economists. The same challenge applies to marketers. With further development it should be possible to apply the several consumer anticipations approaches to the understanding and prediction of any type of discretionary behavior. Major research is necessary, however, to improve these approaches themselves, o One example concerns what has come to be known as the consumer attitudes-buying intentions paradox. 4 The paradox is this: buying intentions are successful cross-section as well as time-series predictors. That is, groups of survey respondents who state that the subjective probability of purchasing an automobile is 1.0 are in fact more likely to purchase in the next X months than survey respondents whose subjective probability is 0.5. There is statistical evidence of a positive correlation between stated subjective probabilities and purchase rates. It is also true that the time series of the Census Bureau's Buying Expectations Survey on "expected automobile expenditures" correlates well with the time series of aggregate expenditures of automobiles, s Not so with consumer attitudes. The cross-section relationship between attitudes
4. F. Gerard Adams, "Predicting With Consumer Attitudes: the Time Series-Cross Section Paradox," Review o f Economics and Statistics (November, 1964). 5. F. Thomas Juster, "Consumer Anticipations and Models of Durable Goods Demand" in Jacob Mincer, ed., Economic Forecasts and Expectations (New York: Columbia University Press for National Bureau of Economic Research, 1970).
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E. SCOTT MAYNES
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and subsequent purchase behavior has, if anything, marginal statistical support while the time series relationship is firmly established. Why? My hypothesis is that random errors of measurement, greater in degree for attitudes, obscure underlying cross-section relationships. In the time series, on the other hand, these random errors tend to cancel one another, leaving the basic underlying relationships revealed. Whether or not this hypothesis is correct, it is clear that research designed to improve the measurement of both attitudes and buying intentions is in order. It poses, in its most generalized form, a research objective of overwhelming importance to all the social saiences--the devising of measures of subjective variables (such as attitudes and buying intentions), which are interpersonally and intertemporarily valid. 6 Success in this enterprise would have immense pay-offs wherever questions are used to elicit subjective data. With the same outlay, it would_ enable researchers to uncover relationships now obscured by random errors. Alternatively, the current level of precision could be obtained from smaller samples and smaller expenditures, an important objective when personal interviews co~t as much as $50 each. One final suggestion. Though 1969 was scored as a success for consumer attitudes, it must be scored as a failure for buying intentions. While the SRC Index of Consumer Attitudes clearly signaled a major downturn in automobile purchases, the CBE survey foretold continued high spending. In m y opinion, the failure of buying intentions at this turning point can be attributed to their unconditional nature." Respondents are asked: "What are the chances that y o u will purchase
6. The nature of errors in the measurement of subjective variables and possible so!ufions to the problem are discussed at length in E. Scott Maynes, "The Power of the Consumer," in Burk Strumpel (ed.), Economic Understanding in Human Affairs, forthcoming.
a new automobile in the next six, (twelve, twenty-four) months?" Replies that are, in essence, subjective .probability judgments obviously make certain assumptions regarding expected income, employment, prices, and so on. In ordinary times, unexpected but favorable changes in these variables probably tend to be offset by unexpected unfavorable developments. In late 1969 and early 1970, unexpected developments of an unfavorable nature probably outweighed favorable developments, thus accounting for a shortfall from the predicted purchase level for automobiles. What is needed is further exploration into the measurement and use of conditional subjective probabifities of purchase.
MICROECONOMIC IMPOTENCE
The consumer's role in a well-functioning market is to identify and reward good performance on the part of sellers. To perform his role effectively, the consumer needs to know the following: What products, brands, and sellers exist and where to b u y them What characteristics o f a p r o d u c t are desirable (general p r o d u c t information) The e x t e n t to which particular product-brandseller c o m b i n a t i o n s possess the desired characteristics Prices o f product-brand-seller combinations.
It goes without saying that consumers must not only possess the required information, but must be willing and able to act on it, all at low cost. In addition, numerous alternative brand/seller combinations must exist, and resources must be mobile.
Markets and Consumers in 1776
Consider the functioning of retail markets in 1776, the year Adam Smith published his Wealth of Nations, the first satisfactory analysis of the working of a market economy. In general, the a m o u n t of information
BUSINESS HORIZONS
The Power o f Consumers
required was much less than would be required now, and it was easy to obtain. In the rural, small-town markets of that time, the identity and location of sellers were c o m m o n knowledge, available at almost zero cost. What is more, the number of choices to be made was much smaller than now because of lower incomes, fewer products, and fewer sellers. At the same time, information was easier to obtain. Products were simple. From common experience people knew the desirable characteristics of products and the extent to which particular items possessed them. For example, no one had any difficulty in understanding how a horse " w o r k e d . " And despite a classic literature on horse trading and people taken in thereby, most men were able to distinguish between horses that performed poorly and those that performed badly. The main defect of these local markets was structural; their small size led to local monopolies. Little wonder that this is the defect which economic theory has stressed from that time to this. Monopoly a s i d e - a n d this is an important e x c e p t i o n - c o n s u m e r s could, under these conditions, identify good and poor performance on the part of sellers. Under these conditions, the reward-punishment system at the heart of a market economy worked well. The presumably selfish motives of sellers were channeled to a constructive end through an effective market. Markets tended to be cleared b y a single low price.
