Question

Suppose Taproot Company Limited (TCL) incurs huge advertising expenditure resulting from increased number of advertisements to inform consumers of the brand name of its product. Should consumers conclude that its products are likely to be of higher quality than other unbranded products? Why or why not?

Answer 1

Huge expenditure in advertising increases the cost of production of a good . This is because this advertising cost is added to total cost . So the price of products rises in the market . Advertising is a form of non-price competition against firms producing very similar goods . When there is more advertising campaigns and more advertisements then consumers might get allured by attractive & innovative advertisements . This helps a company reach many more consumers and inform them about their products which ultimately increases sales of the products & also creation of brand recognition and brand preference among customers .

But conslusion of quality of the products only comes after consumption . Judging the quality truly is only done after first consumption . If consumers find that quality is not up to the mark then they reduce or eliminate future consumption even after advertisements .

So we can say that advertisements to some extent makes consumer believe about higher quality of a branded good but full judgement only happens after first consumption .