ABSTRACT
Advertising is a prominent feature of modern business operations. One could encounter advertising messages, while watching TV, reading magazines, listening to the radio, surfing the internet or even simply working down the street, as advertising has a stimulating influence on purchasing behavior of the consumers. Empirical evidence has proven that advertising increases sales revenue of firms. Advertising provides a platform for firms to create awareness about their products or services and how consumers could make the best out of such products. This study evaluated the effectiveness of advertising expenses on the sales revenue and profitability of selected food and beverages firms in Nigeria. This study was based on secondary data collected for advertising expenditures, sales and profit of food and beverages companies listed in the Nigerian Stock Exchange over the period of 2004 to 2017 from the annual report and accounts of the firms under study. Among the objectives of the study is to determine the extent to which advertising costs impact on the sales revenue and profitability of the selected food and beverages companies in Nigeria. Correlational and Ordinary Least Square regression analysis study designs were adopted for the study. The first hypothesis test showed that advertising expenses has no positive significant relationship with the sales revenue of the companies. Further, the second hypothesis test showed a positive significant relationship between advertising and the profitability of the firms. This study concluded that advertising is one of the most important medium of communication influencing the companies‟ performance in more than one ways. But its influential strategic importance could be suppressed by other factors which also try to receive equal attention at time of deciding any sales and profitability strategy. It is therefore recommended that not only advertising should be given adequate attention while formulating strategies relating to sales and profitability promotion policy. Other factors which are important to increasing sales revenue and profitability such as sales promotion, personal selling, publicity etc which are crucial should be considered.
TABLE OF CONTENTS
Cover page i
Title page ii
Declaration page iii
Certification iv
Dedication v
Acknowledgement vi
Table of contents vii
List of tables ix
Abstract x
CHAPTER
ONE
INTRODUCTION
1.1 Background
to the study 1
1.2
Statement of the Problem 3
1.3
Objectives
of the Study 4
1.4
Research
Questions 5
1.5
Statement
of Hypotheses 5
1.6
Significance of the Study 5
1.7
Scope of the Study 7
1.8
Limitation of the Study 7
1.9
Definition of Terms 8
1.9.1 Advertising
8
1.9.2
Brand
equity 8
1.9.3 Brand
loyalty 8
1.9.4 Carryover
8
1.9.5 Expenses
9
1.9.6 Strategy
9
1.9.7
Profitability
9
CHAPTER
TWO
LITERATURE
REVIEW AND THEORETICAL FRAMEWORK
2.1 Introduction 10
2.2 The Concept of Advertising 10
2.3
Objectives
of Advertising 12
2.4
Criteria for Setting Advertising
Objectives 13
2.5
Developing Advertising Message 16
2.5.1
Perception 16
2.5.2 Business
Publication 17
Factors that
Determine the Choice of Media 18
2.6
Functions of Advertising 22
2.7
Types of Advertising 24
2.8
Testing of the Advertisement 27
2.9
Criticisms of Advertising 28
2.10
Measuring Advertising
Effectiveness 30
2.11
Developing and Managing an Advertising Program 31
2.12
Deciding on the Advertising
Budget 31
2,14
Empirical Review 36
2.15
Theoretical Framework 39
2.15.1
The sales effect model 39
2.15.2
The dynamic theory of profitability 40
2.16
Summary 41
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1 Introduction 43
3.2 Research Design 43
3.3 Population and Sample of the Study 43
3.4
Sources and Method of Data
Collection 44
3.5
Technique of Data Analysis 44
3.6
Model Specification and Development 46
3.7
Justification of the methods 47
3.8
Summary 47
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1
Introduction 48
4.2
Data Presentation 48
4.3
Descriptive Statistic 49
4.4.1
Test of Null Hypothesis One (Ho1) 50
4.4.2 Test of Null Hypothesis Two (H02) 52
4.5
Discussion of Findings 53
4.6
Summary 54
CHAPTER
FIVE
SUMMARY,
COMCLUSION AND RECOMMENDATIONS
5.1 Summary 56
5.2 Conclusion 57
5.3 Recommendations 59
REFERENCES
APPENDIX
LIST
OF TABLES
Table 2.1: The Dimensions of
Advertising Media, Advantages and Limitations 21
Table 3.1: Variable Measurement 47
Table 4.1:
Annual Sales, PAT and Advert costs of selected Food and Beverages
Firms in
Nigeria from 2004 to 2017 48
Table 4.2: Descriptive statistic of
Variables 49
Table 4.3:
Stationarity Test 50
Table 4.4:
Summary of Results for the Test of Hypothesis One using Equation (1) 51
CHAPTER ONE
INTRODUCTION
1.1 Background
to the study
The role of sales promotion in the form
of advertising in promoting product and service awareness among consumers
cannot be overstressed. Advertisement provides a platform for firms to create
awareness about their products or services and how consumers can make the best
out of such products. Olusegun (2006) opined that all advertisement must be
honest and follow ethical standards and must not be perceived by the target
consumer as lie; otherwise it can batter the image of a company and hinder it
from building successful brands. Thus, for advertising to be effective, it must
have an appeal, attract attention, command interest, inspire conviction and
must provoke interest (Frank, 2005). In the same vein, Okeji (2008) posited
that a good advert message should not be boring but rather reflect the
lifecycle of the product. He concluded that advertising must be exposed in the
right medium as this will enable organization to reach the right people with
the right message.
