sales vs advertisement case study

8/2/2019 Sales vs Advertisement Case Study

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Dr. S. Sharma, Dr. J. Sharma - Sales and Advertisement Relationship for Selected Companies Operating in India

2009 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis

Sales and Advertisement Relationship for Selected

Companies Operating in India: A Panel Data

Analysis

Dr. Suparn Sharma

Dr. Jyoti Sharma

Running Head: Sales and Advertisement Relationship

Abstract:

The study tries to examine the growth pattern and trend of sales and advertisement expenses for the

selected companies over a period from 1992-93 to 2006-07. Further it seeks to evaluate the effectiveness

of advertisement expenses on sales of selected companies operating in India at aggregate and disaggregate

levels. It also tries to analyse the behaviour of share of advertisement expenses in total sales for the above

mentioned categories. The study is based on panel or pooled secondary data collected for advertisementexpenditure and sales revenue of 134 randomly selected sample companies operating in India over the

period from 1992/93 to 2006/07 which are further classied on the basis of amount of sales revenue as well

as on the basis of type of product produced. In this study of Panel or Pooled data, Fixed Effect approach

with and without dummy variables are applied to evaluate the effectiveness of advertisement expenses on

sales. Further, annual compound growth rates and summary statistics are also estimated. The contribution

has found that the growth rate of sales revenue of manufacturing and companies, whose sales revenue is

more than 1000 crore, is highest inspite of the negative compound growth rate of advertising expenses of

these two types of companies. Further, in case of non-manufacturing companies, it has been found that

these companies are less popular among the consumers and they are also spending less on advertisements

as compared manufacturing companies. While answering, how much advertisement expenses need to be

incurred, the study concludes that to a large extent it depends on the nature and size of industries.

Paper Classication: Research Paper

Key Words: Sales Revenue, Advertisement Expenses, Panel Data, Manufacturing and Non-

Manufacturing


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84

School of Doctoral Studies (European Union) Journal - July, 2009 No. 1

School of Doctoral Studies (European Union) Journal July

Advertising is a prominent feature of

modern business operations. One can encounter

advertising messages, while watching TV, reading

magazines, listening to the radio, surng the

internet, or even simply while walking down the

street, as advertisement has a stimulating inuence

on purchasing behaviour of the customer. Thismammoth surge of advertisements from every

possible source is basically to full the urge of

marketers to reach to a large number of people so

that their product may receive optimum exposure.

The role of this mass mode of communication

in creating brand loyalty, deterring entry and

consequently increasing sales revenue and prots

of the organisation and causing impact on the

business cycle has been emphasised at various

points of time by different studies (Robinson,

1933; Kaldor, 1950; Nelson, 1974; Ozga, 1960;

Stigler, 1961; Sundarsan, 2007). Broadly the

role of advertising expenses in an economy can

be classied under two heads. According to one

school of thought, advertising increases prots

and reduces consumer welfare by creating

spurious product differentiation and barriers to

entry. While the other school of thought focuses

on the informative character of advertising, which

makes markets more competitive and reduces

prots by informing the customers about pricesand quality (Greunes et al, 2000). Inspite of the

above mentioned segregation, one cannot deny the

fact that ultimate function of advertising expenses

is to promote sales revenue. That is why every

organisation with the expectation of earning return

is investing millions of rupees or dollars on this

mode of marketing communication.

Hence, in pursuit of their ultimate objective

of increasing sales, every endeavour of each

marketer is to make this mode of sales generation

more effective. But advertisement effectiveness

conveys different meanings to different groups.

To the writer or artist, effective advertising is that

which communicates the desired message. While

to the media buyer, effective advertising is that

which reaches to prospective buyers a sufcient

number of times. However to the advertising or

marketing manager, effective advertising is that

which, together with other marketing forces, sells

his brand or product. Whereas according to the

general manager, effective advertising produces

a return on his rms expenditure. Infact to be

effective the advertising must achieve the goal

of delivering messages to the right audience and

thereby creating sales at a higher prot.

The subject of advertisement has remained atopic of debate either on one pretext or another

for decades. At the beginning of 19th century,

though, it was a subject of little interest to the

major researchers, but it became a fertile topic

for economic research at the turn of 19th century

during which, on one side its constructive role in

providing information to customers to satisfy their

wants at lower cost was recognised and on the other

a wasteful confrontational role by offering little

information and doing redistribution of customers

from one rm to another was acknowledged.

Various studies have been conducted to assess

the different aspects of relationship between

advertisements and sales at different points of

time. A brief review of the studies relating to

different dimensions of interrelationship of sales

and advertisement is presented in the forthcoming

paragraphs.

