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The end of the Civil War heralded a new industrial era in the United States. By the mid-nineteenth century the Industrial Revolution, already a century in the making, was gaining strength and momentum. Some technological innovations spurred more efficient factory production whereas others, such as the railroad, steamboat, and telegraph, allowed for easier transportation and communication that, in turn, facilitated changes with large social, cultural, and economic ramifications. As the number of factories increased, immigrants and native-born Americans flocked to industrial centers in search of work. U.S. cities grew in direct proportion. Between 1880 and 1890, for example, Chicago's population doubled. Other cities experienced tremendous growth as well. Detroit, Milwaukee, and Cleveland were among the cities to witness a population increase of more than 60 percent, and Minneapolis-St. Paul saw its population triple.
Technological innovations, combined with the massive influx of immigrant workers to America's burgeoning industrial centers, contributed to a record production of goods in the yearsimmediately following the American Civil War. Increasingly sophisticated machinery enabled large factories to mass-produce items that only a few years earlier had required labor-intensive processes at home. The result was a torrent of well-made, lower-priced goods flowing into shops, stores, and, eventually, the homes of people. By the turn of the century men and women alike came to rely on mass production to fill their product needs, and Americans began to think of themselves as consumers. Commercialization had so infiltrated U.S. life that corporate influence had grown quite significant.
This power, however, was not absolute or ironclad, and by the early twentieth century a sizable group within the middle-class population attempted to lessen corporations' might. Commonly referred to as the Progressive movement, these reformers did not want to do away with big business altogether but rather sought to pass laws and regulations that would make it more accountable to the citizenry. As people adjusted to their new role as consumers, one large legislative battle during the first decade of the twentieth century raged over the extent to which the public was entitled to information about the food and drugs they bought and consumed.
If corporate power assumed many faces during this time, its most visible one was advertising. After the Civil War national advertising crystallized into its modern form, and within a few decades national advertising media, advertising agencies, and advertising trade groups emerged. In a relatively few years, as advertising veered from mere price and product information to an emphasis on image-based, emotional, even deceptive appeals, it became both an influential and a controversial business practice. To the public a less visible development within the corporate political economy was public relations. In addition to becoming a vital weapon for business in the marketplace of ideas, public relations would become an essential component of the advertising industry's campaigns to protect itself from public criticism throughout the twentieth century.
The Rise of National Advertising and a Modern Consumer Culture
The starting point for understanding advertising is asking why it exists. Advertising must be understood, first and foremost, as a business expense. But this is far from sufficient; the United States has had a private-enterprise economy throughout its history, but national advertising emerged as a dominant institution only in the twentieth century. Advertising was in use before, of course, but most ads were akin to what today is called classified advertising, that is, dry factual reports informing costumers about products and their availability. A merchant might place a notice in the local paper informing customers about a new shipment of lace, calico, or French milled soaps, for example. Following the Civil War advertising began its climb to prominence. By around 1890 the market situation had changed from one in which many local manufacturers produced a variety of consumer products for local consumption to one dominated by a few large companies. It did not take long, however, before these large producers were faced with a problem. Limited outlets hampered the distribution of their goods, and this, in turn, threatened capital investment in machinery, labor, and products. Manufacturers realized that they needed to seek national markets-in effect to cast a wider net. They turned to national advertising.
This explanation is good as far as it goes, but it fails to convey exactly why some industries featured a great deal of advertising and others showed less interest. It also fails to explain why advertising became a mandatory business expense for firms in so many industries. To get to the bottom of the issue we need to understand the transition from an economy dominated by relatively competitive markets to one dominated by what economists refer to as oligopolistic markets. Competitive markets offer little incentive to advertise, nor are they especially attractive to the firms in them. Firms can sell all they produce at the market price, over which they have no control. Think, for example, of a farmer going to market with corn or wheat. Why would the farmer advertise such a product when he or she could sell it all at the market price but not a penny over it? If the industry becomes especially profitable, new firms will enter the market, increase the supply, lower the market price, and reduce the profits. More farmers would come to market with their corn and wheat and prices would fall. This is not a very desirable type of market for a capitalist. In contrast to competitive markets, their oligopolistic counterparts tend to be dominated by a small handful of firms that provide the vast majority of an industry's output. These firms are not price takers, as are firms in competitive markets, but they are price makers with considerable control over industry output and pricing. Capitalistic firms prefer to be in an oligopolistic rather than a competitive industry. The former tend to be more profitable, with pricing and output levels closer to those in a pure monopoly than to those in a purely competitive market. The key to having a stable oligopolistic market is creating barriers that make it difficult for new firms to enter it. Because of their size, large firms are in a position to win any price war with newcomers trying to enter the market. Most rational entrepreneurs would therefore not try to crash the party but instead hope that their enterprises would appear so attractive to one of the big companies already in the oligopoly that they would be bought up.
