Poland Spring, Dasani and Aquafina who together produce 90% of all the bottled water consumed in the US, each spend well over $300 million a year on television advertising campaigns, promoting their water brands. If one firm is advertising its brands heavily, the others must also advertise to defend their market shares. Would these firms welcome congressional legislation which restricted the amount that any one firm could spend on advertising to $1 million yearly, and thereby allowed them all to reduce their costs without fear of losing ground to each other? Explain
Why should they be concerned with costs? It is maximizing profit they are interested. Now if one of the competitors decides to reduce advertising revenue, great, it means more market share for the other players, and more profit.
The question asks whether companies like Poland Spring, Dasani, and Aquafina would welcome congressional legislation that restricts the amount they can spend on advertising to $1 million yearly. To answer this question, we need to consider the potential benefits and drawbacks for these companies.
Companies spend a significant amount on advertising to promote their brands and increase their market share. In this case, these three companies collectively produce 90% of all the bottled water consumed in the US. By advertising heavily, they aim to maintain and expand their market shares. If one firm advertises heavily, the others may feel compelled to do the same to defend their market shares. This creates a situation where all firms are spending large amounts on advertising, driving up their costs.
On the surface, it might seem that these firms would welcome congressional legislation that restricts advertising spending to $1 million yearly. This restriction would limit their advertising expenses, potentially allowing them to reduce costs significantly. Additionally, if all firms are subject to the same limitation, they wouldn't have to worry about losing ground to each other in terms of advertising reach.
However, there are other factors to consider. Advertising plays a crucial role in building brand awareness and loyalty. By limiting their advertising spending, these firms may reduce their ability to attract new customers and maintain existing ones. This could result in a decline in market share if their competitors continue investing heavily in advertising. It's also worth noting that these companies have already established strong brand recognition, and cutting advertising budgets could potentially weaken their position against new or emerging competitors.
Ultimately, whether these firms would welcome such legislation would depend on various factors, including their assessment of the potential impact on market share and the overall competitiveness of the bottled water industry. Companies might weigh the cost savings against the risk of losing ground to competitors and determine whether the reduced advertising expenses justify the potential drawbacks.
To fully understand the perspective of these firms, it would be insightful to examine their strategic goals, evaluate market conditions, and potentially seek direct opinions from the companies involved.