Review of Selected Literature

The economic effects of advertisement

expenses has been a much debated topic and

studied widely at different points of time. Verdon et

al (1968) while studying the relationship between

advertising and aggregate demand found that

advertising have a positive relation with aggregate

demand. However, Ekelund and Gramm (1969)

analysed the relationship between advertising

expenditure and aggregate consumption but could

not establish any positive relationship between

these two. Similarly, Taylor and Weiserbs (1972)

studied the relationship between advertising

expenditure and aggregate consumption on the

basis of Houtakker-Taylor model and showed that

advertising affects aggregate consumption and the

relationship between advertising and consumption

is not found to be unidirectional but simultaneous.

Jagpal (1981) while applying the multiproduct

advertising sales model to a commercial bank found


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that radio advertising was relatively ineffective in

stimulating sales of the joint outputs (number of

savings and checking accounts). Sachdeva (1988)

studying the trends in advertisement expenditure of

Indias large corporate bodies stated that foreign

controlled companies single-handly accounted for

a dominant share in advertisement expenditure.Consumer goods producing organisations controlled

by foreign companies have emerged as one of

the most important contributors to advertisement

budgets of the corporate world. Another study by

Leong et al (1996) using cointegration technique

found a strong positive relationship between

advertising expenditure and sales. Similarly, Lee

et al (1996) found that the variables of advertising

and sales are not only integrated of same order

but also cointegrated. The results explicated that

causal relationship between advertising expenses

and sales works in both directions. Leach and

Reekie (1996) analysed the effect of advertising

on the market share of a brand using variants

of the Koyack Distributed Lag model. Further,

the results of the Granger causality test showed

that advertising expenses caused sales but sales

do not simultaneously cause advertising. Elliot

(2001) revealed that advertising has a signicant

positive effect on food industry sales and this

relationship between advertising expenditureand sales appears to be stable. Pagan et al (2001)

studied the effectiveness of advertising on sales

using bivariate Vector Auto Regression model

and showed that one time increase in advertising

expenditure leads to increase in the sales of orange

with a one month lag. It was also found that the

impact of advertising expenditure on grape fruit

sales is more immediate and relatively large. While

analysing the relationship between a companys

advertising expenditure and its sales during the

recession, Kamber (2002) found a measurable

relationship between advertising expenditure

and sales, even after controlling other factors,

such as, company size and past sales growth, etc.

Guo (2003) examined the relationship between

advertising and consumption at macro level using

the US data on advertising expenditure, personal

consumption and disposable income. The study

with the use of unit root tests and cointegration

analysis substantiated the existence of cointegration

among variables, which reveals the presence of

long-term equilibrium relationship among them.

Sundarsan (2007) evaluated the effectiveness of

advertising on sales of small and large rms, and

for multinational corporations. The results showed

that advertising has inuenced sales, though itsrelative effectiveness was not the same for all the

categories of rms.

The above review divulges that there is no

consensus on the economic effects of advertising

expenses on sales revenue. Different studies

have shown diverse results. However, in general,

majority of the studies have directed positive

relationship between the two. Most of the studies

have used time series data to capture the long-

term effects of advertising on sales. However, it is

important to know effects of advertising expenses

on sales revenue for Indian corporate sector.

Moreover, the area that to what extent advertisings

persuasive character work to alter consumers

wants and consequently sales have received scant

attention. With this backdrop, the present study

has been designed to nd out the extent to which

advertisement expenses cause impact on sales

revenue. More specically the objectives of the

study are to examine the growth pattern and trend

of sales revenue and advertisement expenses forthe selected companies operating in India. Further,

the present contribution aimed to evaluate the

effectiveness of advertisement expenses on sales

revenue for selected companies at aggregate as

well as disaggregate level. The present study

will also try to analyse the behaviour of share of

advertisement expenses in total sales revenue for

the above mentioned categories.

In consequent of the above mentioned

objectives, the study has been divided into three

sections. The database and research methodology

has been discussed in section I. While section II,

attempts to study the relationship of sales revenue

and advertisement expenses of randomly selected

companies operating in India, the summary,

conclusions and implications of the study are

carried out in section III.


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86



Database and Methodology

The present study is based on the advertisement

expenditure and sales revenue data of 134

randomly selected sample companies operating

in India (Annexure-I). The secondary data used

in the present study is panel or pooled in natureand collected from PROWESS (2009) of Centre

for Monitoring Indian Economy, New Delhi,

India for the period 1992/93 to 2006/07. The

term advertisement expenditure, here, includes

expenses on advertisement as well as all other

expenditure incurred under the head of marketing

expenses like publicity, promotion expenses, etc.

