What role can advertising play with respect to differentiated products?
Question 17 options:
a) allows a firm to sell any quantity it wishes
b) allows a firm to raise the prevailing market price
c) shapes perceived demand for a price taker
d) shapes consumers intangible preferences
The Correct Answer and Explanation is:
Correct Answer: d) shapes consumers’ intangible preferences
Explanation:
In the context of differentiated products, advertising plays a critical role in shaping how consumers perceive a product, especially in terms of intangible attributes such as brand image, prestige, trust, or emotional connection. Unlike homogeneous goods (such as wheat or crude oil), differentiated products (like cars, smartphones, or designer clothes) are not perfect substitutes. They compete on features beyond just price—such as quality, design, reputation, and brand identity.
Advertising helps a firm highlight what makes its product unique or superior in the eyes of consumers, even if the actual functional differences from competitors are minimal. For instance, two smartphones might have nearly identical hardware, but Apple’s marketing can make an iPhone feel more exclusive or desirable than a similar Android phone.
This perceived differentiation creates brand loyalty, reduces price elasticity, and allows firms to maintain or even increase their market share despite having higher prices than competitors. Consumers are not only buying the product—they’re buying the experience or status associated with it.
Advertising also plays a key role in creating and sustaining demand. It can influence preferences by appealing to emotions, values, and lifestyles. For example, a perfume ad that evokes luxury and romance helps shape the consumer’s emotional response to the brand, making the product more appealing even if the scent is similar to cheaper alternatives.
Thus, advertising doesn’t just inform—it persuades and differentiates. It helps firms stand out in competitive markets by crafting a narrative that aligns with consumer aspirations. This is especially important in monopolistic competition or oligopoly markets, where products are similar but marketed to appear distinct.
In summary, advertising shapes consumers’ intangible preferences, enhancing the value they place on a product beyond its physical characteristics
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