Written Assignment Final Draft
Student Number: 140486360
Student Name: XIANYU HE
Group: PSP 120
Assignment title: Established companies, such as Coca Cola and McDonalds do not need to waste profits on advertising as they already have a vast and loyal customer base
Word Count: 1175
Currently, the majority of small companies have been taken over while larger companies are better to survive during the fierce marketing competition. Survivors become the century-old corporations, which already have a long history, great corporate recognition and a vast customer base. Therefore, some people claim that these companies such as Coca Cola and McDonalds have no necessary to put profits in advertising. One reason is that there are so many consumers buying their products even without advertisement promotion. However, advertising benefits a lot to a company and thus, established companies always put money in advertising. For instance, it is easy to see advertisement of Coca-Cola or McDonalds on television and magazine although advertising cost companies a lot. This essay will argue that the established companies need to invest more part of profits on advertising and they will benefit from advertisements.
Firstly, even without advertising, loyal customers still buy products from established companies. Some people believe that products of established company have a good quality and suitable price. As Reichheld (2003) points out that loyal customers trust the company so they always repeat purchase, share or exclusivity without hesitation. This is true to some extent because established companies can sell products to loyal customers to make profits. However, it is not enough only to gain profits from loyal customers. If the loyalty is changeable and under a standard level, the companies can only get a few profits from loyal customers (Helgesen, 2006). For the majority of companies, including the established companies, are aimed to make profits with no upper limits, they would not refuse any chance to gain profits. Advertisement can help companies to attract and satisfy consumers although consumers today have opportunity to choose all products that they can afford (Schwartz, 1969). From this idea, it has been argued that advertising is an effective way to increase profits, when established companies make good use of advertising, they not only can maintain loyal customers but also attract new customers (regular customers and potential customers) to gain profits. So established companies need to put money into advertising mainly because advertising can attract more customers.
Secondly, advertising costs a lot of corporate money and it is not necessary. For companies, as Burkitt (2014) argued, in China, many well-established companies want to put their advertisement on CCTV channel (the biggest television network committed in china), after a series of fierce price competition, the channel received about $2.55 billion to run ads in 2013. This number is still increasing this year, whilst it is possible to agree with Burkit that this phenomenon was crazy. In fact, the companies who put much money on the CCTV channel, they receive a great corporate reputation and great sales finally. From this specific area, putting money in advertising is significant. Another example is about Coca-Cola, as Bodden (2009) points out that in order to increase the sales of the drink of Coca-Cola, companies put lots of profits in advertising from 1904. Many managers believe that it will waste a large amount of money because of the economic depression. However, the result is that Coca-Cola sold record rose from 1 million gallons in 1904 to 4 million gallons in 1910 and sales stayed increasing because they made the best coke advertising in the world. Then it becomes the word’s soft drink. Coca-Cola design many creative advertising