In this Panel data based study Fixed Effect

approach with and without dummy variables

are applied to evaluate the effectiveness of

advertisement expenses on sales revenue. Further,

annual compound growth rates (ACGR) and

summary statistics are also estimated. With

the purpose to study the behaviour of different

categories of companies, the randomly selected

companies operating in India are classied on

the basis of sales revenues and type of product

produced. Accordingly, Type-1 companies are the

companies whose sales revenue is less than Rs. 1000

cr and Type-2 companies are the companies whose

sales revenue is more than Rs. 1000 cr. Further,Type-3 companies are manufacturing companies

and Type-4 companies are non-manufacturing

companies, which includes a combination of agro,

food, service based units, etc.

MODEL-1 Simple Fixed EffectModel

LnSit

= a0

+ b1LnA

it+ u

it

Where, S= Sales Revenue, A= Advertisement

Expenses, Ln = Natural Logarithm, uit =

Stochastic term

MODEL-2 Differential InterceptDummy Variable Model

The present model is used to study sales and

advertisement relationship for the Type-1 and

Type-2 as well as Type-3 and Type-4 companies. In

intercept dummy variable model, slope coefcient

beta (b1) is assumed to be the same for two groups.

The hypothesis to be tested, here, is there is no

difference in the relationship between groups

(Ramanathan, 2002).

LnSit

= a0

+ a1D

1+ b

1Ln A

it+ u

it

D1= 0 for Type-1 companies, D

1= 1 for Type-2

companies.

LnSit

= a0

+ a1D

2+ b

1LnA

it+ u

it

D2= 0 for Type-3 companies, D

2= 1 for Type-4

companies.

MODEL-3 Differential Slope

Dummy Variable ModelIn this model, the possibility that the slope

coefcient (b1) may be different for different types

of companies has been studied. It is assumed

that the intercept term a0 is unchanged. Since

the intercept term is assumed to be the same, the

regression line starts from the same point but may

have different slopes.

LnSit

= a0

+ b1LnA

it+ b2LnA

it*D

1+ u

it

D1 = 0 for Type-1 companies, D1 = 1 for

Type-2 companies.

LnSit

= a0

+ b1LnA

it+ b

2LnA

it*D

2+ u

it

D2

= 0 for Type-3 companies, D2

= 1 for

Type-4 companies.

Results and Discussion

The basic characteristic of the variables under

study is delineated in Table I in the form of

summary statistics. The average expenditure on

advertisement is Rs. 8684.26 cr and similarly the

average sales revenue is Rs. 383509.45 cr during

the period under study. Further, it is highlighted

that high variation has been experienced for the

sales revenue of randomly selected 134 companies;

however in case of advertisement expenditure the

variation is comparatively low.


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TABLE 1 . SUMMARY STATISTICS OF

SALES REVENUE AND ADVERTEMENT

EXPENSES

(Amount in Rs. Cr.)

Summary

StatisticsSales Revenue

Advertisement

Expenses

Mean 383509.45 8684.26

Median 336491.26 8536.23

Minimum 102746.7 5450.95

Maximum 927601.79 12474.06

StandardDeviation

240470.21 2059.54

Coefcient of

Variation62.71 23.72

No. of Firms 134 134

Source: Calculated from the data available at Prowess

(2008), CMIE

TABLE 2. SUMMARY STATISTICS OF

SALES REVENUE AND ADVERTISEMENT

EXPENSES FOR TYPE-1 AND TYPE-2

COMPANIES

(Amount in Rs. Cr.)

Summary

Statistics

Type-1

Sales

Revenue

Type-1

Adverti-

sement

Expenses

Type-2

Sales

Revenue

Type-2

Adver-

tisement

Expenses

Mean 16274.96 546.51 367234.49 8137.76

Median 17388.33 650.66 318720.74 7859.29

Minimum 7994.96 198.89 94751.74 7632.71

Maximum 23932.1 780.18 903669.69 11693.88

Standard

Deviation4534.13 194.07 236385.16 2124.30

Coef-

cient of

Variation

27.86 35.51 64.37 26.11

No. of

Firms79 79 55 55

Source: Same as in the table I

TABLE 3. SUMMARY STATISTICS OF

SALES REVENUE AND ADVERTISEMENT

EXPENSES FOR TYPE-3 AND TYPE 4

COMPANIES

(Amount in Rs. Cr.)

SummaryStatistics

Type-3Sales

Revenue

Type-3Adverti-sement

Expenses

Type-4Sales

Revenue

Type-4Adverti-sement

Expenses

Mean 366708.22 8208.97 16801.23 475.29

Median 317117.55 7910.52 19373.71 496.26

Minimum 97460.53 4914.55 5286.17 127.79

Maximum 905304.8 11602.15 22296.99 871.91

StandardDeviation

190635.27 2092.81 5123.45 243.55

Coef-cient of

Variation51.99 25.49 30.49 51.24

No. ofFirms

109 109 25 25

Source: Same as in the table I

The summary statistics of different companies

exhibits that the average sales are more in case of

Type-2 companies i.e. the companies whose salesrevenue is greater than Rs. 1000 cr. Further, the

mean expenditure on advertisement is reected

more in case of Type-3 companies, i.e. the

manufacturing companies. The coefcient of

variation in case of sales revenue is maximum

for Type-2 companies and in case of advertising

expenses it is higher in Type-4 companies i.e. non-

manufacturing companies.