ated. As every car b u y e r knows, one must decide on b o d y type, "line," transmission, m o t o r size, type of brakes, trim, and numerous accessories. The same conditions apply, though on a reduced scale, to other products which, until recently, were single variant products. Last, model changes are becoming more frequent except (thankfully i) for automobiles, and, given urbanization and the automobile, each consumer now has access to more product/brand/seller combinations. 7 At the same time, the cost of obtaining price and quality information is now vastly higher. Here we properly count as costs not only money outlays devoted to the search for information, b u t also such subjective, b u t real, factors as the utility of activities given up in order to undertake shopping (for example, the tennis game sacrificed to shopping) and the disutility shopping itself may have for an individual. As Linder has so cogently pointed out, affluence has brought us more goods, b u t we are still stuck with the 168-hour week. s Interpreted: time is " w o r t h " more now; hence, the cost of shopping has increased drastically. The task of obtaining price-quality information has become more difficult. The accumulated experience of the consumer and his acquaintances, acquired at near-zero cost, no longer enables the consumer to know prices and qualities. The technical complexity of products is, of course, to blame. To assess the "true" price of a nonterm life insurance policy, for example, one must be an insurance scholar, or be able to hire such a person, or to locate and digest his results. 9
Consumers and Markets Now Two hundred years later, the picture has changed drastically. The volume of information which consumers require is now massive. Consumers "have more income to spend; there are more products and brands; and not only are there more products and brands, b u t variants of brands have prolifer-
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"7. Several of the points in this paragraph were suggested by John Hancs, director of marketing information for Consumer Union. 8. Staffan B. LindeT, The Harried Leisure Class (New York: Columbia University Press, 1970). 9. To appreciate this problem better, consult Joseph M. Belth, The Retail Price Structure in American Life Insurance (Bureau of Business Research, Indiana Univetlity, 1966).
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None of these is easy. And an analogous problem exists for most modern products. This difficulty apphes to the ascertaining of prices and. the extent to which a brand possesses the desired characteristics as well as knowing what characteristics are desirable. Regarding the latter, we may ask, w h o before Ralph N a d e r - h a d any conception whatsoever of a "safe" automobile. The widespread dissemination of price and quality information is not enough to assure the effective functioning of markets. Consumers must be willing to act on the information. Everyone knows that new automobile prices are negotiable, but m a n y consumers find bargaining distasteful or lack the essential skills or the supporting information. Similarly, even if most consumers were aware of the extremely wide range of prices for a standard package of automobile insurance ($124 to $227 for identical drivers in Minneapolis), many would not make the effort to search out the lowest priced company. While the local markets in which consumers deal have deteriorated informationally between 1776 and 1971, they have improved structurally. Due primarily to the automobile, urbanization, and the development of mailorder organizations (especially from 1900 to 1940), the typical consumer today has access to a larger n u m b e r of product/seller/brand combinations and hence less often faces a local monopoly. Even on this front, not all is for the better. While the consumer typically has access to more local sellers, the n u m b e r of brands may be smaller, due to economies of scale in both production and selling. The net effect--a judgment, of course-is the existence of both high and low prices, both good and poor quality, and both high and 10w pricesper-unit-of quality for the same product. To be more specific, I would argue that, because consumers do not and/or cannot obtain and act on relevant price-quality information, the reward-punishment mechnisms on which we have relied to discipline the strong
but selfish motives o f sellers do not work. The consequences are everywhere observable: poor quality, unsafe products, dishonored warranties, consumer grievances, consumerism, and marketing. The relationship between informationally imperfect markets and marketing should be expanded upon. Marketing in this economist's view has two functions: to tell producers what (future) products consumers really want, and to undertake steps (organization of distribution, advertising, market research, display, pricing, and so on) which will facilitate and expand sales of whatever the c o m p a n y has decided to produce. The need for marketing has its roots, as Galbraith points out, in the increasing capital cost of introducing products and the ever increasing time gap between the decision to produce a product and the point when its relative success is known. 1o Informational imperfections of markets increase the importance and hence the responsibility of marketing for social good or for social ill. It is for social good when marketers induce companies to produce (or modify) those goods that consumers would "really" want under the never-never condition of perfect information; it is for social ill when consumers are induced to purchase those goods that they would not purchase under conditions of perfect information. To summarize, the preceding diagnosis poses a formidable challenge to marketers: to improve the prediction of consumer preferences so that businesses can plan to market the products (or product variants) that consumers really want, and to communicate better price-quality information to consumers so that markets will work better. The same diagnosis challenges economists to integrate the cost of information into the theory of markets and to make the case for a public interest in better consumer information.
10. J. K. Galbraith, The N e w Industrial State (Boston, Houghton Mifflin Company, 1967).
BUSINESS HORIZONS
The Power of Consumers
IMPERFECT SOLUTIONS
INFORMATION:
SOME
We take up this topic by reminding ourselves that businesses are currently spending $67 billion annually on product information-media advertising, specialty advertising, sales promotion, and public relations. 11 Clearly, the solution to the informational imperfections of markets is not further expenditures of the same kind! Ideally, what consumers need is accurate, comparative price-quality information accessible in compact form at low cost at or near the point-of-purchase. In terms of techniques currently available, this calls for consumer product testing, labeling, and certifying on a scale vastly more massive than now. European experience in these areas has exceeded ours. 12
For the more circumspect consumer who demands details, telephonic and perhaps visual access to computer-stored information is a sine qua non. A limited experiment undertaken by Community Systems Foundation of the University of Michigan for Consumers Union demonstrated the feasibility of computer storage as well as the impracticability of teletype access to such information. Obviously, for the even more circumspect consumer, more detailed information should be available in printed form, permitting longer study.
Production and Use of Information What consumer information is now produced? As for that produced by consumer organi-
11. For this estimate I am indebted to Professor Ivan Ross of the University of Minnesota. The sources and assumptions of the estimated are spelled out in Maynes, "The Power of the Consumer," in Economic Understanding. 12. See, for example, Hans B. Thorelli, "Consumer Information Policy in Sweden-What Can be Learned?" Journal of Mart~eting (January, 1971), and 'q'esting, Labelling, Certifying: a Perspective on Consumer Information," British Journal of Marl~eting (Autumn, 1970).
