Basically advertising is an economic institution. Advertising performs important economic function for the advertiser, affects economic decisions of audience and is an integral part of the entire national and international economic system.
- Information. One cannot debate the importance of information for consumers about various products, services and organizations to make advantageous economic decisions. The decisions made in the absence or with insufficient information may produce negative and undesirable consequences. Because of ignorance the consumer may purchase inferior product or pay higher prices and may not even know that the product exists. Through ads the information reaches a large number of audience in the shortest possible time.
- Brand image building. There is hardly any disagreement on this issue. Advertising plays an important role in building the brand image. Consumers develop mental images of brands that may appeal to different market segments. These images may have their root in real or assumed features of the brand. Favorable images help in building brand loyalty. A brand name identifies the source and is a promise of a certain level of consistent quality, service, warranty, and other benefits. Attached with the brand is the prestige of the manufacturer and the middlemen who work as channel partners.
- Innovation. Advertising encourages innovation and new product development, and reduces risk. Advertising may generate sufficient product demand to offset the cost of innovation and is the most economical way to reach a large number of audience who become aware about the availability of any new or improved product. New and improved products encourage competition and offer more choices to consumers. The effects of increased business activity expand and improve the economy, create more jobs and investment opportunities. Improved economy raises the standard of living of the population.
- Growth of media. The acceptance of advertising by different media enhances the potential for raising revenues. This may help in introducing more publications and cater to the needs of different and special interest groups. This would lead to expansion of media. It is no secret that advertising provides more than 60% of the cost of magazines, more than 70% of the cost of newspapers and nearly 100% of the cost of TV and radio.