The study of sales revenue and advertisement

expenses at aggregate and disaggregate level

can help to sketch more precisely its nature and

behaviour during the period under study. The total

sales revenue and advertisement expenditure of

selected companies operating in India presented

in Figure I shows that total sales for the period

under study are increasing continuously. The

sales were at Rs.102746.7 crore in 1992/93 and

it had rapidly increased to Rs. 927601.79 crore

during the nancial year 2006/07. This is being


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88



reected by the 16.0 per cent ACGR of total sales

revenue over the period of study (refer table IV).

Further, it is apparent from gure I that during the

initial period of study total advertising expenses

of selected companies are increasing but later on

during 1994/95 the trend was reversed and similar

tendency was observed during 1997/98 to 2000/01periods and after which it increased continuously

till 2006/07. This uctuation of advertisement

expenses over the study period is conrmed by

low ACGR of advertisement expenses, which is at

the level of -0.6 per cent (refer table IV).

necessary to examine the advertisement expenditure

in relation to the size of the companys sales

revenue. Accordingly, the share of advertisements

expenses to the sales revenue of selected companies

is presented in gure II, displays a downward

trend except during 1997/98 to 1998/99. This may

be due to the presence of companies which eitherdue to its size or scale or degree of maturity are

spending less on advertisements. The reasons like

awareness among people regarding the availability

of products, economies of scales and services may

also be attributed to it.

Sales Revenue

Companies Type-1 Type-2 Type-3 Type-4 Total

ACGR 6.8 16.5 16.4 7.9 16.0

R2 .84 .99 .99 .69 .98

t- value 127.20* 235.60* 247.57* 71.22* 233.85*

Advertisement Expenses

Com-panies

Type-1 Type-2 Type-3 Type-4 Total

ACGR 9.3 -1.1 -1.2 14.4 -.6

R2 .76 .03 .04 .95 .01

t- value 72.85* 58.81* 60.83* 118.88* 65.44*

10.00

8.00

6.00

4.00

2.00

0.00

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Share of Advertisement Expenses to

Sales of Selected Companies

ShareofAdvertisementExpensesto

Sales

Year

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

30000

25000

20000

15000

10000

5000

0

Type 1 Companies Sales

Years

SalesoftheType1

Companies

1000000

900000

800000

700000

600000

500000

400000

300000200000

100000

0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


Years

SalesofTy

pe2Companies

Source: Same as in the gure I

First part of gure III reects the sales revenue

behaviour of Type-1 companies i.e. companies

whose sales revenue is less than Rs. 1000 crore.

During 1992/93 the sales revenue of these

companies were at Rs. 7994.96 crore and the sales

revenue for these types of companies has increased

continuously at an ACGR of 6.8 per cent (refer

table IV). Further, the gure III infers that the sales

revenue of Type-2 companies i.e. the companies,

whose sales revenue is more than Rs. 1000 crore,

is increasing monotonically and rapidly. The sales

revenue was at Rs 94751.74 crore in 1992/93 and

it has increased to Rs.903669.69 crore in 2006/07

Source: Same as in the table I.

Note: (i) * t- values are signicant at 1 per cent level of

signicance.


The size of advertisement expenditure incurred

by the companies itself may be important, but it is


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at the ACGR of 16.5 per cent (refer table IV), as

these are the companies which are well established

in the market. The high R2 and t-values are also

signicant which further validate the results.

Figure IV shows that there is consistent increase

in advertising expenses of Type-1 companies

till 2001/02 but afterwards it decreased during2002/03 but later on it started following the earlier

pattern. The ACGR of advertisement expenses for

the whole period under study is 9.3 per cent (refer

table IV).


On the same lines, second part of gure VI

reects that there is consistent increase in the

advertising expenses of Type-4 companies and

ACGR for these type of companies is estimated

at 14.4 per cent which shows that this class of

companies are using advertisement expenses for

increasing their sales revenue. At the same time,the rst graph of gure VI gives the evidence of the

volatile behaviour of the advertisement expenses

of randomly selected manufacturing companies

i.e. Type-3 companies due to which ACGR of

advertisement expenses of Type-3 companies

is -1.2 per cent. It infers that in case of Type-4

companies, continuous attention is being paid on

the spending of advertisement expenditure, while

in case of Type-3 companies this element is not

considered regularly, however, the sales revenue

of Type-3 companies are increasing continuously.