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zations, the answer can be fairly specific. Consumer Reports, published monthly by Consumers Union, has a circulation of 2 million and a total budget of $14 million. Its output consists of the results of 110 product tests and 708 pages of consumer information. Consumer Bulletin, published by Consumers Research, Inc., has a circulation of 104,000 and a budget (assuming a gross income of $6 per copy) of $624,000. Its annual output consists of 70 tests and 440 pages. As for businesses, we know that roughly $21 billion is expended on advertising and promotion, is It is a legitimate though difficult question to ask to what extent this expenditure produces accurate consumer information. My answer would be that most advertising informs its audience of the existence (and often location) of a product, a brand, or a seller. This is useful. On the matter of price-quality information, however, advertising tends to be accurate when inaccuracy poses heavy costs on the seller. Applying these criteria, we would expect at least the following classes of advertising to be accurate: mail order advertising (by firms with long-run aspirations), want ads, advertising of "simple" products (where consumers can and will check claims), and advertising directed to professional buyers. As for the rest, I have yet to see a system by which the consumer can separate the truth from the puffery. Why is so little accurate consumer information produced and disseminated? We may approach the question by considering separately factors affecting the demand for and then the supply of such information. The blatant fact of economic life is that many or even most consumers see little need for such information, believing that markets work better ~han they actually do in delivering low prices and high quality. Economists, well
13. S. Banks, R. Reisman, and C. Y. Yar~, Advertising
Age (June 7, 1971), p. 27.
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E. SCOTT MAYNES
insulated from reality and unaware of information-induced market failures, have done nothing to disabuse the public of this notion. Whether attributable to effective propaganda on behalf of free enterprise, or whatever source, consumers persist in believing in the efficacy of markets and their own effectiveness in making decisions.
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As we noted earlier, obtaining and digesting consumer information is not costless. It requires outlays of m o n e y , effort, and time. These factors tend, too, to reduce the demand for consumer information. Finally, the digestion and utilization of consumer information as it is presently communicated requires intelligence and training. Time and again, research has confirmed that Consumer Reports is read primarily by highly educated persons. On the supply side, too, many factors discourage the production of consumer information. In the first place, most profit-making organizations suffer a credibility problem if they seek to provide brand (as opposed to general) information. A possible exception is the slender weekly Moneysworth, which is just entering its second year. Changing Times (circulation 1,700,000), published by the Kiplinger Organization, tends to avoid the essential brand comparisons and focuses instead on general information. While consumer-controlled cooperatives such as Consumers Union possess credibility, cooperatives are difficult to organize, perhaps because of the lack of big pay-offs to their organizers. At any rate, despite certain meritorious features, cooperatives scarcely threaten the position of corporations as the dominant form of economic organization. Another problem, c o m m o n to most publishing activities, is the "public g o o d " nature of consumer information: published test results are not used up by the person purchasing them. Borrowers can make use of the information without paying for it. Though the worn condition of library copies of Consumer Reports attests to their social
"Borrowers can make use of the information without paying for it."
usefulness, it does nothing to help finance a larger supply of information. Still another problem is that much consumer information is local and subj e c t i v e - w h a t doctor to choose or how to locate a reliable roofer. The per unit cost of obtaining such data may exceed its worth to individual consumers unless a large demand materializes at the outset. But the greatest disability of all on the supply side is financial. The (imperfect) theory of markets, past historical practice, and our legal institutions have all sanctioned our present arrangements by which producers-sellers are permitted to assess a " t a x " on sales of approximately 11 percent in order to finance their understandably selective consumer information activities. 14 Not only is this levy permitted b y law, but it is treated as a tax-deductible expense. So much for the private sector. Our government, in its own purchasing activities, tests alternative brands. Until 1970 the government was unwilling to publish this information, much less undertake additional tests. All this changed on election eve, 1970, when President Nixon--no radical h e responding to the political force called consumerism, promised to release results of all tests undertaken by the federal government. Pressures for the government to do more will be forthcoming. Consumers groups will surely ask for more. The business c o m m u n i t y , however, will resist this trend because only
14. The $67 billion of business spending to inform and persuade consumers constitutes 10.9 percent of the $616 billion of aggregate consumption expenditures.
BUSINESS HORIZONS
The Power of Consumers
the "winner" gains in sales and profits as a result of product tests. And, necessarily, winners are always in the minority.
$2,000, 2 yr.
Possible Solutions Our objective is to improve and increase the a m o u n t of consumer information. We will confine ourselves to consideration of but two of a multitude of possible remedial approaches. The first approach would seek to improve the character of information provided by businesses by penalizing them for false or deceptive advertising. An example of an apt penalty comes from a recent action of the Federal Trade Commission. The ITT Continental Baking Company was found to be advertising falsely that its product, Profile Bread, would help consumers lose weight. The FTC, in a consent decree that was provisionally accepted by the company, has ordered the company to spend 25 percent of its advertising budget for the next six months on advertising which states that "Profile Bread is not effective in weight reduction, contrary to possible interpretations of prior advertising.'n s The penalty is apt in several respects. By any measure, the dedication of one-quarter of a company's advertising to a message it finds unpalatable is a stiff penalty. Not only does the c o m p a n y pay for a type of advertising it does not want but this advertising may decrease its future sales. Finally, the penalty tells the public, m u c h more effectively than t h e usual court decision, that in the eyes of the FTC this company is a transgressor. O n e may fairly ask whether such a penalty is sufficiently heavy to eliminate most of today's demonstrably false advertising. My guess is that it would go a long way in that direction. While demonstrably false adver-
