Advertising & Mass Media

ADVERTISING & THE MASS MEDIA THE AMERICAN INSURANCE INDUSTRY ADVERTISING & THE MASS MEDIA SELLING SUPPLY CREATING DEMAND Advertising evolution caused salesmanship to evolve and spark demand for products and services TURN OF THE 19TH CENTURY ▰ Distribution impact of railroads and telegraphs...

ADVERTISING & THE MASS MEDIA THE AMERICAN INSURANCE INDUSTRY ADVERTISING & THE MASS MEDIA SELLING SUPPLY CREATING DEMAND Advertising evolution caused salesmanship to evolve and spark demand for products and services TURN OF THE 19TH CENTURY ▰ Distribution impact of railroads and telegraphs ▰ Tech innovations - printing press, radio, film, telephone, typewriter ▰ Sales pitch as inspiration promising better life for consumer purchasing product ▰ Rise of product differentiation and consumerism ▰ Creative freedom for advertisers Advertising industry rose from $10 million in 1865 to $95 million in 1900 4 TURN OF THE 19TH CENTURY 5 TURN OF THE 19TH CENTURY Harper’s New Monthly Magazine advertisement advising to merchants and general public ▰ To merchants - advertise, advertise liberally, advertise conspicuously ▰ To people at large - read the ads, study them, and verily they shall be for your profit 6 P.T. BARNUM https://www.youtube.com/watch?v=D8b-aIVe4aM 7 P.T. BARNUM ▰ “The Science of Money-Making and the Philosophy of Humbug” ▰ One of the first great advertisers ▰ Exhibited Joice Heth (161-year old nurse of George Washington), “General Tom Thumb,” Swedish singer Jenny Lind ▰ Showed public that it paid to advertise 8 PUBLIC RELATIONS ▰ Mitigation to negative views towards corporations ▰ Ivy L. Lee: sell the company, not the services ▰ Showed public that it paid to advertise ▰ Allocation of advertising budget as common practice 9 QUIZ By how much did the value of the advertising industry rise from 1865 to 1900? 1. 2. 3. 4. $1.3 billion $200 million $85 million $20 million 10 NEWSPAPERS & MAGAZINES ▰ High-speed press and automatic typesetters ▰ Bold, illustrative newspaper formats ▰ Postal Act of 1879: second-class franking privileges for magazines improving distribution ▰ Journal content diversification ▰ George P. Rowell and Printers’ Ink: A Journal for Advertisers 11 BELL TELEPHONE COMPANY ▰ Two pioneering figures ▻ Alexander Graham Bell invented first telephone and founded the company in 1877 ▻ Theodore N. Vail managed and grew the company into the modern telecommunications company of today ▰ Network developed as a group of independent franchises across the country under common Bell equipment and management - reorganized as AT&T ▰ As patent expired and local competitors arose, AT&T consolidated the industry through acquisition and formed a transcontinental telephone line 12 BELL TELEPHONE COMPANY ▰ Three major advances in American business ▻ Government regulation of public utilities ▻ Modern corporate practices - stock ownership, franchising, goal setting ▻ Mass advertising and goodwill campaigns 13 QUIZ What did the Postal Act of 1879 do for magazines? 14 1879 Postal Act ▰ Even though mail classification was simplified to three classes in 1863, confusion continued particularly about postage rates for magazines and newspapers. The 1879 act better defined and created four classes of domestic mail: first class for letters, second class for periodicals and newspapers, third class for bulk mail and fourth class for books and other material. Congress felt that a cheap second-class rate would be beneficial by enabling greater dissemination of information for the public good. 15 RISE OF RADIO ▰ Primary medium for entertainment and advertising ▰ Perfection of vacuum tube by Lee De Forest (1906) ▰ Impact of WWI and government’s use of radio ▰ Patent pool and cross-licensing agreements ▰ GE, AT&T, Westinghouse, RCA (NBC), CBS, and ABC ▰ Peaked in post-WWII era until 1948 (TV) 16 RISE OF RADIO Rise in number of stations, programs, and content quality Decrease in price, improved accessibility Advertising as primary revenue source 17 DEVELOPMENT OF TELEVISION ▰ Television first developed in 1920s and scaled postWWII - 50% of homes had TV by mid-1950s ▰ CBS, NBC, and ABC emerged as major