It may be due to this reason that when companies

are new they advertise heavily so as to establish

some position in the market and to create some

image in the minds of consumers. But when the

companies are established in the market then

they advertise just to give a reminder regarding

their presence in the market. So, they advertise

less but their sales increase due to economies of

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Years

1000

800

600

400

200

0

Type 1 Companies Advertisement

Expenses

AdvertisementExpensesofType1

Companies

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

14000

12000

10000

8000

6000

4000

2000

0


Expenses

Adver

tisementExpensesofType2

Companies


While in case of Type-2 companies 1992/93 to

2000/01, the erratic behaviour of advertisement

expenditure can be noticed and it exhibits a negative

growth (-1.1 per cent).However, still the growth

rate of sales revenue of both types of companies is

positive and signicant and that can be due to the

reasons such as the reputation of company, brand

name, product quality, etc. On the other side, from

the gure V, it is quite clear that there is consistent

increase in sales of Type-3 companies during the

period under study and ACGR of the same during

this period is 16.4 per cent, while for Type-4

companies it was 7.9 per cent.


SalesofType3Companies

1993

1995

1997

1999

2001

2003

2005

2007

Years

1000000

900000

800000

700000

600000

500000

400000

300000

200000

100000

0


1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Sale

sofType4Companies

Years

25000

20000

15000

10000

5000

0



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90



Furthermore, the share of advertisement expenses

to sales revenue for Type-3 and Type-4 companies

revealed a very contrasting picture and same is

presented in Figure VIII.

scale with the determinants like the reputation

of the company, brand name, product quality

etc. Advertising expenses growth rate in case of

Type-3 companies is also negative and this, as

said earlier, may be due to the reasons that these

are well established rms and invested a lot for

advertisements in the beginning and afterwardsthe growth of investment under this head become

slower

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

Year

14000

12000

10000

8000

6000

4000

2000

0


Expenses

A

dvertisementExpensesofType3

Companies

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

1000

800

600

400

200

0


Expenses

AdvertisementExpensesofType4

Companies

Source: Same as in gure I

Similarly, the share of advertisement expenses

to total sales revenue for Type-1 and Type-2

companies is drawn in Figure VII, exhibits that

the share of advertisement expenses to total sales

revenue for Type-1 companies has remained

almost constant till 1996/97. Afterwards it has

shown an increasing trend at a slow rate till

2000/01, thereafter it has displayed, in general,

downward trend. While on the other hand, share

of advertisement expenses to sales for Type-2

companies is demonstrating a downward trend

except during the time period between 1997/98

and 1999/00, afterwards it has remained constant.

It may be because of this reason that Type-2

companies due to their size started enjoying

benets of economies of scale and the expenses

on advertisement display a downward trend.

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00

1993

1995

1997

1999

2001

2003

2005

2007


Sales for Type 1 Companies

ShareofAdvertisementExpensestoSales

Years

10.00

8.00

6.00

4.00

2.00

o.oo

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


Sales for Type 2 Companies

Year

ShareofAdvertisementExpensesto

Sales

Source: Same as in the gure I.

In case of Type-4 companies the share ofadvertisement expenses to total sales revenue

has shown less volatility as compared to Type-3

companies. The reasons attributed for this may be,

as discussed earlier, that many of the companies

of Type-3 are established ones. Due to which they

need to spend less consistently on advertisement

that also just to give a reminder regarding their

presence in the market for their customers.

The results of the regression for Model-1 i.e. in

equation 1 reveal that the coefcient related to the

advertising expenditure is signicant at 1 per cent

level of signicance. From the results, it can be

seen that there is a strong and positive relationship

between sales revenue and advertisement expenses.

The advertising elasticity coefcient 0.657 in

equation 1 for 1992/93-2006/07 explains that 1

per cent increase in advertising expenditure leads

to 0.657 per cent increase in sales. Positive and

statistically signicant intercept values reveal that


9/14



even if the advertisement becomes zero, there will

be some amount of sales. This means that factors

other than advertising which determine the sales

revenue like the competitors price, the reputation

of the company, brand name, product quality, etc.

become operative.

Model -1 Simple Fixed EffectModel

Ln Sit= a

0+ b

1Ln A

it+ u

it

Ln Sit

= 4.681 + 0.657Ln Ait

----------------

------- Equation (1)

(134.61)* (53.63)*

R=0.76, R2=0.58, N=134

Note: (i) t-values are given in the

parentheses.

(ii)* t- values are signicant at 1 per

cent level of signicance

The dummy variable was introduced to test

whether the relationship between advertising

expenses and sales revenue is different for various

categories of companies. The results in the equation

2 show that the coefcients of dummy variable are

statistically signicant revealing the existence of

difference in relationship of advertising expensesand sales revenue between the Type-1 and Type-2

companies. The results show that the coefcient of

determination, i.e., R2, has improved substantially

in the case of dummy variable model. Higher

coefcient for the dummy variable reveals that the

intercept term for the Type-2 companies are much

higher as compared to the Type-1 companies.

