Effect of Advertising on the Sales Revenue and Profitability of Selected Food and Beverages Firms in Nigeria
Chapter One
Objectives of the Study
The main objective of the study is to determine the effect of advertising on the sales and profitability of the food and beverages‟ firms in Nigeria. The specific objectives of the study are to:
- Determine the extent to which advertising costs affect the sales revenue of selected food and beverages firms in nigeria
- Evaluate the effect of the advertising costs on the net profit of selected food and beverages firms in nigeria
CHAPTER TWO
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
Introduction
This chapter focused on the review of studies related to the variables of the study. It discussed the concept of advertising, its functions, objectives of advertising, and the measure of advertising effectiveness. The chapter also reviewed a number of empirical studies and presented the theoretical framework upon which the study rests. Lastly, a summary of the chapter is presented at the end of the chapter.
The Concept of Advertising
The meaning of advertising cannot be definite as it means different things to different people depending on their perceptions of what it is. According to Kotler (2000), advertising is any non-personal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertiser includes not only business firms but also museums, charitable organizations and government agencies that direct messages to target public. Advertising can also be defined as any paid non-personal communication about an organization, products, services or ideas by an identified sponsor (Bennet, 2006). Advertising is any paid message presented through various media, such as television, radio, magazine, newspapers or billboards by an identified source.
Scholars such as Sandage and Rotzoll (2002) have argued that advertising is a cost- effective way to disseminate messages, for instance to build brand preference for a product or to educate people about government policies or to avoid consumption of hard drugs. Companies embark upon advertising not only to sell their products, promote their goods, but also to create efficient defense to curtail competitors‟ moves. Frank (2005) saw advertising with the aim to persuade people to buy. Modern advertising is a product of the twentieth century; however, communication has been a part of the selling process ever since the exchange of goods between people started (Kazimi, 2005). Modern commercial advertising is the persuasive force that aims at changing customer‟s behaviors. This is important because consumer wants and needs change as their economic positions improve and as they pass through different stages. It is therefore desirable for advertisers to assess the impact of advertisement on their products‟ performance from time to time (Kotler, 2000).
Shimp (2007) in corroborating Richards and Curran (2002) defined advertising as a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action, now or in the future. A broad variety of rational motives can be used as the source for advertising appeals such as convenience, economy, health, sensory benefits, quality, performance, comfort, reliability, durability, efficiency, efficacy etc; all of these are to stimulate the consumer to patronize a product (Duncan,2002).
According to Giles (1974) as cited in Adewale (2004) advertising is a non-personal communication directed at target audience through various media in order to present and promote products, services and ideas. Hancock and Holloway (2002) stated that advertising are those marketing activities other than personal selling, publicity and public relations that stimulate consumer purchasing and dealers effectiveness, such as displays, shows and exhibitions, demonstrations and various non-recurrent selling efforts not in ordinary routine. Wright (2000) defined advertising as a short term incentive to the traders or consumers to induce the purchase of a product. Engel (2000) stated that advertising informs customers about a product and also sells the product.
All the aforementioned definitions made modest efforts to define advertising. However, one or two deficiencies can be observed from some of the definitions. The study finds the definition by Bennet (2006) that advertising is any paid non-personal communication about an organization, products, services or ideas by an identified sponsor as a better one and hence it was adopted by it. The definition appears to be adequate for the purpose of the study, and encompasses all the important dimensions to advertising such as the product, awareness and sales among others.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
In a research, it is of high significance that the information provided meets the purpose and should be reliable too. This is a function of data collection adopted. This chapter focuses on research design, method of data collection adopted for the study and the method of data analysis employed for this study.
Research Design
This work has utilized correlational research design as the approach for the study. According to Mark e tal (2009), correlation is referred to when a change in one variable is accompanied by a change in another variable, but it is not clear which variable caused the other to change. The choice of the design is necessitated by the fact that the study sought to establish relationship among variables. Since the study specifically intended to establish the effect of advertising costs on the sales revenue and profitability of the selected food and beverages firms in Nigeria. The appropriate design for the research is the correlational design. The variables used for this study were advertising costs as independent variable, total sales and net profit as dependent variables respectively.
Population and Sample of the Study
The population of this study consisted of the fifteen firms listed under the food, beverages and tobacco sector of the Nigerian Stock Exchange at 31st December 2012. Some companies were selected from the food and beverages firms as samples by the study because of the special and distinct attention the companies gave to advertising.
Industry analysts believe that the companies‟ use of advertising were unique within the industry (Kingsley, 2012). Using filtering to the whole companies‟ data filed in the Abuja and Kaduna Stock Exchange libraries. Thus, companies whose data were available for the period of the study were picked up and those companies whose data were not complete were not considered for the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Introduction
In this chapter, the various data sourced from the annual financial statements of the selected food and beverages firms in Nigeria were presented. Finally, the findings in this study were discussed in line with other previous findings in this chapter.