A number of studies such as Herbert
(1982), Nigel (1994), Gladson and Chinedu (2005) and Meshach (2007) have shown
that advertising is a major competitive tool in establishing position in the
market place. Companies use advertising not only to market and promote their
products but to among other thing wade-off competitors, improve their brands
and create a vintage-point for their products in the presence of anticipated
users, buyers or clientele. Persons, organizations, groups, government agencies
and different sectors of many economies employ advertising to marshal messages
to target public. This is because a well-crafted advertisement program can be a
cost-effective way to disseminate messages and build brand preferences.
As is the trend globally, companies
in Nigeria also rely on sales promotion to get their existing and prospective consumers
informed about their products and services. Among all the tools of sales
promotion in Nigeria, advertising has grown over the years to become the most
prominent and easily understandable to firms and the general public (Haruna,
2005). It is therefore not surprising that resources committed to advertisement
by firms in Nigeria have grown astronomically over the years. Studies by Akanbi
and Adeyeye (2011) have posited that in Nigeria, advertising is more prominent
among manufacturing firms, especially those in the food and beverages sector as
awareness regarding their products can reach the consumers more rapidly through
this channel. They also argued further that the companies listed under food and
beverages sector stand distinct as a model for the use of advertisement to
rapidly reach out to consumers. This can be substantiated by the revelations
made by Kingsley (2012) who explained that Euro Monitor International in its
recent findings showed that the Nigerian food and beverages sector was ranked one
of the best-performing segments of Nigeria’s manufacturing industry. The
findings further revealed that operating capacity was generally at a higher
level in the sector than within the Nigerian manufacturing sector as a whole,
and the sector have shown good returns in the Stock Exchange.
Analysts such as Kingsley and Paul
(2009) have argued that even though the use of advertisement as a promotional
tool is common among manufacturing firms in Nigeria like food and beverages
firms committing huge sums of money into advertising companies do not
automatically translate to better performance indices for the organizations. It
has been argued that advertising, even when very extensive, does not lead
automatically to purchase because it is the culmination of a whole sequence of
events (Abiodun, 2011).
The foregoing has shown clearly that
advertising does not take place without the organization incurring some costs
to that effect. Hence, many are of the belief that the desirability or
otherwise of advertisement by firms in Nigeria could also be established when
it is related in the context of sales and the profits that advertising
companies realize at the end. Against this backdrop of controversy, it became
very pertinent to investigate the extent to which the advertising costs of
manufacturing firms in Nigeria affect their sales revenue and profits.
Consequently, this study was conducted with the intent of establishing the
extent to which the advertising costs of the food and beverages firms affect
their sales revenue and net profits.
1.10
Statement of the Problem
It is an established fact that
advertising plays a very significant role in creating product or service
awareness in the market place. David and James (1982) argued that advertising
is one easy way to educate existing and prospective consumers about a product
or service. Although it is common for people to relate the performance of a
company with the priority it gives to advertising, people tend to forget that
advertising budgets are a huge source of costs for the organization. In fact,
the amount of resources committed by firms to advertising has steadily grown
over the years because of the increased awareness and sophistication of
consumers (Kotler, 2009).
Companies in Nigeria,
particularly those in the manufacturing sector consider advertising as an
inevitable tool for survival in highly competitive market. Empirical evidence
has proven that most products in Nigeria have close substitutes that are either
locally produced or imported. This implies that companies would have to rely
heavily on advertising to create a brand and distinguish it from other products
in the minds of consumers. Thus, advertising in Nigeria has become the gateway
to survival and the acquisition of market share. However, the need for survival,
the desire to control larger market share and the dream of creating brand
loyalty in the minds of consumers have made successful manufacturing companies
in Nigeria, like the food and beverages firms, to pay much attention to
advertising programmes without recourse to the extent to which advertising has
been able to commensurately improve their performance.