15. See Federal Trade Commission press release, July 2, 1971.
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tising is an easy target for correction, merely deceptive advertising and zero advertising are not (zero advertising has almost no content; for example, the attractive w o m a n in the ad proclaims: "I love ; y o u will, too!). In the case of zero advertising, only a brash person would modify our cherished traditions of free speech and property rights to require that advertisements convey, positive information about the production, in addition to the identity of the brand. Actions to curb deceptive advertising are difficult because of their subjective character. Consider a newspaper ad by a savings and loan association. It featured a "6%" fifteen inches high; the top half was shaded. At the top of the shaded area there appeared in small, 8 point type the qualifying phrase, "$2,000, 2 y r . " Clearly, the intent was to convey the erroneous notion that all savings accounts are paid 6 percent, not just those in which balances of $2,000 or more are held for at least two years. What size n u m b e r for "6%" • and what size type for the qualifying phrase would be necessary to make this ad nondeceptive? The difficulty (impossibility?) of the answer underlines the obvious conclusion: this problem is not amenable to bureaucratic regulation. Thus, the best we can expect from our first approach is the elimination of demonstrably false advertising. This approach will not a s s u r e - o r even move us very far in assuring-that consumers obtain the pricequality information they require to make effective decisions. Hence we must turn to another approach. Accepting the view that there is a public interest in better consumer information, our
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E. SCOTTMAYNES
second approach calls for the creation of an independent public corporation. Its function would be to produce and disseminate pricequality information to consumers. The corporation might conduct product tests; collect consumer reactions to services; use mass .,.media to disseminate such information; or append comparative rating labels to products marketed. Two steps would be required to ensure the independence of such a Consumer Information Corporation. First, it should be provided with its own source of financing. Perhaps a tax on advertising and public relations expenditures of businesses-a " t r u t h t a x " ? - w o u l d be the appropriate levy. We previously suggested that expenditures by businesses for advertising and public relations do not provide the information consumers need. Therefore, a transfer from this base to a public corporation would improve the performance of this function. The second require-
ment would be the establishment of an independent controlling board, representative of consumer interest. To achieve this, persons with business interests--past or p r e s e n t should not be allowed to serve. Some may wish to go further, and have the board elected by consumers as the board of Consumers Union is elected. The above discussion is just a sampling of what might be, and the arguments for and against different arrangements. Whatever the outcome of these matters, two implications are clear. Marketers employed by business are likely to play according to new rules in the near future. Some marketers are likely to find themselves on the payroll of consumer organizations and working directly for the consumer interest. This article is based on an address givenby the author at the first Annual Albert Hating Marketing Symposium, Indiana
University.
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Much of what we need to know a b o u t our market has to do with the p o t e n t i a l of each market and the differences in the composition of each by s o c i o e c o n o m i c factors. And much has to do with attitudes of wholesalers, dealers, and c o n s u m e r s or industrial b u y e r s t o w a r d our o w n and our c o m p e t i t o r s ' products. Modem marketing research t e c h n i q u e s are generally adequate to develop accurate information of the type required to develop short-range plans. Furthermore , sales people can be trained to spot and report changes in competitors' tactics, particularly changes in pricing. It is in the area o f anticipating .new needs and w a n t s , h o w e v e r , that more effort, money, and improved marketing research t e c h n i q u e s are needed.
--Victor P. Buell Marketing Management in Action
BUSINESS HORIZONS
THE POWER OF CONSUMERS A challenge for marketers and economists
The author is a professor o f economics at the University o f Minnesota.
Consumers, in the macro sense, possess considerable power. They can, in the aggregate, confound economic forecasters and policymakers. But in the micro sense, the individual consumer is less potent. He cannot obtain relevant price-quality information and cannot or will not act upon the information he does possess. To deal with the former problem, the author suggests that the development o f interpersonally and intertemporally valid measures o f subjective variables should have high priority. To deal with the latter, the author suggests heavy penalties for false or deceptive advertising or the creation o f an independent public corporation, which would produce and disseminate price-quality information to consumers. Business marketers, he observes, are likely to play according to new rules in the near future.
This article is concerned with the macroeconomic power and the microeconomic
JUNE, 1972
impotence of consumers and the challenges they pose for marketers and economists. In the aggregate, consumers possess the power to bedevil economic forecasters and policymakers. Aggregate consumption expend i t u r e s - d o m i n a t e d b y purchases of new automobiles-constitute a cyclically dynamic factor; standard economic models, however, do a poor job of predicting its behavior.. In contrast, consumer anticipations approaches do not depend on extrapolation of historic data, and are therefore admirably suited to the prediction of turning points in spending on new cars. To date, the potential and actual successes of the consumer anticipations" approaches pose two challenges: to perfect the measurement of anticipations as well as other subjective variables, and to achieve their optimal formulation in econometric models. The impotence of consumers in'the micro sense relates to the fact that they often cannot obtain relevant "price-quality information and cannot or will not act upon the information they possess. Obviously, the reward-punishment mechanism at the heart of our market e c o n o m y works badly. The consequence can be both high and low prices and both good and poor performance by sellers. For c o m p e t e n t consumers, badly performing markets raise the possibility of large pay-offs in terms of lower prices and/or better quality. This diagnosis challenges economists in two ways: to integrate the cost of information into the' theory of markets, and to make the case for a public interest in better consumer information. The challenge to marketers is formidable: to learn how to better predict consumer preferences so that businesses can plan to produce the products which consumers "really" want, and to communicate better price-quality information to consumers.
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E. SCOTT MAYNES
POWER IN THE MACRO SENSE Consider the following question: Which is the most volatile component of GNP in the postwar period: Business expenditures on structures or durables? Household expenditures on structures or durables? E x p e n d i t u r e s o n n o n d u r a b l e s and services?
A Keynesian would probably choose the two business investment components as the most volatile. Such a choice would be wrong. Household expenditures on structures and durables rank first and third, respectively, in terms of relative volatility. 1 Indeed, it is the volatility of household expenditures on both structures and durables that has bedeviled economic forecasters and policymakers since World War II. And it is this instability that has prompted the development of new approaches to forecasting changes in consumer investment.
78 Approaches to Forecasting George Katona was among the first to .argue the instability of aggregate consumption expenditures in the short run. Working from a background of gestalt psychology, Katona argued that large expenditures were discretionary-"genuine decisions"-as contrasted with "habitual behavior. ''2 Hence, large expenditures cannot be viewed as automatic responses to changes in the values of such "standard" economic values as "disposable income."
1. F. Thomas Juster, Household Capital Formation and Financing, 1897-1962 (New York: Columbia University Press for National Bureau of Economic Research, 1966), p. 84. 2. George Katona, P~ychological Analysis of Economic Behavior (New ¥ork: McGraw-HiU 'Book Company, 1951 ). See also George Katon~ and Remis Likert, "Rdationship Between Consumer Incomes and Savings~ the Contribution o f Survey Research," Review of Economic Statistics (November, 1946).
