Introduction advertising unit Structure

Table 2 : Effect of Advertising on Distribution Cost 
Particulars
Before Advertising After Advertising 
Units Distributed
2000 
4000 
Advertising Expenses
Nil 
1000 
Sales promotion cost
900 
1400 
(Salary to Salesman) 
100 
200 
other distribution exp 
Total distribution cost
1000 
1,600 
Per unit cost
0.50 
0.40 
Advertising creates demand for the advertised product and 
increase in demand reduces advertising cost. 
Successful advertising helps to keep prices rigid (fixed). 
Economists dislike price rigidity because of general, long-term 
economic welfare, flexible price competition helps our economic 
system. 
The total cost includes costs of production and distribution. 
Advertising costs are part of costs of distribution (or „selling cost‟ or 
marketing cost‟). Advertising cost is one of the several costs the 
other being finance, warehousing, transport, and distribution. 
Costs of distribution show a yearly geometric increase, due to 
sharp market competition. So, large sums are spent on advertising, 
and other distribution aids, to „capture‟ the markets. 
High advertising costs of a manufacturer may be beneficial to 
the retailer. Manufacturer‟s advertising efforts may reduce the 
distribution costs of the retailer because the product may be pre-
sold due to advertising done by the manufacturer. 

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8.4 EFFECTS OF ADVERTISING ON CONSUMER 
PRICES 
Consumer price consists of production costs, selling and 
distribution costs and profit margin of the seller. An expenditure on 
advertising will increase marketing costs. 
Consumers and buyers of the advertised goods and services 
pay for advertising. If the consumer feels that he is not getting 
desired utility from a brand, he switches to some other brand. But in 
the long run, advertising may well work toward lowering down the 
prices. Effective advertising increases sales volumes and lowers 
down the prices. Many new products such as refrigerators, colour 
T.V., washing machines, computers, electronic typewriters have 
lowered down the price due to mass production distribution and 
consumption. This growth gives the seller a large volume over 
which to spread his overhead. This is also evident from the analysis 
of data in Table 1 and 2 that advertising ensures economies of 
large scale production and distribution. The effects of advertising on 
consumer price are shown in Table 3.