Facilitating the trend toward such markets was an unprecedented wave of mergers and acquisitions at the turn of the twentieth century that helped solidify large corporations' economic dominance. Three large industrial consolidations took place in 1895, four followed the next year, and six took place in 1897. In 1898 the number of new mergers reached sixteen, and in 1899 there were a total of sixty-three. After twenty-one consolidations in 1901 and seventeen in 190, the surge tapered off. The year 1904 witnessed only three such mergers. The predominant process among the turn-of-the-century mergers was horizontal consolidation: the simultaneous merger of many or all competitors into an industrial structure comparable to a single giant enterprise. More than half the consolidations formed between 1885 and 1904 absorbed more than 40 percent of their industries, and close to one-third absorbed in excess of 70 percent of their competitors. By the early 1900s firms such as the California Fruit Canners Association, Royal Baking Powder, National Biscuits, and National Candy dominated between 40 and 70 percent of their individual industries, and American Can, Du Pont, and Eastman Kodak controlled more than 70 percent of the markets in their categories. Historians consider this consolidation the greatest wave of mergers in U.S. business history.
The rise of oligopoly is the gasoline that fuels the flames of modern advertising. In oligopolistic markets the dominant firms are hesitant to engage in cutthroat price competition. Each firm is large enough to survive a price war, so price competition would only reduce the size of the revenue pie that they are fighting over. Firms instead tend to gravitate toward a pricing structure that maximizes the total revenue coming into the industry. Understood this way, advertising becomes a mandatory business expense for all firms in an oligopolistic market to protect their market shares from attack. To large corporations advertising represents a competitive weapon superior to cutthroat price competition in the battle to expand and protect market shares.
In the early twentieth century advertising became not merely an adjunct to the "real business" of manufacturing; it became as vital as the steel, the workers, and the machinery because it created its own by-product: the loyal consumer. Instead of representing a competitive selling of goods and services, advertising came to represent the competitive creation of consumer habits-and of consumers. Because the products offered by these oligopolistic firms tended to vary little in terms of price and quality-one facial soap, shaving cream, or toothpaste was pretty much like another-they did not necessarily "sell themselves." Merely stating a product's physical attributes and price did not provide a potential consumer with a reason to purchase a particular product over its competitors. This form of marketing is commonly referred to as parity advertising. The task for advertising copywriters was to come up with ways to make consumers prefer one brand over another. This led to advertising strategies that attempted to capture and exploit consumers' emotions. The role of advertising, then, was twofold. First, it served to establish an aura of prestige or desirability around a given product or service, thereby making it less susceptible to price competition. Second, advertising permitted firms to increase their sales without cutting prices, thereby maintaining healthy profit margins.
Advertising as a percentage of the gross domestic product rose in direct proportion to the increase in giant corporations operating in oligopolistic markets. It went from less than 0.3 percent in 1865 to more than percent of the gross domestic product by 19 0.8 Between 1880 and 1900, for example, the annual amount spent on advertising ballooned from $ 00 million to $542 million and helped lay the foundation for the growth and success of well-known companies such as Coca-Cola, Campbell Soup, Carnation, Quaker Oats, Heinz, Pillsbury, Colgate-Palmolive, Libby, and Procter and Gamble. Since the 19 0s advertising expenditures as a percentage of the gross domestic product have remained in the percent to percent range.
Contributing to, and profiting mightily from, the growth in national advertising was an increasingly commercial mass media. Fundamental changes within the newspaper and magazine industries helped develop a media system that simultaneously served publishers' need for revenues and advertisers' desire to reach a broader public. In contrast to the pre-Civil War era when most newspapers functioned as partisan organs to gain support for a political viewpoint, most newspapers in the 1870s and 1880s had become business enterprises. As start-up costs and daily expenses increased, publishers no longer viewed their primary mission as that of rousing readers to support political causes. Their new objective was to offer advertisers a large audience at low cost and generate the largest possible profits. By the early twentieth century this had become the dominant model as an increasing number of newspapers accepted or actively sought advertising revenues to offset their production costs and came to view their readers as a commodity that could be exchanged for advertising patronage. In 1880, for example, 44 percent of all newspaper revenue came from advertising. Ten years later the figure approached 50 percent, and by 1919 U.S. newspapers depended on advertising for two-thirds of their income.