This discretionary view of large expenditures led almost directly to the invention by Katona and his associates of consumer anticipations approaches to the short-run forecasting of discretionary expenditures, especially automobiles. If people make conscious decisions in advance on large purchases, it should be possible to ascertain through interviewing the unconditional subjective probability of purchase for some specified time period (three to twenty-four months ahead). Suitably aggregated over a sample of the entire population, the time series of an index formed from these data in successive quarterly surveys should predict rather well the time series of aggregate expenditures on automobiles (or some such variable) lagged by six, nine, or twelve months. This, in essence, is the buying intentions variant of consumer anticipations approaches that has been embodied in the quasi-quarterly surveys of the Survey of Research Center of the University of Michigan since their inception in 1946. A second variant is the consumer attitudes approach. This approach asserts that a consumer, in deciding to undertake a discretionary purchase, takes into account not only such objective factors as income, stock of durables, and liquid assets but also such subjective factors as his evaluation of his own current and prospective financial position, of current and expected business conditions, and of the market for consumer durables. Objective factors held constant, the more favorable these relevant subjective attitudes, the higher the probability of purchase. It should be possible, using recurrent consumer surveys, to measure such consumer attitudes directly. In general, the more optimistic the attitudes of the population, the greater the number of purchases that will be undertaken. When suitably quantified and aggregated into an Index of Consumer Sentiment, the time series of data on consumer attitudes should predict subsequent changes in aggregate expenditures on automobiles.
BUSINESS HORIZONS
The P o w e r o f Consumers
Almost all "scientific" systems of forecasting-even the most sophisticated econometric m o d e l s - r e p r e s e n t some form of extrapolation These techniques assume that parameter values remain constant or change in prespecified ways. Such an assumption is not necessary in consumer anticipations approaches. Since buying intentions and consumer attitudes are both subjective, they are open-ended, permitting the decision maker to take account of any variable and to be able to change its assigned weight at any time.
Successes and Challenges If shifts in parameter values and variable weights do in fact occur at cyclical turning points, then the consumer anticipations approaches should be well-suited to detect such points. Such has been the statistical record. Consumer anticipations approaches have successfully predicted the following turning points in automobile expenditures that were badly forecast by conventional models: the 1949 downturn, the 1953-54 downturn, the 1955 peak, 1957-58 recession, the 1962 aborted recession, and the 1969 downturn. In recognition of its potential, the SRC Index of Consumer Sentiments has been included in the Wharton School e c o n o m e t r i c m o d e l ? The reader should be warned, however, that the SRC Index, when placed in a sophisticated econometric model, is statistically significant only at the 2-sigma level. Most recently, only the consumer attitudes approach detected the sizable downturn in aggregate automobile expenditures that started in the fall of 1969 and continued through 1970 and into 1971. Models with
3. Michael K. Evans and Lawrence R. Klein, The Wharton Econometric Forecasting Model (Philadelphia: Economic Research Unit, University of Pennsylvania, 1967).
JUNE, 1972
extrapolative logic failed'totally. This suggests that mainstream economists, though understandably attached to entirely economic explanations and extrapolative models that represent the core of economic and econometric training, must explore and master the nether region of the consumer anticipations approaches if forecasting fiascoes like 1969-70 are not to be repeated. This is a challenge to economists. The same challenge applies to marketers. With further development it should be possible to apply the several consumer anticipations approaches to the understanding and prediction of any type of discretionary behavior. Major research is necessary, however, to improve these approaches themselves, o One example concerns what has come to be known as the consumer attitudes-buying intentions paradox. 4 The paradox is this: buying intentions are successful cross-section as well as time-series predictors. That is, groups of survey respondents who state that the subjective probability of purchasing an automobile is 1.0 are in fact more likely to purchase in the next X months than survey respondents whose subjective probability is 0.5. There is statistical evidence of a positive correlation between stated subjective probabilities and purchase rates. It is also true that the time series of the Census Bureau's Buying Expectations Survey on "expected automobile expenditures" correlates well with the time series of aggregate expenditures of automobiles, s Not so with consumer attitudes. The cross-section relationship between attitudes
4. F. Gerard Adams, "Predicting With Consumer Attitudes: the Time Series-Cross Section Paradox," Review o f Economics and Statistics (November, 1964). 5. F. Thomas Juster, "Consumer Anticipations and Models of Durable Goods Demand" in Jacob Mincer, ed., Economic Forecasts and Expectations (New York: Columbia University Press for National Bureau of Economic Research, 1970).
7c
E. SCOTT MAYNES
80
and subsequent purchase behavior has, if anything, marginal statistical support while the time series relationship is firmly established. Why? My hypothesis is that random errors of measurement, greater in degree for attitudes, obscure underlying cross-section relationships. In the time series, on the other hand, these random errors tend to cancel one another, leaving the basic underlying relationships revealed. Whether or not this hypothesis is correct, it is clear that research designed to improve the measurement of both attitudes and buying intentions is in order. It poses, in its most generalized form, a research objective of overwhelming importance to all the social saiences--the devising of measures of subjective variables (such as attitudes and buying intentions), which are interpersonally and intertemporarily valid. 6 Success in this enterprise would have immense pay-offs wherever questions are used to elicit subjective data. With the same outlay, it would_ enable researchers to uncover relationships now obscured by random errors. Alternatively, the current level of precision could be obtained from smaller samples and smaller expenditures, an important objective when personal interviews co~t as much as $50 each. One final suggestion. Though 1969 was scored as a success for consumer attitudes, it must be scored as a failure for buying intentions. While the SRC Index of Consumer Attitudes clearly signaled a major downturn in automobile purchases, the CBE survey foretold continued high spending. In m y opinion, the failure of buying intentions at this turning point can be attributed to their unconditional nature." Respondents are asked: "What are the chances that y o u will purchase
6. The nature of errors in the measurement of subjective variables and possible so!ufions to the problem are discussed at length in E. Scott Maynes, "The Power of the Consumer," in Burk Strumpel (ed.), Economic Understanding in Human Affairs, forthcoming.
a new automobile in the next six, (twelve, twenty-four) months?" Replies that are, in essence, subjective .probability judgments obviously make certain assumptions regarding expected income, employment, prices, and so on. In ordinary times, unexpected but favorable changes in these variables probably tend to be offset by unexpected unfavorable developments. In late 1969 and early 1970, unexpected developments of an unfavorable nature probably outweighed favorable developments, thus accounting for a shortfall from the predicted purchase level for automobiles. What is needed is further exploration into the measurement and use of conditional subjective probabifities of purchase.
