Every day, consumers in developed countries are subjected to hundreds of advertising messages. Advertising is indeed everywhere around us: on television, in our print magazines and newspapers, in our mail, on the Internet, on billboards in the streets, etc. It is estimated that $285.1 billion have been spent on advertising in the United States in 2006. To put this number in perspective, this represents 2.2% of US GDP, a spending of $952 per capita, and 48% of the world spending on advertising. The 100 top US marketers account for 37% of the total advertising spending. On the top of the list, Procter and Gamble (P&G) alone was responsible for $4.9 billion of US ad spending. Again, to put this number in perspective, this represents 16.62% of P&G's North-American sales (and 7.18% of their worldwide sales) in 2006. Actually, P&G is no exception: advertising expenditures represent a substantial proportion of sales in many consumer goods industries, and this proportion tends to be larger in those industries (such as detergents, cigarettes and beer) where products are highly substitutable and competition between brands is very intense.

In this chapter, we want to understand to what end and to what effect firms devote resources to advertising. We first investigate how advertising affects consumers (Section 6.1). Then, we look again at the marketing mix.