Public relations is a unique sphere of organizational management and control which helps modern companies to create a positive reputation and a strong brand image, The process by which public relations brings about matching of buyers and sellers may be understood by assuming initially that there are complete information and pure competition–conditions under which no public relations would take place.
Products within a generic class are assumed to be comparable in terms of their underlying, objectively measured characteristics or attributes. In this situation, rhetoric helps PT managers to persuade consumers and influence their decision-making (Stevens 2005). Each consumer decides on the best item to purchase by comparison shopping, that is, by weighing the market prices necessary to obtain more preferred attributes of the commodity against subjective valuations of those attributes.
In public relations, rhetoric helps PR managers and administrators to appeal to the emotions of the target audience and their internal feelings. There are different interpretations and definitions of PR aimed to clarify the sphere of its activity and influence. For instance, the Public Relations Society of America (PRSA) proposes the following definition; “Public relations helps an organization and its publics adapt mutually to each other” (PRSA, 2006).
They especially emphasize the role of communications, research activity, planning, dialogue, and evaluation. The other definition is given by Stevens (2005) who supposes that public relations “includes ongoing activities to ensure the company has a strong public image” (Stevens 2005, p. 3). Different people purchase different varieties because they differ in tastes and incomes and because their subjective valuations of attributes differ.
Organizations decide what varieties to offer in the market by comparing prices against costs (Stevens 2005). Some organizations may specialize by producing those varieties at which they are most adept, depending on the technology required. Even if no specialized production knowledge across varieties is present, sellers will still offer different varieties in accordance with consumers’ demands for them. Thus, product differentiation occurs even with perfect information and without public relations or “taste altering” expenditures (Berger 2002).
For instance, some popular brands will specialize in satisfying one set of consumer tastes while other brands specialize in satisfying other sets of consumer tastes. One expects the brand specializing in the tastes of the larger group of consumers to have the larger demand. This statement is not as self-evident as it appears on the surface. A greater demand can be satisfied either by a larger number of brands or by greater size per brand or by both. There is a tendency for both to go up as demand increases (Stevens 2005).
Rhetoric in public relations helps organizations to connect a potential client and the proposed service. One expects the quantity elasticity of demand with respect to public relations to decrease with increases in public relations. This is applying the general view with respect to scale economies to the case of public relations expenditures: that scale economies are gradually exhausted as the firm size grows. In the specific case of public relations, the payoff for switching to cheaper media as the size of markets grows will tend to be greater for the smaller brands. The smaller the public relations elasticity, the more negative the slope of the demand curve (Stevens 2005).
Hence the mutatis mutandis demand curve is probably going to be more negatively sloped in the range beyond the zero-profit equilibrium. There is no measure of utility that would allow one to construct a utility-corrected measure of price. This clearly prohibits a meaningful cross-sectional regression between price and quantity across different brands for a given product. A substantial uncontrolled quality variation would be involved.
However, the time series regression of quantity on price for a given brand can be meaningful. Just choose a reasonably short time period during which no substantial product innovations took place. Under these conditions, the brand’s utility relative to other brands of the good probably has only a modest variation. To the extent that there is such variation, it would bias regressions of quantity on price toward zero (Walsh Frank 2001).
Public relations depend upon rhetoric principles which include clear argumentation, persuasion based on facts, and emotional appeal. The special distribution of brands is evidence that either diseconomy of scale in other functions are limited to special areas or the quality control problem is very serious.
The evidence shows only that there are diseconomies of scale in increasing the number of retail units managed by a single firm and that there are diseconomies of scale in agricultural production. Neither case is important for the standard advertised brand. One can argue that the problem of quality control increases the cost of creating brands in the face of diseconomies of scale in other firm functions. That same argument cannot be used to explain the opposite phenomenon: the modern company.
Suppose a firm was producing two different brands in the strongest sense of different brands: that consumers are unaware that the same company is producing both (Stevens 2005). Then the standard sources of possible scale economies in public relations win not operate as the company increases the number of brands it produces beyond one. There will not be a greater number of potential customers who can respond to the advertisement of either brand; the reputability or desirability of the product cannot increase with increases in the number of brands (Tucker Derelian. 2000).
Argumentation is important in public relations because it helps to present a message to a customer. While customers might be unable to evaluate a few commodities, most consumers will be able to evaluate most commodities. Suppose the counterargument was true. Firms would use the cheapest possible ingredients subject to legal constraints (Tucker and Derelian 2000). If all firms obeyed the law, there would be a tendency for the products produced to be uniform at the lowest possible level of quality.