MICROECONOMIC IMPOTENCE
The consumer's role in a well-functioning market is to identify and reward good performance on the part of sellers. To perform his role effectively, the consumer needs to know the following: What products, brands, and sellers exist and where to b u y them What characteristics o f a p r o d u c t are desirable (general p r o d u c t information) The e x t e n t to which particular product-brandseller c o m b i n a t i o n s possess the desired characteristics Prices o f product-brand-seller combinations.
It goes without saying that consumers must not only possess the required information, but must be willing and able to act on it, all at low cost. In addition, numerous alternative brand/seller combinations must exist, and resources must be mobile.
Markets and Consumers in 1776
Consider the functioning of retail markets in 1776, the year Adam Smith published his Wealth of Nations, the first satisfactory analysis of the working of a market economy. In general, the a m o u n t of information
BUSINESS HORIZONS
The Power o f Consumers
required was much less than would be required now, and it was easy to obtain. In the rural, small-town markets of that time, the identity and location of sellers were c o m m o n knowledge, available at almost zero cost. What is more, the number of choices to be made was much smaller than now because of lower incomes, fewer products, and fewer sellers. At the same time, information was easier to obtain. Products were simple. From common experience people knew the desirable characteristics of products and the extent to which particular items possessed them. For example, no one had any difficulty in understanding how a horse " w o r k e d . " And despite a classic literature on horse trading and people taken in thereby, most men were able to distinguish between horses that performed poorly and those that performed badly. The main defect of these local markets was structural; their small size led to local monopolies. Little wonder that this is the defect which economic theory has stressed from that time to this. Monopoly a s i d e - a n d this is an important e x c e p t i o n - c o n s u m e r s could, under these conditions, identify good and poor performance on the part of sellers. Under these conditions, the reward-punishment system at the heart of a market economy worked well. The presumably selfish motives of sellers were channeled to a constructive end through an effective market. Markets tended to be cleared b y a single low price.
ated. As every car b u y e r knows, one must decide on b o d y type, "line," transmission, m o t o r size, type of brakes, trim, and numerous accessories. The same conditions apply, though on a reduced scale, to other products which, until recently, were single variant products. Last, model changes are becoming more frequent except (thankfully i) for automobiles, and, given urbanization and the automobile, each consumer now has access to more product/brand/seller combinations. 7 At the same time, the cost of obtaining price and quality information is now vastly higher. Here we properly count as costs not only money outlays devoted to the search for information, b u t also such subjective, b u t real, factors as the utility of activities given up in order to undertake shopping (for example, the tennis game sacrificed to shopping) and the disutility shopping itself may have for an individual. As Linder has so cogently pointed out, affluence has brought us more goods, b u t we are still stuck with the 168-hour week. s Interpreted: time is " w o r t h " more now; hence, the cost of shopping has increased drastically. The task of obtaining price-quality information has become more difficult. The accumulated experience of the consumer and his acquaintances, acquired at near-zero cost, no longer enables the consumer to know prices and qualities. The technical complexity of products is, of course, to blame. To assess the "true" price of a nonterm life insurance policy, for example, one must be an insurance scholar, or be able to hire such a person, or to locate and digest his results. 9
Consumers and Markets Now Two hundred years later, the picture has changed drastically. The volume of information which consumers require is now massive. Consumers "have more income to spend; there are more products and brands; and not only are there more products and brands, b u t variants of brands have prolifer-
JUNE, 1972
"7. Several of the points in this paragraph were suggested by John Hancs, director of marketing information for Consumer Union. 8. Staffan B. LindeT, The Harried Leisure Class (New York: Columbia University Press, 1970). 9. To appreciate this problem better, consult Joseph M. Belth, The Retail Price Structure in American Life Insurance (Bureau of Business Research, Indiana Univetlity, 1966).
81
E. SCOTT M A Y N E S
82
None of these is easy. And an analogous problem exists for most modern products. This difficulty apphes to the ascertaining of prices and. the extent to which a brand possesses the desired characteristics as well as knowing what characteristics are desirable. Regarding the latter, we may ask, w h o before Ralph N a d e r - h a d any conception whatsoever of a "safe" automobile. The widespread dissemination of price and quality information is not enough to assure the effective functioning of markets. Consumers must be willing to act on the information. Everyone knows that new automobile prices are negotiable, but m a n y consumers find bargaining distasteful or lack the essential skills or the supporting information. Similarly, even if most consumers were aware of the extremely wide range of prices for a standard package of automobile insurance ($124 to $227 for identical drivers in Minneapolis), many would not make the effort to search out the lowest priced company. While the local markets in which consumers deal have deteriorated informationally between 1776 and 1971, they have improved structurally. Due primarily to the automobile, urbanization, and the development of mailorder organizations (especially from 1900 to 1940), the typical consumer today has access to a larger n u m b e r of product/seller/brand combinations and hence less often faces a local monopoly. Even on this front, not all is for the better. While the consumer typically has access to more local sellers, the n u m b e r of brands may be smaller, due to economies of scale in both production and selling. The net effect--a judgment, of course-is the existence of both high and low prices, both good and poor quality, and both high and 10w pricesper-unit-of quality for the same product. To be more specific, I would argue that, because consumers do not and/or cannot obtain and act on relevant price-quality information, the reward-punishment mechnisms on which we have relied to discipline the strong
but selfish motives o f sellers do not work. The consequences are everywhere observable: poor quality, unsafe products, dishonored warranties, consumer grievances, consumerism, and marketing. The relationship between informationally imperfect markets and marketing should be expanded upon. Marketing in this economist's view has two functions: to tell producers what (future) products consumers really want, and to undertake steps (organization of distribution, advertising, market research, display, pricing, and so on) which will facilitate and expand sales of whatever the c o m p a n y has decided to produce. The need for marketing has its roots, as Galbraith points out, in the increasing capital cost of introducing products and the ever increasing time gap between the decision to produce a product and the point when its relative success is known. 1o Informational imperfections of markets increase the importance and hence the responsibility of marketing for social good or for social ill. It is for social good when marketers induce companies to produce (or modify) those goods that consumers would "really" want under the never-never condition of perfect information; it is for social ill when consumers are induced to purchase those goods that they would not purchase under conditions of perfect information. To summarize, the preceding diagnosis poses a formidable challenge to marketers: to improve the prediction of consumer preferences so that businesses can plan to market the products (or product variants) that consumers really want, and to communicate better price-quality information to consumers so that markets will work better. The same diagnosis challenges economists to integrate the cost of information into the theory of markets and to make the case for a public interest in better consumer information.
