Advertising, nominally, is intended to facilitate the prospering of certain products, and thus, of certain parts of the economy. It helps create demand, open up new markets, etc. But it’s also a huge industry in itself.
So my question basically is: how big, exactly, is that industry? What’s the amount of revenue, of profit it generates? How does it compare to other sectors? What percentage of GDP does it make up? How have these numbers evolved over time (one would expect that the advent of mass media had a huge impact on the profitability of advertising, for instance)?
Some of that depends on how you want to define your terms. If I tell one of my employees to go door-to-door and pass out flyers, does that count as advertising? And if it does, does the employee’s salary during the time he’s passing out the flyers count as an advertising expense, or just general overhead?
With that in mind, most estimates in the U.S. range from about $150 billion per yearto twice that. So let’s use the upper figure, $300 billion. By contrast, WalMart’s 2011 revenue was about $422 billion.
Compare $300 billion to a U.S. GDP of about $15 trillion, and you’re looking at around 2%.
I haven’t seen any recent figures, but back when I was in advertising, our owners had a goal of 20% gross profit (that was the goal, not that we always made it!), which was considered to be very good compared to the advertising industry in general. The old rule of thumb was that the advertising media got 85% of what the client spent, with the other 15% going to the cost of creating the ad (which includes the advertising agency itself) but agencies started separating their charges from media costs back in the 1970s.
There was a science fiction story in the late 50’s or early 60’s. Don’t recall the name, but the gist of it was that advertising was a communist plot to hold back the USA. Instead of science and technology, the best and brightest minds went into advertising the usual crap, because that’s where all the money was… an adverising exec was paid substantially more than a goodscientist, etc… Advertising and brand names added a huge overhead to the cost of mediocre products.
Luckily, this was all fiction.
you can get a good idea of the relative cost of advertising by comparing brand names to generic products.
Marketing and advertising actually do drive a fair amount of research in some sciences. A lot of what’s going on in the psychology of judgment and decision making is driven by marketers wanting to know how consumers compare products, for example, and a fair amount of algorithmic game theory has been developed for online advertising.
This has been a very interesting thread already. Thanks, especially to kunilou and dzero for providing explicit figures – this went completely against my expectations!
That’s because you asked for general figures. Advertising isn’t spread out evenly across the economy. In some segments, e.g., industrial commodities like coal, iron ore, etc., there’s virtually no money spent on advertising despite billions and billions of dollars in sales.
On the other hand, take products like brand name breakfast cereals or cosmetics. Those are made from relatively cheap raw materials but heavily promoted. Advertising costs account for something 40% of the retail price.
Even md2000’s comment about the relative cost of branded vs. generic products isn’t completely accurate. Stores typically make a much higher markup off their private label clothes than the heavily advertised name brands. If they settled for the same profit margin, the plain labels would cost even less than they do now.