The Type-2 companies sell more for the same

level of advertisement as compared to Type-1

companies. This may be due to the reason that

the Type-2 companies are better placed, as sales

revenue are high, in respect of reputation, brand

name and sales promotion as compared to Type-1

companies. Therefore, they sell more for a given

level of advertising expenditure.

Model -2 Differentials InterceptDummy Variable Model

Ln Sa)it

= a0+ a

1D

1+ b

1Ln A

it+ u

it

Ln Salesit

= 4.391 + 1.578 D1

+ 0.454LnA

it -------------------- Equation (2)(138.78)* (35.23)* (27.09)*

R=0.83, R2=0.69, N=134

Ln Sb)it

= a0+ a

1D

2+ b

1Ln A

it+ u

it

Ln Salesit

= 4.767 0.417 D2

+ 0.652 Ln

Ait

-------------------- Equation (3)

(127.34*) (-5.99)* (53.523)*

R=0.77, R2=0.59, N=134

Note: (i) t-values are given in the

parentheses.

(ii)* t- values are signicant at 1 percent level of signicance.

The equation 3 shows the result of intercept shift

dummy variable model in the case of Type-3 i.e.

manufacturing companies and Type-4 companies

i.e. non-manufacturing companies, which

includes a combination of agro, food, service,

etc. kind of industries. The explanatory power

of the model is satisfactory. All the coefcients

are statistically signicant at 1 per cent level.However, the coefcient of dummy variable is

negative. The negative coefcient reveals that the

intercept term of Type-4 is lower than that of the

Type-3 companies, which implies that the Type-4

companies sell less for a given level of advertising

expenses as compared to the Type-3 companies

assuming that the slope coefcient is same for

both the categories.

Model -3 Differential Slope

Dummy Variable Model

a) Ln Sit

= a0+ b

1Ln A

it+ b

2Ln A

it*D

1+ u

it

Ln Sit

= 4.61 + 0.394Ln Ait

+0.385Ln

Ait*D1--- Equation (4)

(144.42)* (22.60)* (19.66)*

R=0.81, R2=0.65, N=134

b) Ln Sit

= a0

+ b1Ln A

it+ b

2Ln A

it*D

2+


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92



uit

Ln Sit

= 4.60 + 0.689Ln Ait

0.215Ln

Ait*D

2--- Equation (5)

(136.77)* (54.29)* (-8.16)*

R=0.77, R2=0.61, N=134

Note: (i) t-values are given in the parentheses.(ii)* t- values are signicant at 1 per centlevel of signicance

The Model-3 is being estimated to study whether

there is any divergence between various categories

of companies with respect to the effectiveness

of advertising expenses on sales revenue. The

equation 4 gives the results of Model-3, which is

based on the shift in the slope coefcient of the

model. The results show that all the coefcients

are statistically signicant at 1 per cent level

and the R2 is also satisfactory. The coefcient of

dummy variable (D1) representing the shift in the

slope variable is highly signicant revealing that

in the case of Type-2 companies, the advertising

elasticity is higher as compared to the Type-1

companies, i.e., for a given level of advertising

expenses, the increase in sales revenue is more for

Type-2 companies than the Type-1 companies.

The advertising effectiveness is higher for

Type-2 companies as they can afford to advertise

more effectively in relation to the Type-1companies. The absolute volume of advertising

in the case of Type-2 companies is very high

and a marginal change in advertising also found

to be more effectual. The Type-2 companies can

do better use of marketing expenses than the

Type-1 companies and can make the advertising

more result-oriented and avail the economies of

advertising as they continue to advertise for a

long period and deal in large volumes. Further, the

above model i.e. Model-3 also presents the results

of slope shift dummy variable model with respect

to Type-3 and Type-4 companies through equation

5. All coefcients including the coefcients of

dummy variable are statistically signicant. The

results are very interesting as the coefcient

of dummy variable is negative. The negative

coefcient reveals that the increase in sales as a

result of increase in advertising expenses is less

for Type-4 companies i.e. the effectiveness of

advertisements are more for Type 3 companies

comparatively, which indicates the less effective

use of advertisement expenses in terms of sales

revenue for Type-4 companies as compared to

Type 3 companies and Type 4 companies need to

spend more advertisement expenses to have the

same level of sales revenue. Due to which, theyspend more on advertisement as compared to

Type-3 companies. This is also veried by having

a glance on Figure VI and Figure VII, which as

discussed earlier portray an increasing tendency

of advertisement expenses for these type of

companies.

