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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?

Ubiquitous
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Joe Jobs
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    A more detailed explanation of the question: http://fashiongear.fibre2fashion.com/brand-story/zara/advertisements.asp – Giskard Jul 25 '15 at 23:03
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    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 Jul 26 '15 at 17:54
  • @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 Jul 27 '15 at 01:44
  • 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 Jul 28 '15 at 17:08
  • 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 Apr 03 '19 at 18:24

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I'd argue that the best example is 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", 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.

dismalscience
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  • 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 Jul 28 '15 at 13:30
  • 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 Jul 28 '15 at 14:46
  • 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 Jul 28 '15 at 15:59
  • 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 Jul 28 '15 at 21:56
  • 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 Jul 29 '15 at 00:14
  • 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 Jul 29 '15 at 01:32
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A standard example would be firms like Tupperware, which employed a variant of the 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.

Alecos Papadopoulos
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