<p>A standard example would be firms like <a href="https://en.wikipedia.org/wiki/Tupperware" rel="nofollow">Tupperware</a>, which employed a variant of the <a href="https://en.wikipedia.org/wiki/Direct_marketing" rel="nofollow">direct marketing</a> model (at least historically).  </p>

<p>In this business model, Sales depend on "salesperson networking" and little else: the vintage method is for the salesperson to organize get-togethers with possible customers in houses, where the salesperson exhibits the firm's products and obtains orders.  There is no advertisement -even, there are no stores.</p>

CC BY-SA 3.0
2015-07-26T14:46:09.710Z
2015-07-26T14:46:09.710Z
Alecos Papadopoulos
<p>I'd argue that the best example is <a href="https://en.wikipedia.org/wiki/Jiffy_mix" rel="nofollow">Jiffy Mix</a>, which spends literally no money on advertising, even in the form of the implicit advertising fees paid to direct marketing affiliates. They just put their product on a shelf and people buy it. </p>

<p>We'd expect to see this no-advertising strategy more often in industries where advertising has a significant impact on the cost of the product, and where consumers are very price-sensitive. As Jiffy is very nearly a commodity good, this holds. </p>

<p>In Zara's case, it's "<a href="https://en.wikipedia.org/wiki/Fast_fashion" rel="nofollow">fast-fashion</a>", a segment of the fashion industry where the goal is to provide popular styles of clothing (so product differentiation, a major goal of advertising, does not apply), at low cost (they're targeting price-sensitive consumers), so this strategy is in some sense not a surprise.</p>

CC BY-SA 3.0
2015-07-28T13:30:06.437Z
I don't see how sales commissions can be treated as "implicit advertising fees". Sales commission are paid _after_ sales consummation, and they are absent when Sales are not realized. This is not so with advertising costs. But then, the "risk profiles" of the two are so different that they would certainly not be decided under the same business strategy criterion.
Alecos Papadopoulos
CC BY-SA 3.0
2015-07-28T14:46:37.490Z
Consider Amazon's affiliate program— when they pay affiliates for referring customers who buy things, they expect their affiliates to promote the products.  But their affiliates do not have to themselves purchase the products in advance. The inventory risk remains with Amazon, but it's very clear that Amazon is compensating its affiliates for advertising on its behalf. Is this not advertising? It is the same in your Tupperware example— the affiliates certainly aren't being paid because they're an efficient distribution network.
dismalscience
CC BY-SA 3.0
2015-07-28T15:59:08.180Z
The issue is not about inventory risk here. An advertisement cost is one incurred with the expectation of making Sales, is a cost that _attempts_ to bring in Sales, while a Sales commission is incurred only if a Sale has already been concluded. And Tupperware affiliates are paid strictly on Sales commissions. Any "advertisement/marketing" they do will go unpaid if they don't actually sell. These are the different "risk profiles" I was referring to: on the one hand a decision maker has to decide on a cost with uncertain results - on the other the cost is conditional on success.
Alecos Papadopoulos
CC BY-SA 3.0
2015-07-28T21:56:21.920Z
So if we imagine a banner ad, for which compensation is based on three different contracts: one is based on impressions, the second on clicks, and the third is based on conversions. By your definition, the banner ad is an advertisement in the first two cases but not an advertisement in the third case. I recognize the semantic distinction you're making but would consider all three to be the same activity: advertising.
dismalscience
CC BY-SA 3.0
2015-07-29T00:14:30.217Z
So I take it, you are saying that a firm would be indifferent between advertisement expenses (that do not guarantee sales), and Sales commissions expenses that will be incurred only if sales are realized?  In the first case the probability of loss is strictly positive. In the second case, the probability of loss is zero. You will have a hard time persuading a firm's management to treat them as equivalent.
Alecos Papadopoulos
CC BY-SA 3.0
2015-07-29T01:32:40.607Z
We should probably move this to chat. I'm not suggesting at all that a firm would be indifferent (that would be equivalent to suggesting that agency problems don't exist). I'm simply noting that while different contract structures exist, the different contracts are independent of the activity that is being contracted for. If you pay me a daily wage to pick blueberries, that's less optimal for you than to pay me by the pint, but you are in either case paying me to pick blueberries.
dismalscience
CC BY-SA 3.0
2015-07-26T16:59:33.650Z
2015-07-26T16:59:33.650Z
dismalscience
<p>Recently I've learned that Inditex (owner of Zara brand) is the biggest fashion group in the world and it's using almost no advertising at all.</p>

<p>I would like to know more examples of such big companies that use no advertising and why might a large company not invest directly in advertising?</p>

CC BY-SA 3.0
2015-07-25T23:03:15.580Z
A more detailed explanation of the question:
http://fashiongear.fibre2fashion.com/brand-story/zara/advertisements.asp
Giskard
CC BY-SA 3.0
2015-07-26T17:54:48.223Z
The people who voted the question to be closed as off-topic gave no reason, but I am guessing they do not see what this has to do with economics. @Joe Jobs maybe edit the question and add at the end "and what their reasons are."
Giskard
CC BY-SA 3.0
2015-07-27T01:44:54.590Z
@denesp I agree. Seems like a pretty interesting topic. What might be more interesting (and relevant) would be - why might a large company not invest directly in advertising. Might be a marketing question but certainly at least intersects with economics.
Jamzy
CC BY-SA 3.0
2015-07-28T17:08:55.933Z
I've changed the post as suggested, thanks for the input. I think however that sometimes the plain facts can be more revealing of the reasons behind them than any theory that tries to explain those reasons.
Joe Jobs
CC BY-SA 4.0
2019-04-03T18:24:55.033Z
Jamzy: Why might a large company not invest directly in advertising? Answer: because they get contracts from the government - e.g. Lockheed Martin
Joe Jobs
<marketing>
Large consumer goods companies not using advertising, and what their reasons are
Joe Jobs
# Large consumer goods companies not using advertising, and what their reasons are

(Asked by: username_0 on 2015-07-25)

Recently I've learned that Inditex (owner of Zara brand) is the biggest fashion group in the world and it's using almost no advertising at all.