What actually occurs is for the most part non-uniformity of quality among different brands. A firm might use a more expensive ingredient now and then by mistake (Stevens 2005). The counterargument does make one clear prediction: that there can be no systematic relation between quality and any other variable that is unrelated to firm mistakes. In particular, there can be no relation between public relations and the quality of brands.
If consumers have some information, one predicts that public relations will be positively related to brand quality at least for those goods for which the price of advertised brands is higher than the price of unadvertised brands. In running such a test one does not have to worry about whether the quality difference is worth the price difference or not, because the ignorance model predicts no quality differences attributable to public relations whatsoever (Stevens 2005).
Persuasion based on facts influences concentration ratios by the number of brands of a good they sample and by the correlation of their choices with those of other consumers. If, for example, there were no correlation of their choices, the number of brands on the market would be unrelated to consumer sample size. If there were a perfect correlation, the sample size of the consumer would set an upper limit on the number of brands on the market. The market produces fewer brands about which consumer tastes differ and more brands about which consumer tastes agree (Stevens 2005).
If buyers’ tastes for different aspects of the good are heterogeneous, competition impels sellers to seek out new markets and offer varieties of the product most closely matching the preferences of diverse customers. Even if buyers have homogeneous preferences, product differentiation may be observed in competitive markets so long as sellers are diverse, with some having comparative advantages at producing alternative attribute combinations (Stevens 2005).
The natural outcome of this kind of competitive market is an optimal matching and sorting of buyers and sellers, with transactions consummated in the most economical way and with the maximum value received by consumers. Simply from observing the results of the sorting process, that is, the prices and product varieties that actually obtain, it is difficult if not impossible to distinguish “excessive” from “optimal” product differentiation, at least without imposing a particular value system, perhaps one’s own–or one in the manner of Consumers’ Union–on the data. Since information gathering and dissemination are activities inherently subject to some scale economies we can expect such expenditures to be undertaken by firms, especially if buyer search and product assessment costs are sufficiently large (Stevens 2005).
If so, then some buyers may be able to specialize their range of search and assessment activities over a narrower range of goods, shop more efficiently, and obtain a better match between the most preferred characteristics and the availabilities of product types offered in the market (Stevens 2005). This is the real value of information, and it points up the sense in which public relations becomes a tie-in feature of alternative product varieties. Accurately transmitted information commands a high price in much the same way that persons offering superior marriage and real estate brokerage services receive larger incomes (Steinberg 2000).
It is clear from this analysis that the effects of public relations on the number of differentiated products in the market are ambiguous. Indeed, the question is not well defined, depending as it does on the state of information in the market, the costs and ease of disseminating it, the nature of technical change, and how entrepreneurs perceive their opportunities for filling gaps in the market (Stevens 2005). Though, as a broad generalization, improvements in the technology of public relations and information dissemination should increase the sustainable number of varieties appearing on the market in a steady-state. People with “odd” tastes and preferences suffer when information about products is costly since it is difficult and more costly for sellers and buyers to communicate and to find each other (Stevens 2005).
Thus, some misleading information in public relations messages is to be expected, since information is too costly for consumers to be completely informed. In addition, it is well understood that the production of attribute information services through private market agencies is likely to be insufficiently supplied, because the information has many of the same features as common-property resources, and property rights in it are difficult to establish (Stevens 2005).
Certainly one seldom encounters public relations messages that point out the negative features of a product, even though they may be a natural by-product of its admirable and desirable qualities. The most preferred and desirable emotional attributes naturally are stressed instead (Larson 2000).
The value of information about product characteristics varies directly with buyers’ costs of search. When transactions and search costs are sufficiently small, buyers search more intensively and the additional advantage of intensive specialized search diminishes. The opposite is true for those with high search costs. Indeed, if search costs are sufficiently high it may not even pay to enter the differentiated product’s market at all. If public relations by firms economizes individual shopping effort, it may well induce some customers, who were previously out of the market because of high search costs, to enter the market. Thus public relations can actually expand the overall market.
The value of a customer’s time and search costs is similar from the seller’s point of view to buyers’ valuations of product attributes. Hence some sellers should cater to high search-cost customers by public relations and establishing reputations that effectively lower these costs. Sellers searching out customers by public relations and reputation are substitutes for buyers’ search and shopping activities. The value of attribute information also depends on the difference between each consumer’s preferences and market availabilities (Stevens 2005).