10. J. K. Galbraith, The N e w Industrial State (Boston, Houghton Mifflin Company, 1967).
BUSINESS HORIZONS
The Power of Consumers
IMPERFECT SOLUTIONS
INFORMATION:
SOME
We take up this topic by reminding ourselves that businesses are currently spending $67 billion annually on product information-media advertising, specialty advertising, sales promotion, and public relations. 11 Clearly, the solution to the informational imperfections of markets is not further expenditures of the same kind! Ideally, what consumers need is accurate, comparative price-quality information accessible in compact form at low cost at or near the point-of-purchase. In terms of techniques currently available, this calls for consumer product testing, labeling, and certifying on a scale vastly more massive than now. European experience in these areas has exceeded ours. 12
For the more circumspect consumer who demands details, telephonic and perhaps visual access to computer-stored information is a sine qua non. A limited experiment undertaken by Community Systems Foundation of the University of Michigan for Consumers Union demonstrated the feasibility of computer storage as well as the impracticability of teletype access to such information. Obviously, for the even more circumspect consumer, more detailed information should be available in printed form, permitting longer study.
Production and Use of Information What consumer information is now produced? As for that produced by consumer organi-
11. For this estimate I am indebted to Professor Ivan Ross of the University of Minnesota. The sources and assumptions of the estimated are spelled out in Maynes, "The Power of the Consumer," in Economic Understanding. 12. See, for example, Hans B. Thorelli, "Consumer Information Policy in Sweden-What Can be Learned?" Journal of Mart~eting (January, 1971), and 'q'esting, Labelling, Certifying: a Perspective on Consumer Information," British Journal of Marl~eting (Autumn, 1970).
JUNE, 1972
zations, the answer can be fairly specific. Consumer Reports, published monthly by Consumers Union, has a circulation of 2 million and a total budget of $14 million. Its output consists of the results of 110 product tests and 708 pages of consumer information. Consumer Bulletin, published by Consumers Research, Inc., has a circulation of 104,000 and a budget (assuming a gross income of $6 per copy) of $624,000. Its annual output consists of 70 tests and 440 pages. As for businesses, we know that roughly $21 billion is expended on advertising and promotion, is It is a legitimate though difficult question to ask to what extent this expenditure produces accurate consumer information. My answer would be that most advertising informs its audience of the existence (and often location) of a product, a brand, or a seller. This is useful. On the matter of price-quality information, however, advertising tends to be accurate when inaccuracy poses heavy costs on the seller. Applying these criteria, we would expect at least the following classes of advertising to be accurate: mail order advertising (by firms with long-run aspirations), want ads, advertising of "simple" products (where consumers can and will check claims), and advertising directed to professional buyers. As for the rest, I have yet to see a system by which the consumer can separate the truth from the puffery. Why is so little accurate consumer information produced and disseminated? We may approach the question by considering separately factors affecting the demand for and then the supply of such information. The blatant fact of economic life is that many or even most consumers see little need for such information, believing that markets work better ~han they actually do in delivering low prices and high quality. Economists, well
13. S. Banks, R. Reisman, and C. Y. Yar~, Advertising
Age (June 7, 1971), p. 27.
83
E. SCOTT MAYNES
insulated from reality and unaware of information-induced market failures, have done nothing to disabuse the public of this notion. Whether attributable to effective propaganda on behalf of free enterprise, or whatever source, consumers persist in believing in the efficacy of markets and their own effectiveness in making decisions.
84
As we noted earlier, obtaining and digesting consumer information is not costless. It requires outlays of m o n e y , effort, and time. These factors tend, too, to reduce the demand for consumer information. Finally, the digestion and utilization of consumer information as it is presently communicated requires intelligence and training. Time and again, research has confirmed that Consumer Reports is read primarily by highly educated persons. On the supply side, too, many factors discourage the production of consumer information. In the first place, most profit-making organizations suffer a credibility problem if they seek to provide brand (as opposed to general) information. A possible exception is the slender weekly Moneysworth, which is just entering its second year. Changing Times (circulation 1,700,000), published by the Kiplinger Organization, tends to avoid the essential brand comparisons and focuses instead on general information. While consumer-controlled cooperatives such as Consumers Union possess credibility, cooperatives are difficult to organize, perhaps because of the lack of big pay-offs to their organizers. At any rate, despite certain meritorious features, cooperatives scarcely threaten the position of corporations as the dominant form of economic organization. Another problem, c o m m o n to most publishing activities, is the "public g o o d " nature of consumer information: published test results are not used up by the person purchasing them. Borrowers can make use of the information without paying for it. Though the worn condition of library copies of Consumer Reports attests to their social
"Borrowers can make use of the information without paying for it."