Conclusions and Implications

Advertisement is a persuasive communication

which attempts to change or reinforces ones prior

attitude and it is basically done not only to inform

customers about products, rather it is a process,

which further inuences and persuades customers

to purchase the product. The study is based on

secondary data collected for the advertisement

expenditure and sales revenue of 134 randomly

selected companies operating in India The data is

collected from PROWESS (2008) of Centre for

Monitoring Indian Economy, New Delhi, India for

the period from 1992/93 to 2006/07. In this studyfor Panel or Pooled data, Fixed Effect Model with

and without dummy variables are used to evaluate

the effectiveness of advertisement expenses on

sales revenue. Further, annual compound growth

rates and summary statistics are also estimated.

The randomly selected companies for the present

study are classied on the basis of sales revenues.

The study has found that the growth rate of sales

revenue of Type-2 and Type-3 companies is highest

in their respective categories notwithstanding

the negative annual compound growth rates of

advertising expenses of these two companies. The

reason for increase in sales of these companies

can be due to the factors such as the reputation

of the company, brand name, product quality, etc.

This is also reinforced by Model-1 and Model-2,

which have demonstrated the presence of positive

and statistically signicant intercept values. It

exhibits that factors other than advertising are also


11/14



in operation and therefore, determine the sales

revenue of company besides the advertisement

expenses. The Type-4 companies i.e. non-

manufacturing companies sell less for a given

level of advertising expenses as compared to Type

-3 companies i.e. manufacturing companies. It

infers that Type 4 companies are less efcient inmaking utilisation of its advertisement expenses

as compared to Type 3 companies.

The ndings of the present study indicate

the existence of complex relationship between

advertisement expenses and sales revenue of the

companies. How much advertisement expenses

have to be incurred depends to a large extent

on the nature and size of industries i.e. whether

one is operating a large scale rm/small rm or

manufacturing/non-manufacturing rm. The

companies which are operating at a large scale

can better utilise their marketing expenses due

to the economies of scale and hence can be more

result oriented for a longer period of time. While

for companies functioning in non-manufacturing

sector the effectiveness of advertisements is less.

So, these kind of rms need to acknowledge that

increase in advertisement expenses may not bring

the same degree of sales revenue to them, which

can be for organisations operating in manufacturing

sector. It is to be taken into consideration thatadvertisement expenses is not the only factor

to determine sales revenue of an organisation.

Advertisement expenses are one of the various

factors, though crucial, which determine sales

of any company through increasing popularity

of products/services among customers. So, the

organisations need to take care of this factor,

while formulating their strategies relating to the

spending of advertisement expenses.

It can be wrapped up by stating that

advertisement is considered as one of the most

important medium of communication inuencing

the organisations performance in more than one

ways. But its inuential role may be suppressed

by the operation of other factors which also seeks

equal attention at the time of framing of any sales

promotion policy.

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Annexure - I

List Of Randomly Selected 134 Companies Of Indian

Corpotrate Sector

3M INDIA LTD.1.

ABHISHEK INDUSTRIES LTD.2.

ANIK INDUSTRIES LTD.3.

APEEJAY TEA LTD.4.

APEEJAY SHIPPING LTD.5.

ASIAN ELECTRONICS LTD.6.

ASSAM CO. LTD.7.

ASSOCIATED STONE INDS.8.

(KOTAH) LTD.

AVAYA GLOBALCONNECT LTD.9.

B P L LTD.10.

BHARAT BIJLEE LTD.11.

BHARAT FERTILISER INDS. LTD.12.

BHARAT GEARS LTD.13.

BHARAT HOTELS LTD.14.

BIRLA POWER SOLUTIONS LTD.15.

BIRLA PRECISION16.

TECHNOLOGIES LTD.

BIRLA TRANSASIA CARPETS17.

LTD.

BIRLA V X L LTD.18.

BOMBAY BURMAH TRDG.19.

CORPN. LTD.

BOMBAY CYCLE & MOTOR20.

AGENCY LTD.

BOMBAY DYEING & MFG. CO.21.

LTD.

BOMBAY PAINTS LTD.22.

BRABOURNE ENTERPRISES LTD.23.

CHLORIDE INTERNATIONAL24.

LTD.

CONSOLIDATED FINVEST &25.

HOLDINGS LTD.

ELECTRONICA MACHINE TOOLS26.

LTD.

ELECTROTHERM (INDIA) LTD.27.

EUROTEX INDUSTRIES &28.

EXPORTS LTD.

EVEREADY INDUSTRIES (INDIA)29.

LTD.

FOSECO INDIA LTD.30.

GANDHI SPECIAL TUBES LTD.31.

GODREJ AGROVET LTD.32.

GODREJ INDUSTRIES LTD.33.

GREAVES COTTON LTD.34.

GULF OIL CORPN. LTD.35.

H E G LTD.36.

H M T (INTERNATIONAL) LTD.37.

H M T BEARINGS LTD.38.

H M T LTD.39.

HARRISONS MALAYALAM LTD.40.