I would like to know more examples of such big companies that use no advertising and why might a large company not invest directly in advertising?

**Tags:** marketing

> **Comments:**
> **username_1**: A more detailed explanation of the question: http://fashiongear.fibre2fashion.com/brand-story/zara/advertisements.asp  
> **username_1**: The people who voted the question to be closed as off-topic gave no reason, but I am guessing they do not see what this has to do with economics. @username_0 maybe edit the question and add at the end "and what their reasons are."  
> **username_2**: @denesp I agree. Seems like a pretty interesting topic. What might be more interesting (and relevant) would be - why might a large company not invest directly in advertising. Might be a marketing question but certainly at least intersects with economics.  
> **username_0**: I've changed the post as suggested, thanks for the input. I think however that sometimes the plain facts can be more revealing of the reasons behind them than any theory that tries to explain those reasons.  
> **username_0**: username_2: Why might a large company not invest directly in advertising? Answer: because they get contracts from the government - e.g. Lockheed Martin  

---

## 2 answers

### Answer by username_4 on 2015-07-26. Score: 4 | Accepted answer

I'd argue that the best example is [Jiffy Mix](https://en.wikipedia.org/wiki/Jiffy_mix), which spends literally no money on advertising, even in the form of the implicit advertising fees paid to direct marketing affiliates. They just put their product on a shelf and people buy it.

We'd expect to see this no-advertising strategy more often in industries where advertising has a significant impact on the cost of the product, and where consumers are very price-sensitive. As Jiffy is very nearly a commodity good, this holds.

In Zara's case, it's "[fast-fashion](https://en.wikipedia.org/wiki/Fast_fashion)", a segment of the fashion industry where the goal is to provide popular styles of clothing (so product differentiation, a major goal of advertising, does not apply), at low cost (they're targeting price-sensitive consumers), so this strategy is in some sense not a surprise.

> **Comments:**
> **username_3**: I don't see how sales commissions can be treated as "implicit advertising fees". Sales commission are paid _after_ sales consummation, and they are absent when Sales are not realized. This is not so with advertising costs. But then, the "risk profiles" of the two are so different that they would certainly not be decided under the same business strategy criterion.  
> **username_4**: Consider Amazon's affiliate program— when they pay affiliates for referring customers who buy things, they expect their affiliates to promote the products.  But their affiliates do not have to themselves purchase the products in advance. The inventory risk remains with Amazon, but it's very clear that Amazon is compensating its affiliates for advertising on its behalf. Is this not advertising? It is the same in your Tupperware example— the affiliates certainly aren't being paid because they're an efficient distribution network.  
> **username_3**: The issue is not about inventory risk here. An advertisement cost is one incurred with the expectation of making Sales, is a cost that _attempts_ to bring in Sales, while a Sales commission is incurred only if a Sale has already been concluded. And Tupperware affiliates are paid strictly on Sales commissions. Any "advertisement/marketing" they do will go unpaid if they don't actually sell. These are the different "risk profiles" I was referring to: on the one hand a decision maker has to decide on a cost with uncertain results - on the other the cost is conditional on success.  
> **username_4**: So if we imagine a banner ad, for which compensation is based on three different contracts: one is based on impressions, the second on clicks, and the third is based on conversions. By your definition, the banner ad is an advertisement in the first two cases but not an advertisement in the third case. I recognize the semantic distinction you're making but would consider all three to be the same activity: advertising.  
> **username_3**: So I take it, you are saying that a firm would be indifferent between advertisement expenses (that do not guarantee sales), and Sales commissions expenses that will be incurred only if sales are realized?  In the first case the probability of loss is strictly positive. In the second case, the probability of loss is zero. You will have a hard time persuading a firm's management to treat them as equivalent.  
> **username_4**: We should probably move this to chat. I'm not suggesting at all that a firm would be indifferent (that would be equivalent to suggesting that agency problems don't exist). I'm simply noting that while different contract structures exist, the different contracts are independent of the activity that is being contracted for. If you pay me a daily wage to pick blueberries, that's less optimal for you than to pay me by the pint, but you are in either case paying me to pick blueberries.  

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### Answer by username_3 on 2015-07-26. Score: 3

A standard example would be firms like [Tupperware](https://en.wikipedia.org/wiki/Tupperware), which employed a variant of the [direct marketing](https://en.wikipedia.org/wiki/Direct_marketing) model (at least historically).

In this business model, Sales depend on "salesperson networking" and little else: the vintage method is for the salesperson to organize get-togethers with possible customers in houses, where the salesperson exhibits the firm's products and obtains orders. There is no advertisement -even, there are no stores.


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