The loyalty is the supposed barrier because competitors would have to spend an equal or greater amount to dislodge the consumer attachment. In fact, advertising is a means of entry and it is the product that creates the loyalty. A new product that is truly better than established brands attracts customers simply by advertising that it is better. Consumers try out the new product. If they like it, they buy more and spread the good word (favourable word-of-mouth) to others. Microsoft and Apple, two companies that did not exist 35 years ago, have done quite well for themselves dislodging customer loyalty to IBM products. And both started off with small advertising budgets.
A true monopolistic barrier is the U.S. Postal Service’s control over the delivery of first-class mail. In the absence of such controls, the David’s of business can readily slay, and historically many times have slain, the Goliaths. Advertising increases prices, The final complaint against advertising is a continuation of the previous one and states that advertising increases prices As noted above, advertising differentiates the product and creates brand loyalty; this brand loyalty, in turn, further brings about an inelastic demand that enables the advertiser to raise prices. The result, allegedly, is a reduction in overall output and waste of society’s resources. But in the end it is advertising that contributes to lowering real prices over time. Advertising creates a larger market than would otherwise be possible, leading to economies of scale in production, distribution, and even in advertising.
The role of advertising in product differentiation has benefited both consumers and businesses. Businesses have been able to increase sales by communicating specific benefits of a product to specific consumers. Consumers have benefited because they have been made aware of products designed for their specific needs.