If individual consumers exhibit little dispersion in their preferences and search costs, the gross value of public relations product characteristics is small and its net social value maybe even negative, for the same reason it was in some of the examples in the section above on public relations and perceptions. Since advanced knowledge of attributes allows customers to specialize search activities in the most preferred varieties, the value of catering to particular groups is correspondingly greater when there is greater dispersion in tastes among buyers (Larson 2000).
Emotional appeal creates unique attitudes towards brands and their products. Public relations may allow better matching and more specialized search activities. If so, we expect that the market would not support as much pure price dispersion among product varieties, bringing consumers of each variety closer to the Pareto optimality condition of equal marginal rates of substitution in consumption. The effect on the number of varieties appearing on the market is more problematic (Stevens 2005).
When attributes are not known in advance but must be certified by personal inspection, firms pin less from offering the optimal characteristics in their products. Some varieties might be viable that would not be sustained in the presence of better information, and it is impossible to predict whether or not there would be a proliferation of varieties with public relations. It is clear that those varieties appearing in the presence of superior attribute information are more likely to be closer to optimal, because the gains to firms from seeking out specialty submarkets are correspondingly greater, and customers purchase goods with more preferred characteristics (Goff 2001).
The evidence–admittedly minuscule–does indicate a positive association between advertised brands and quality when advertised brands cost more. Until more studies of quality variation and public relations are made, the chief argument against the ignorance hypothesis must rest on other grounds. If the consumer is able to tell on the basis of one or a few experiments the utility of a brand to him, frequency of purchase (or its rough inverse measure, durability) becomes an important determinant of his actions (Walsh 2001).
For instance, one could argue that the consumer perceives only part of the consequences of his consumption. The indirect information obtained from public relations reflects only what is known by those who have already experienced several brands. That seems to be a useful contribution to the consumer information problem, even though it might not make a consumer fully informed (Brody, 2004).
For example, a buyer cannot afford to investigate all of the alternative qualities of the goods in the market. In order to make decisions about his sample size, the consumer must make a utility assessment of these qualities. Suppose, then, that the consumer converts these qualities to some utility measure (the particular measure does not matter as long as he uses the same measure throughout). The utilities of all of the alternatives he faces for a particularly good form a probability distribution (Berger 2002).
Having chosen whether he will search for or experience a given quality, the consumer is confronted with a probability distribution of the utilities of search qualities (his search distribution) and with a probability distribution of the utility of experience qualities (his experience distribution). Fortunately, there is a way to avoid this problem. The relative importance of experience qualities to search qualities has implications for a whole host of market characteristics besides public relations expenditures (Brody, 2004).
There are systematic effects on market size and share due to scale economies in PR diffusion, a point that calls into question conjecture that more heavily advertised brands are likely to better buy. It is a curious feature of attribute public relations that it informs some buyers not to shop among certain brands. Thus the incentives for public relations are clearly related to the expected size of the market (Brody, 2004).
On the one hand, those varieties that would be less viable when information is less imperfect obviously have fewer incentives to advertise. In this sense, the incentive to advertise depends on the seller’s expectations of how well his brands cater to market preferences. Hence more heavily advertised brands are likely to better buy. On the other hand, customers with minority preferences suffer in the presence of imperfect information because it is more costly for sellers to seek them out and tailor products to their needs and preferences.
Specialized minority varieties may still appear in the market without many public relations if minority preferences are sufficiently intense relative to high volume alternative goods and their private costs of search are not too large. Clearly more heavily advertised brands are more likely to cater to “mass preferences” in the market and are unlikely best buys for those with more esoteric tastes (Brody, 2004).
One would expect the same phenomenon to operate within an industry. As far as this source of variation in demand is concerned, an average client can predict that he will be better off trying the more heavily advertised brand. In other words, there will be a negative relationship between public relations and utility-corrected price, where utility is now measured by the average utility of consumers (Berko 2001). The other major source of shifting demand curves is the age of the brand. Part of the difference in demand by age is properly handled by treating public relations as a stock rather than a flow. But the appropriate stock concept is different from the point of view of the firm and the individual consumer (Bivins 2000).
In sum, public relations depend upon successful rhetoric and effective application of rhetorical principles. These principles include clear argumentation, persuasion based on facts and emotional appeal. The individual responds to the quantity of remembered public relations messages–that is, to the endorsement implied by heavy public relations–and this is the stock of public relations from his point of view. The organization, on the other hand, must add a measure of the number of direct and indirect repeat purchasers to the number of remembered public relations messages in order to compute the stock of public relations from its point of view. To the extent that the firm takes, advantage of rhetoric for more than one brand, decentralization by brand must be reduced.
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