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In: Economics

why are firms whose customers are individuals much more likely to advertise than firms that sell...

why are firms whose customers are individuals much more likely to advertise than firms that sell primarily to other firms?

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Expert Solution

It is important to note that when a firm is making a product that is for individuals, the potential market size can be in thousands or even in millions (if the targeting is in several countries). Just as an example, the makers of soft drinks have a global audience and similarly, makers of consumer durable might have a big market size in terms of number of individuals who can potentially buy the products. Therefore, it is not possible to market a product with a wide potential customer base on an individual or household-to-household basis. First making products for individuals therefore resort to advertising through a medium that reaches maximum potential customers.

On the other hand, when a firm is selling a product to another firm, the target market is small and well defined. It is possible to market the product and demonstrate the benefits and competitive advantage of the product on an individual basis. Just as an example, a maker of auto ancillaries have a limited market size in terms of the companies it needs to target. There can be potentially 20, 30 or 50 automobile companies that it needs to target. It therefore makes sense to market the product on an individual basis than through advertising.

Rahul Sunny answered 1 year ago
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