networks with 50+ stations that disrupted radio and cinema ▰ Color TV slow to pick up but exploded in 1960s ▰ Today, networks less consolidated and audiences are highly segmented - implications for consumers, networks, and advertisers 18 TELEVISION ADVERTISING ▰ Advertising shift toward TV ▻ Radio losing 70% of evening audience ▰ Economies of scale - decrease in TV prices drove increases in viewing hours and ad revenue 19 20 ROLE OF ADVERTISING AGENCIES ▰ Specialized in placing ads and developing marketing campaigns ▰ Charging advertisers 10-15% for buying and placing ads → became industry norm ▰ Specialization efforts: hired psychologists, social scientists, artists ▰ Codes and rules developed internally ▰ Benefit of propaganda efforts for World War I 21 QUIZ What strategies did William Paley use to build CBS into an Entertainment Empire? 22 Paley saw greater potential for radio than for cigar manufacturing. He invested $450,000 in the Columbia Phonograph Broadcasting System in 1929 and became president of the firm, which he renamed Columbia Broadcasting System. The twenty-eight-year-old Paley expanded the system from sixteen stations to ninety-seven affiliates by 1935. He also purchased stations in key markets, and in 1931 profits reached over $3 million. Paley built CBS by developing radio stars, or personalities. Following a model not unlike that used by the motion picture producers, he created new talent and hired "names" from the competing National Broadcasting Company or from the vaudeville circuits. Soon Bing Crosby, Jack Benny, and Kate Smith were but three of the household names at CBS. 23 RADIO & TV REGULATION ▰ Regulation slow to develop ▰ Use of internal regulation: industry codes, statutes for truth in advertising, review committees ▻ Printers Ink and National Association of Broadcasters ▰ Demand for regulation as consumers contested the content, frequency, and pervasiveness of ads 24 RADIO & TV REGULATION https://www.youtube.com/watch?v=sxrCjmqRTz0 25 RADIO & TV REGULATION 1912 Government required operators and stations to be licensed 1938 Wheeler-Lea Amendment for FCC; Pure Food, Drug, Cosmetics Act 1927 1934 Federal Radio Commission established Federal Communications Commission (FCC) established 1941 1960s RCA forced to split NBC into two networks, creating ABC Increase in FCC authority to ensure high standards of programming 26 Answers ○ ○ ○ ○ ○ ○ ○ ○ 1912: required operators and stations to be licensed 1927: Federal Radio Commission established: assigned frequencies, limits on power output, equalized geographic access to radio facilities 1927-1934: increase in stations, networks and programming 1934: Federal Communications Commission (FCC): absorbed duties of FRC and regulated broadcasting through control of entry into the industry and approving transfers of ownership 1941: govt. Forced RCA to dispose one of the two networks (NBC Red and NBC Blue Systems) → NBC Blue emerged as ABC, becoming new competitor 1938: Wheeler-Lea amendment gave FTC “cease and desist” authority to regulate unfair and deceptive ads and false advertising of foods/drugs/therapeutic devices 1938: Pure Food, Drug, and Cosmetics Act strengthened the regulation 1960s: additional authority given to require higher standards of programming by radio and TV stations (as a result of consumer org’s contending that there was not enough regulation of content/frequency/pervasiveness of ads → *flash forward to today where this is still a major issue in digital advertising 27 COMPUTERS ▰ Computing began with mainframe computers from IBM, electronic calculators from Wang Laboratories, and “small computers” from Digital Equipment Corporation ▻ All fundamentally missed opportunity of personal computing ▰ Apple introduced first graphical-based platform on a PC in 1984 ▻ Refused to separate sales of hardware from software ▰ Microsoft founded in 1975 and only licensed software to hardware manufacturers ▻ Leveraged to eventually become dominant operating system provider for PC’s ▰ Takeaway: information technology industry moves at breakneck pace, and companies either have to adapt or get left behind 28 CURRENT STATE OF ADVERTISING ▰ Rise of digital media & diminishing linear viewership ▰ Sophisticated targeting tools ▰ Mass availability of consumer data ▻ Regulation implications ▰ Growing complexity with measurement standards ▰ Line blurring between editorial and sponsored content 2017 Ad Spending Per Capita: $634.67 29 THE AMERICAN INSURANCE INDUSTRY What is Insurance? ▰ Definition: A practice or arrangement by which a company or government agency guarantees payment of an event (i.e. fire) in exchange for a premium ▰ Why does it work? ▻ Consumers are risk averse ▻ Pooling of assets reduces risk 31 4 Phases of the American Insurance Industry Phase 1: Inception --- Mid-1800s ▰ Period defined by innovation and pioneers ▰ Stock and mutual corporate structures ▰ Insurance types now clearly defined Phase 3: 1906 --- 1950s ▰ Auto insurance dominates ▰ Industry maturation ▰ State and local rules begin to vary Phase 2: Mid-1800s --- 1906 ▰ Period defined by rapid and unregulated growth ▰ Chicago Fires, Armstrong Investigations, San Francisco Catastrophe Phase 4: 1950s --- Present Day ▰ Scope of industry continues to widen ▰ Multipurpose financial intermediary ▰ Federal regulations increase 32 Types of Insurance Companies ▰ Mutual ▻ Contributors to the pool are stockholders ▻ Contributors receive dividends or rebates from the companies ▰ Stock ▻ Contributors may or may not be stockholders 33 Origins ▰ England was the modern insurers of the world ▰ The Great Fire of London 1666 ▻ The Fire Office, “Damned” Nicholas Barbon Three Main Types: 1. Fire 2. Naval 3. Life ▰ Hand and Hand ▻ First Mutual Insurance Company 34 America’s First Insurance Company ▰ Benjamin Franklin ▻ Shaped after Hand in Hand ▻ Philadelphia Contributionship for the Insurance of Houses by Fire (1752) ▰ Only interest on deposits could be spent ▻ Insurance Reserve Account 35 America’s First Stock Insurance Company ▰ Insurance Company of North America (1792) ▻ Began with a “Tontime” system ▻ Did not pick up traction so transferred into a more general insurance model 36 INA Continued Start of Generalized Company ▰ Local Changes after economic shock Foreign Trade declined precipitously from 1793 to 1815 ▰ Naval Insurance ▰ Life Insurance Why? ● Napoleonic Wars ● War of 1812 ▰ Nationalized Sales Force ▻ Independent Agency system ▰ Insuring inland steam ships and cargo ▰ Dropped life and foreign naval 37 Life Insurance Industry Viviana Zelizer ▰ Initial views ▻ Immoral ▻ Putting a price on human life ▰ Boom in Life Insurance (1840’s) ▻ Strong economy and increase in urban living ▻ Humanistic approach arises ▻ Better actuarial knowledge 38 4 Phases of American Insurance Industry Phase 1: Inception --- Mid-1800s ▰ Period defined by innovation and pioneers ▰ Stock and mutual corporate structures ▰ Insurance types now clearly defined Phase 3: 1906 --- 1950s ▰ Auto insurance dominates ▰ Industry maturation ▰ State and local rules begin to vary Phase 2: Mid-1800s --- 1906 ▰ Period defined by rapid and unregulated growth ▰ Chicago Fires, Armstrong Investigations, San Francisco Catastrophe Phase 4: 1950s --- Present Day ▰ Scope of industry continues to widen ▰ Multipurpose financial intermediary ▰ Federal regulations increase 39 How were the mortality tables improved? ▰ Morris Robinson ▻ Created the first mortality table ▻ Initially based off of British mortality rates ▰ Sheppard Homans ▻ New mortality table ▻ Noted that mortality was higher for younger and older americans, but lower for middle aged when compared to Britain Sheppard Homans 40 Chicago Fire ▰ Chicago Fire of 1871 ▻ Bankrupt 68 insurance companies ▻ Most companies paid out claims ▻ Helped regain trust for insurance companies ▻ Increased awareness for need of insurance 41 Unlawful Tactics ▰ Commission increases ▻ (5% 1840 → 100% in 1900) ▰ Unlawful Tactics ▻ Board Contracts ▻ Sell in unlicensed areas and contest claims ▻ Greasing the palm ▻ Irresponsible/Illegal Investment Policies 42 Reform and Regulation ▰ Self Regulation ▻ Operational Standards ▻ Encouraged State governments to implement guidelines ▰ National Board of Fire Underwriters (1866) ▻ Creates industry wide premium standards ▰ Federal ▻ No significant moves to reform ▻ Court case in 1869 said insurance companies cannot be held against Sherman Anti-Trust Act 43 Armstrong Investigations ▰ NY Senator William W. Armstrong ▻ Investigated the largest insurance companies ▰ 450 Page Report (1905) ▻ Called for changes in actuarial and marketing practices ▻ NY adopted many of the recommendations ▻ “Tonic” effect William Armstrong 44 QUIZ What is one incentive for insurance companies to have unlawful tactics? 