usefulness, it does nothing to help finance a larger supply of information. Still another problem is that much consumer information is local and subj e c t i v e - w h a t doctor to choose or how to locate a reliable roofer. The per unit cost of obtaining such data may exceed its worth to individual consumers unless a large demand materializes at the outset. But the greatest disability of all on the supply side is financial. The (imperfect) theory of markets, past historical practice, and our legal institutions have all sanctioned our present arrangements by which producers-sellers are permitted to assess a " t a x " on sales of approximately 11 percent in order to finance their understandably selective consumer information activities. 14 Not only is this levy permitted b y law, but it is treated as a tax-deductible expense. So much for the private sector. Our government, in its own purchasing activities, tests alternative brands. Until 1970 the government was unwilling to publish this information, much less undertake additional tests. All this changed on election eve, 1970, when President Nixon--no radical h e responding to the political force called consumerism, promised to release results of all tests undertaken by the federal government. Pressures for the government to do more will be forthcoming. Consumers groups will surely ask for more. The business c o m m u n i t y , however, will resist this trend because only
14. The $67 billion of business spending to inform and persuade consumers constitutes 10.9 percent of the $616 billion of aggregate consumption expenditures.
BUSINESS HORIZONS
The Power of Consumers
the "winner" gains in sales and profits as a result of product tests. And, necessarily, winners are always in the minority.
$2,000, 2 yr.
Possible Solutions Our objective is to improve and increase the a m o u n t of consumer information. We will confine ourselves to consideration of but two of a multitude of possible remedial approaches. The first approach would seek to improve the character of information provided by businesses by penalizing them for false or deceptive advertising. An example of an apt penalty comes from a recent action of the Federal Trade Commission. The ITT Continental Baking Company was found to be advertising falsely that its product, Profile Bread, would help consumers lose weight. The FTC, in a consent decree that was provisionally accepted by the company, has ordered the company to spend 25 percent of its advertising budget for the next six months on advertising which states that "Profile Bread is not effective in weight reduction, contrary to possible interpretations of prior advertising.'n s The penalty is apt in several respects. By any measure, the dedication of one-quarter of a company's advertising to a message it finds unpalatable is a stiff penalty. Not only does the c o m p a n y pay for a type of advertising it does not want but this advertising may decrease its future sales. Finally, the penalty tells the public, m u c h more effectively than t h e usual court decision, that in the eyes of the FTC this company is a transgressor. O n e may fairly ask whether such a penalty is sufficiently heavy to eliminate most of today's demonstrably false advertising. My guess is that it would go a long way in that direction. While demonstrably false adver-
15. See Federal Trade Commission press release, July 2, 1971.
JUNE, 1972
tising is an easy target for correction, merely deceptive advertising and zero advertising are not (zero advertising has almost no content; for example, the attractive w o m a n in the ad proclaims: "I love ; y o u will, too!). In the case of zero advertising, only a brash person would modify our cherished traditions of free speech and property rights to require that advertisements convey, positive information about the production, in addition to the identity of the brand. Actions to curb deceptive advertising are difficult because of their subjective character. Consider a newspaper ad by a savings and loan association. It featured a "6%" fifteen inches high; the top half was shaded. At the top of the shaded area there appeared in small, 8 point type the qualifying phrase, "$2,000, 2 y r . " Clearly, the intent was to convey the erroneous notion that all savings accounts are paid 6 percent, not just those in which balances of $2,000 or more are held for at least two years. What size n u m b e r for "6%" • and what size type for the qualifying phrase would be necessary to make this ad nondeceptive? The difficulty (impossibility?) of the answer underlines the obvious conclusion: this problem is not amenable to bureaucratic regulation. Thus, the best we can expect from our first approach is the elimination of demonstrably false advertising. This approach will not a s s u r e - o r even move us very far in assuring-that consumers obtain the pricequality information they require to make effective decisions. Hence we must turn to another approach. Accepting the view that there is a public interest in better consumer information, our
85
E. SCOTTMAYNES
second approach calls for the creation of an independent public corporation. Its function would be to produce and disseminate pricequality information to consumers. The corporation might conduct product tests; collect consumer reactions to services; use mass .,.media to disseminate such information; or append comparative rating labels to products marketed. Two steps would be required to ensure the independence of such a Consumer Information Corporation. First, it should be provided with its own source of financing. Perhaps a tax on advertising and public relations expenditures of businesses-a " t r u t h t a x " ? - w o u l d be the appropriate levy. We previously suggested that expenditures by businesses for advertising and public relations do not provide the information consumers need. Therefore, a transfer from this base to a public corporation would improve the performance of this function. The second require-
ment would be the establishment of an independent controlling board, representative of consumer interest. To achieve this, persons with business interests--past or p r e s e n t should not be allowed to serve. Some may wish to go further, and have the board elected by consumers as the board of Consumers Union is elected. The above discussion is just a sampling of what might be, and the arguments for and against different arrangements. Whatever the outcome of these matters, two implications are clear. Marketers employed by business are likely to play according to new rules in the near future. Some marketers are likely to find themselves on the payroll of consumer organizations and working directly for the consumer interest. This article is based on an address givenby the author at the first Annual Albert Hating Marketing Symposium, Indiana
University.
86
Much of what we need to know a b o u t our market has to do with the p o t e n t i a l of each market and the differences in the composition of each by s o c i o e c o n o m i c factors. And much has to do with attitudes of wholesalers, dealers, and c o n s u m e r s or industrial b u y e r s t o w a r d our o w n and our c o m p e t i t o r s ' products. Modem marketing research t e c h n i q u e s are generally adequate to develop accurate information of the type required to develop short-range plans. Furthermore , sales people can be trained to spot and report changes in competitors' tactics, particularly changes in pricing. It is in the area o f anticipating .new needs and w a n t s , h o w e v e r , that more effort, money, and improved marketing research t e c h n i q u e s are needed.
--Victor P. Buell Marketing Management in Action
BUSINESS HORIZONS