HINDUSTAN BREWERIES &41.

BOTTLING LTD.

HINDUSTAN COMPOSITES LTD.42.

HINDUSTAN DORR-OLIVER LTD.43.

HINDUSTAN EVEREST TOOLS44.

LTD.

HINDUSTAN ORGANIC45.

CHEMICALS LTD.

HINDUSTAN SANITARYWARE &46.

INDS. LTD.

HINDUSTAN TIN WORKS LTD.47.

HYDERABAD INDUSTRIES LTD.48.

I F B INDUSTRIES LTD.49.

INDIAN SUCROSE LTD.50.

J C T LTD.51.

JAY SHREE TEA & INDS. LTD.52.

JINDAL DRILLING & INDS. LTD.53.

MAHINDRA UGINE STEEL CO.54.

LTD.

MILKFOOD LTD.55.

NAHAR INVESTMENTS &56.

HOLDING LTD.

NAHAR SPINNING MILLS LTD.57.

NOVARTIS INDIA LTD.58.

OSWAL CHEMICALS &59.

FERTILIZERS LTD.

PANASONIC BATTERY INDIA60.

CO. LTD.

PANASONIC HOME APPLIANCES61.

INDIA CO. LTD.

RAJSHREE SUGARS &62.

CHEMICALS LTD.

RAYMOND APPAREL LTD.63.

RELIANCE CHEMOTEX INDS.64.

LTD.

SANDESH LTD.65.

SHARP INDIA LTD.66.

SINGER INDIA LTD.67.

SUPER FORGINGS & STEELS68.

LTD.

SUPER SALES INDIA LTD.69.

SUPER SPINNING MILLS70.

LTD.

SUPERTEX INDUSTRIES LTD.71.

SURYAJYOTI SPINNING MILLS72.

LTD.

SURYALAKSHMI COTTON MILLS73.

LTD.

SURYALATA SPINNING MILLS74.

LTD.

SURYAVANSHI SPINNING MILLS75.

LTD.

TATA COFFEE LTD.76.

TATA REFRACTORIES LTD.77.

TAYO ROLLS LTD.78.

UNIVERSAL CABLES LTD.79.

A B B LTD.80.

A C C LTD.81.

AGRO TECH FOODS LTD.82.

APAR INDUSTRIES LTD.83.

APOLLO TYRES LTD.84.

ASIAN PAINTS LTD.85.

B E M L LTD.86.

BHARAT ELECTRONICS LTD.87.

BHARAT FORGE LTD.88.

BHARAT HEAVY ELECTRICALS89.

LTD.

BHARAT PETROLEUM CORPN.90.

LTD.

BIRLA CORPORATION LTD.91.

BRITANNIA INDUSTRIES LTD.92.

CADBURY INDIA LTD.93.

CASTROL INDIA LTD.94.

CENTURY ENKA LTD.95.

CENTURY TEXTILES & INDS.96.


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96

School of Doctoral Studies (European Union) Journal July 2009 No 1


LTD.

CIPLA LTD.97.

CUMMINS INDIA LTD.98.

DABUR INDIA LTD.99.

ELECTROSTEEL CASTINGS100.

LTD.

EXIDE INDUSTRIES LTD.101.

FORCE MOTORS LTD.102.

GLAXOSMITHKLINE103.

CONSUMER HEALTHCARE

LTD.

HERO HONDA MOTORS LTD.104.

HINDALCO INDUSTRIES LTD.105.

HINDUSTAN PETROLEUM106.

CORPN. LTD.

HINDUSTAN UNILEVER LTD.107.

HINDUSTAN ZINC LTD.108.

LTD.

R S W M LTD.122.

RANBAXY LABORATORIES123.

LTD.

RAYMOND LTD.124.

RELIANCE ENERGY LTD.125.

RELIANCE INDUSTRIES LTD.126.

SINTEX INDUSTRIES LTD.127.

SURYA ROSHNI LTD.128.

TATA CHEMICALS LTD.129.

TATA COMMUNICATIONS130.

LTD.

TATA MOTORS LTD.131.

TATA POWER CO. LTD.132.

TATA STEEL LTD.133.

TATA TEA LTD134.

I T C LTD.109.

INDIAN OIL CORPN. LTD.110.

ISPAT INDUSTRIES LTD.111.

JINDAL SAW LTD.112.

KIRLOSKAR BROTHERS LTD.113.

MAHANAGAR TELEPHONE114.

NIGAM LTD.

MAHINDRA & MAHINDRA115.

LTD.

MARUTI SUZUKI INDIA LTD.116.

MICRO INKS LTD.117.

N T P C LTD.118.

NAHAR INDUSTRIAL119.

ENTERPRISES LTD.

NESTLE INDIA LTD.120.

PHILIPS ELECTRONICS INDIA121.

sales vs advertisement case study

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