45 American Life Conference ▰ Post-Armstrong Trials: Great sense of distrust throughout the country regarding banking and insurance interests ▻ 1905: Life insurance companies meet in Chicago for ALC ▰ Resolutions Adopted at the Conference ▻ Favored individual state laws over federal control ▻ Opposed laws requiring payment to conduct business and extreme taxation 46 Prudential Life and First Modern Ad John Dryden and Allen L. Bassett ▰ 1873: Dryden goes to work for Bassett at Widows and Orphans Friendly Society ▰ Worked together to organize $30,000 of capital to start Prudential Life Prudential Life ▰ 1896: Leslie’s W eekly features first modern ad for an insurance company: “Prudential Has the Strength of Gibraltar.” ▰ Mid-1880s: already over $1 million in assets 47 4 Phases of American Insurance Industry Phase 1: Inception --- Mid-1800s ▰ Period defined by innovation and pioneers ▰ Stock and mutual corporate structures ▰ Insurance types now clearly defined Phase 3: 1906 --- 1950s ▰ Auto insurance dominates ▰ Industry maturation ▰ State and local rules begin to vary Phase 2: Mid-1800s --- 1906 ▰ Period defined by rapid and unregulated growth ▰ Chicago Fires, Armstrong Investigations, San Francisco Catastrophe Phase 4: 1950s --- Present Day ▰ Scope of industry continues to widen ▰ Multipurpose financial intermediary ▰ Federal regulations increase 48 San Francisco Earthquake and Fire of 1906 49 San Francisco Earthquake and Fire of 1906 ▰ One of the largest peacetime disasters in American history ▰ Companies sought to cut losses by disregarding claims ▻ Only 27 / 113 companies paid claims in full ▰ Led to distinct loss of trust in industry and calls for increased regulation 50 New Function of Insurance Companies ▰ Robertson Law passes in 1907 ▻ 75% of policy reserves invested back in the state ▻ Gov. James Ferguson implements law and recognizes new use for insurance capital ▰ Insurance companies provide capital for development ▻ Houston 51 THE AUTO AGE 52 The Auto Age Lumbermen’s Mutual Casualty Company ▰ 1912: James Kemper writes FIRST auto liability policy ▻ Premiums = 2x horse-team liability insurance ▰ Auto insurance accounts for more than 50% of total premium income State Farm ▰ 1922: Founded by George Mecherle ▻ Specialize in farm vehicle insurance ▰ Market specifically to rural customers ▻ Lower premium costs ▰ As a result, quickly becomes largest auto insurance company globally 53 QUIZ What was the total dollar value of State Farm’s premiums at the time of founder George Mecherle’s death in 1951? 1. 2. 3. 4. $10 million $40 million $75 million $100 million 54 4 Phases of American Insurance Industry Phase 1: Inception --- Mid-1800s ▰ Period defined by innovation and pioneers ▰ Stock and mutual corporate structures ▰ Insurance types now clearly defined Phase 3: 1906 --- 1950s ▰ Auto insurance dominates ▰ Industry maturation ▰ State and local rules begin to vary Phase 2: Mid-1800s --- 1906 ▰ Period defined by rapid and unregulated growth ▰ Chicago Fires, Armstrong Investigations, San Francisco Catastrophe Phase 4: 1950s --- Present Day ▰ Scope of industry continues to widen ▰ Multipurpose financial intermediary ▰ Federal regulations increase 55 Post-WWII and Modern Era of Insurance ▰ 1945-1970: American car ownership increases by ~32% ▰ 1950-1974: Insurance capital as a primary driver of economic growth and development ▰ Auto insurance capital becomes cornerstone of modern American economy ▰ Insurance, banking, and savings activities have become nearly indistinguishable in modern era → Increase in federal regulation 56 QUESTIONS? Thank You!!! 57 Works Cited 1 . See Notes frombooks, articles and journals in readings 2. Handout (Canvas) 58