No medium was more affected by advertising than the magazine industry. In the late nineteenth century publishers produced a flood of national magazines for popular consumption. Although differing in their editorial approach, McClure's, Ladies' Home Journal, Munsey's, Cosmopolitan, Century, Delineator, and Scribner's quickly gained favor with the large middle-class and mainly female readership-the group that purchased the most products and that advertisers were eager to reach. Unlike most newspapers, which tended to reach people in a limited geographical area, the new generation of magazines offered individual copies for sale at newsstands and therefore found a national market. Between 188 and 1885 the average October issue of Harper's devoted 7 pages to product advertising. Ten years later the average had climbed to an astonishing 85 pages. And whereas the November 1880 issue of Atlantic Monthly carried only 1 pages of advertising, the December 1904 issue boasted 11 pages filled with advertising. Other publications could point to similar changes. By the turn of the twentieth century magazine publishers were relying increasingly on brand-name advertising for their income.
Large and impressive advertising campaigns were not the only way to create brand loyalty, however. Manufacturers also gained local merchants' trust in the hope that they would recommend branded products to their customers. This strategy was tricky because it involved persuading local merchants to rely less on generic products from wholesalers and more on brand-name goods. To make the process easier, manufacturers offered fully developed marketing campaigns that included displays, product demonstrations, free posters, and window decorations to participating merchants. This way, merchants could not only meet the increasing consumer demand for advertised products but also spur its growth. Some promotional strategies designed to create consumer loyalty were predicated on active consumer involvement. In exchange for repeat purchase of a particular brand, customers were awarded premiums and prizes, including trading cards, wall hangings, games, and handkerchiefs. Some manufacturers carried the practice to an extreme. By 1905, for example, loyal buyers of Larkin soap could choose from 116 different premiums ranging from soaps, jellies, coffee, and teas to perfume in exchange for their saved labels. Thirteen years later, Larkin customers who had saved enough soap wrappers could outfit an entire household with the soap maker's premiums. Manufacturers' goal, Susan Strasser argues, was to replace consumers' faith in generic products with trust in brand-name versions. It did not take long before customers began to ask for Ivory Soap, which could be obtained only from Procter and Gamble, and for Uneeda Biscuit, another heavily advertised brand. Although these products were more expensive than their generic counterparts, advertisers argued that they were worth the price due to the quality assurance that came with the brand.
Consider what a dramatic change this constituted. Prior to the Industrial Revolution little manufacturing was undertaken solely to build up inventories. Production was typically based on daily orders. Consumers were close to manufacturers and often visited those who made household products. During the nineteenth century, when industry after industry grew larger and the expanded economy allowed retail stores to be flooded with cheap merchandise, the close interactions between manufacturers and consumers gradually eroded. As the twentieth century proceeded Americans became dependent on mass-produced goods for their everyday needs. Although these products were cheap and readily available, they also represented a trade-off. Consumers, who only a generation earlier had been able to monitor the raw materials' quality and the conditions under which the final products were made, were suddenly at the manufacturers' mercy. Goods came from distant sources. People knew less about how they were made, how they worked, and how they could be fixed. As factories supplanted home production and as food stores became more distant from food sources, people lost touch with the means of production. As time went by, household routines involved fewer homemade items, and consumption, as opposed to production, came to play a central role.
Excerpted from Advertising on Trial by INGER L. STOLE Copyright © 2005 by Inger L. Stole. Excerpted by permission.
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|1||The rise of a corporate culture : early consumer response||1|
|2||Advertising challenged : the creation of Consumers' Research Inc. and the rise of the 1930s consumer movement||21|
|3||The drive for federal advertising regulation, 1933-35||49|
|4||A consumer movement divided : the birth of Consumers Union of the United States Inc||80|
|5||Defining the consumer agenda : the business community joins the fray||106|
|6||Legislative closure : the Wheeler-Lea amendment||138|
|7||Red-baiting the consumer movement||159|