CHAPTER FIVE
SUMMARY, CONLUSION AND RECOMMENDATION
Summary
Advertising supports personal selling by making the company and product known to potential buyers, the result is greater overall selling success. Effective advertising makes the entire marketing strategy more efficient, often lowering total marketing and selling costs. In a nutshell, advertising can provide information on the company or product awareness more efficiently than can personal selling.
This study examined the effect of advertising on the sales revenue and profitability of the food and beverages firms in Nigeria. The study commenced by establishing the gap that spurs this study. It was noted in the statement of the problem that despite the fact that the advertising budget of the companies have grown over the years to constitute a reasonable chunk of expenditure, little research attention has been paid to the effect of such advertising costs on the sales revenue and the profitability of the firms.
Literatures were reviewed in chapter two of this study. Chapter three discussed the methodology adopted for this study. The research design used in this study is the correlational design which allowed for the examination of the relationship between profit after tax, advert costs and total sales of the companies under study. In chapter four, data were presented, analyzed and interpreted. Hypothesis one tested for this study found that there is no significant relationship between advertising costs and total sales revenue of the food and beverages firms in Nigeria. The test of hypothesis two for the study found a significant relationship between advertising costs and profitability of the companies under study.
In chapter five of this study, summary was made and the study concluded that not only advertising alone is sufficient enough to influence the sales revenue and the profitability of the companies other factors other than advertising should be considered. Finally, it was recommended that there is the cogent need for the management to review their existing advertising policy on their products so that multiple approaches could be used in a cost effective mannar to reach out to target consumers and by implication increase sales revenues for the firms.
Conclusion
Advertising is a persuasive communication which attempted to change or reinforce one‟s prior attitude and it is basically done not only to inform customers about products, rather it is a process which further influences and persuades customers to purchase. This study sought to establish the extent to which advertising affect the sales revenues and the profitability of the selected food and beverages firms in Nigeria.
Hypothesis one test of the study revealed a statistically insignificant effect of advertising costs on the sales revenues of the firms. It could be concluded that the amount of money committed into advertising budgets of the firms did not result into increased sales revenues for the firms. This, by implication, means notwithstanding the promotional efforts of the firms. The amount of resources committed to advertising was not sufficient enough to stimulate increased sales revenues of the firms over the period. On the other hand, the finding could also imply that the management might be ineffectively expending resources on the inappropriate medium or media for advertising the firms‟ products. Hence the observed insignificance of advertising costs with respect to sales revenues in the firms under study. Finally, it could also be attributed to squandering financial resources on the advertising policy that least contributes to increase in sales revenues of the companies.
The second hypothesis test indicated that there is a significant relationship between advertising costs and the profitability of the firms. The finding could imply that since the management could not inject many resources into advertising, it might likely affect or increase the profitability of the firms, hence the observed significance of the profitability of the firms. It could also be attributed to factors such other than advertising such as; competitors‟ price, the reputation of the company, brand name, sales promotion, product features, product quality, customers‟ loyalty, promotion, personal selling and publicity.
The study was based on the secondary data collected for the advertising expenditure, sales revenue and profitability of the selected food and beverages firms in Nigeria. The companies were selected based on the observation made by (Kingsley, 2012). Also the selection of the firms was made on the bases of filtering the companies with data availability covering the period of this study. The data utilized in this study was collected from the annual accounts and reports of the companies under study ranging from 2000- 2012, both years inclusive. In this study, the food and beverages firms‟ data of such variables as advertising expenses, sales revenue and profit figures were utilized to estimate effectiveness of advertising on the sales revenue and profitability of the companies.
It could be taken into consideration that advertising expenses alone is not the only factor to determine the sales revenue and the profitability of an organization. Other factors such as: personal selling, publicity, sales promotion, etc are also very crucial. Thus, the management needs to consider these factors while formulating their strategies relating to the spending of advertising expenses.
It could be concluded by stating that advertising is considered as one of the most important medium of communication influencing the company‟s performance in more than one ways if properly utilized. But its influential roles could be suppressed by other factors which also seek equal attention at the time of framing up any sales and profitability promotion policy.
Recommendations
Based on the findings and the conclusion reached in this study, the following recommendations were made:
- The management should emphasize on advertising as an important and strategic policy aimed at increasing sales revenues of the firms while formulating creative advertising entrepreneurial marketing strategies relating to sales revenue and profitability promotion policy. This could be achieved through the commitment of more financial resources and the enhancement of advertisement budgets from time to time in tandem with economic
- We recommended that there is the cogent need for the management to review their existing advertising policy on their products so that multipleapproaches could be used in a cost effective manner to reach out to target consumers and by implication increase sales revenues for the firms.
- Other factors which are crucial to increase sales revenue and profitability such as sales promotion, personal selling and publicity etc. which are important should be considered while formulating promotion policy for the
- Finally, management should use the right medium of advertising so that the message would reach the target consumers with the right products. By doing so, a large number of consumers would be reached. This could help to increase the patronage of the buyers leading to improving the sales revenue of the companies inNigeria.
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