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How Externalities affect Marketing.

November 7, 2011


In the modern Marketing world when we as consumers are bombarded with continuous messages from marketing and advertising firms through mass media ,we have to also gauge the effect of these messages on the society as a whole . The overall effect of the Marketing on the social hemisphere which may be negative or positive is known as Externalities. In other words Externalities are the social cost and benefits of the Marketing .

Externalities is an Economic concept . For example Pollution is an Externality for an company. it is a social cost caused by a company which the society has to take into account. The pollution caused by motor vehicles to the environment  in a city and its citizens or the giant oil spill in an ocean causing the death to millions of fishes and sea organisms and damaging the ecology of ocean which may take thousands and millions of years to heal is a Social cost.Similarly the planting of trees by the company in its premises or staring a school for the poor children free of cost is a Social benefit .

What will be a Marketing Externality. How do we control the spread effects of the Externality caused by the Marketing to the society.For example a Cigar rate manufacturing company conveys the harmful effect of smoking in its message while advertising its product or an Oil  company advises the people to save oil through its advertising campaign of its product. Such messages if they goes down well with the public and if in a given period of time these messages are able to reduce the numbers of the smokers or reduce the consumption of Oil to the desirable level can be considered as the social benefit of the Marketing or Advertising as these messages had a positive effect on the society. Similarly a perfume company portraying a nude male or female in its advertisement can have an negative effect on the society . It hurts the sentiments of the public , has an damaging effect on the teenagers and causes a moral outrage on the conservative sections of the society. Similarly advertising campaign depicting gods and goddesses in an insulting manner has evoked public outrage against that company and has even led to violence.Such advertising campaign that have ill effects on the minds of the citizens in a society are the Social cost of the Marketing to the society.

A company while making an advertising campaign has to consult all sections of the society whenever it sees even a tiny bit of scope of controversy in the message to the public.

Movies are the most affected by the Externalities. As most movies are seen by the large number of audience and is at least 2 to 3 hours in length it has many scenes in it which can  controversies and protest from various sections of the societies. Similarly many movies have been applauded and awarded by the audience for promoting positive message to the society and fighting for their cause.

How do we control the Negative effects of Externalities ? For that we will have to measure the effect of a externality on the society. Then we have to device methods to control these negative effects . We have to regulate these messages to prevent their ill effects on the society as a whole. We have to regulate on what is to be heard , seen and read and what is not to be heard , seen and read by the citizens of the society from the marketing messengers. For that we have bring in more laws and amend various laws to regulate the media and the messengers.

In the countries where there is an authoritarian governments like military dictatorships, communist countries , Religious fundamentalist countries where the Media and the messengers has little or no freedom of expression and speech and is controlled by the government it is very easy to regulate such externalities. However in the democracy where the rights of speech and expressions of the public and media are protected by the law it is very hard to regulate on what is to be published and what not to be published. The fight between the regulators of speech and the upholders of speech is most visible in these open societies and the battle is fought in all fronts from the streets to the media ( Print and electronic) to the political stage to the courts of law to the hearts and minds of the people.

In democracies the government has set up autonomous bodies which regulate the keepers of freedom of expressions through messages  in movies, in media or through advertisements and direct marketing.The censor board regulates the motion pictures, the court in case of media and advertisement regulatory body in case of marketing. Any complaint can be lodged by any person or community in these bodies against the messengers and the se bodies take appropriate action against these messengers if they are found guilty.Also these bodies institute guidelines for these messengers which they have to follow to maintain Decorum in the society .

Marketing can cause inflation by as it continuously induces the public to buy those products whose purchase lead to price rise as their demand is highly elastic. Marketing also decreases savings of the people and  reduces investment in a country . It increases the conscipicious consumption and y expenditure. Marketing has to be controlled in various ways to reduce the inflation . Also aggressive marketing results in the wastage and unnecessary expenditure both for the companies and the customers.

For example let us take that due to aggressive and effective marketing of a Car manufacturing company say Maruti Suzuki leads to the surge of its demand in the market for a year. Other car manufacturers take notice and immediately enter the market with their new brands to make profits. Due to the rise in purchasing power of the people and in their numbers , the demand of the cars continue to rise for more than a year now .New car manufacturers continue to enter the market while the old ones come up with new models to survive and fight competition. As a result we are faced with situation of increasing demand in that country for the cars.  The rise in the demand of the cars causes increase borrowings from the banks by its customers ( Car Finance) leading to the rise in the interest rates.The rise in the cars sold also leads to increase fuel consumption , both petrol and diesel leading to its price rise.The rise in the price of the fuel causes the rise in the cost of public transport which is again levied on the public using this means of transport by increasing the price of the bus and train ticket. Also the rise in fuel prices also increases the transport cause of all raw materials , finished goods in other industries leading to the price rise of their products like foods, vegetables, electronic durables, electricity etc.. This is the externality of Marketing leading to the inflation. This is what countries like India and China is facing for the past few years due to the increase in demand of all consumer durables.

Another example can be the rise in the consumption of the electronic goods like television, washing machines, microwave oven, refrigerators and all those household goods which run on electricity.The rise in the consumption of these durables lead to the rise in the consumption of the electricity which leads to its rise in price . The effect of this price rise has now to be borne by all the transport run by electricity like trams, trains, metros as well as by the factories . Ultimately the price rise in borne by the producers, consumers and the government depending on their leverage and the noise they make.

Marketing has both positive and harmful affect in the society as a whole. Therefore it has to be regulated and directed in a direction that brings out its positive features to the society. Marketing is a weapon which cannot be left to the irresponsible persons by the company. It has to be handled carefully especially now when the information technology has reached its threshold and marketing is riding on it. The effect of the marketing to the society be it in any form can be as destructive as many nuclear bombs in terms of numbers and the area it covers. It can have a positive affect by promoting eco friendly messages, social welfare messages, raising the consciousness of the people and entertainment .


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