Despite the fact that the
advertising budget of the food and beverages sector had grown over the years to
constitute a reasonable chunk of expenditure for the companies, little research
attention has been paid to the effect of such advertising costs on the sales
revenue and net profit of the firms in Nigeria. The study by Akanbi and Adeyeye
(2011) which sought to establish the effect of advertising on the sales volume
of Nigerian Bottling Company Plc utilizing composite data from the annual
accounts and reports of the Company from 1999-2009. This particular study is
unique and significant because it attempted to overcome the deficiencies of the
previous studies by intending to rise up to the current realities by utilizing
the data sought from Cadbury Nigeria Plc and Nestle Nigeria Plc both in food
and beverages sector in Nigeria from 2004 to 2017.The previous studies used
primary data which does not adequately capture relationships. Further, this
study equally tried to establish stationarity test for the secondary data
utilized for this study to avoid the results being spurious which the previous
studies had failed to establish. This study therefore hopes to fill these gaps.
1.11
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:
i.Determine the extent to
which advertising costs affect the sales revenue of selected food and beverages
firms in Nigeria.
ii.
Evaluate the effect of
the advertising costs on the net profit of selected food and beverages firms in
Nigeria.
1.12
Research Questions
Following from the statement of the
problem, the study seeks to find answers to the following basic questions:
i.
To what extent does
advertising costs affect the sales revenue of selected food and beverages firms
in Nigeria?
ii.
To what extent does
advertising costs affect the net profit of selected food and beverages firms in
Nigeria?
1.13
Statement of Hypotheses
The hypotheses to be
tested by the study; stated in the null form, are as follows:
HO1: Advertising costs have no significant effect
on the sales revenue of selected food and beverages
firms in Nigeria.
HO2: Advertising costs have no significant effect
on the net profit of selected food and beverages
firms in Nigeria.
1.14
Significance of the Study
The study expects to yield a number
of desirable benefits, the most essential of which is contribution to existing
knowledge. Specifically, the findings of the study would provide direction as
to the effect of advertising costs or expenditures on the sales revenue and
profit of manufacturing companies, especially those in the food and beverages
sector. Thus, the study is expected to contribute to the not-so-well-developed
body of knowledge regarding the association between advertising expenditures
and the sales and profitability of manufacturing companies in Nigeria by
empirically ascertaining the effect of such costs on the sales revenue and the
net profit of selected food and beverages firms. Similarly, the study also
hopes to expand the frontiers of knowledge in the area of conducting its
analysis through the use of techniques that have been hitherto overlooked by
previous researchers on the effect of advertising on the sales of companies in
Nigeria.
Despite the fact that the advertising
budget of the food and beverages companies had grown over the years to
constitute a reasonable chunk of expenditure for the food and beverages sector
in Nigeria, little research attention has been paid to the effect of such
advertising costs on the sales revenue and net profit of the companies in
Nigeria. The study by Akanbi and Adeyeye (2011) which sought to establish the
effect of advertising on the sales volume of the Nigerian Bottling Company Plc
utilizing composite data from the annual accounts and reports of the Company
from 1999-2009. This particular study is unique and significant because it
attempted to overcome the deficiencies of the previous studies by intending to
rise up to the current realities by utilizing the data sought from selected
food and beverages sector in Nigeria from 2004 to 2017. Further, this study
equally tried to establish stationarity test for the data utilized for this
study to avoid the results being spurious of which the previous studies failed
to establish.
The importance of the findings of the
study to the managers of manufacturing firms in Nigeria, especially those in
the food and beverages sector could not be quantified in that it would provide
evidence with respect to the justification of managers’ increased resource
commitment to advertising in Nigeria over the years. The findings would equip
managers with better insights on how to juxtapose the benefits of increase in
advertising expenditure vis-a-vis sales revenue and net profit. Furthermore,
the study was also expected to be of immense utility to shareholders whose
primary goal is to maximize their wealth. The findings of the study would help
shareholders in their bid to monitor managers and ensure that only costs that
could ensure the maximization of shareholders’ wealth were incurred by managers
on behalf of shareholders.
The outcome of the study might also
be of benefit to government and its agencies in the process of making
decisions. For instance, the findings of the study could guide the Advertising
Council of Nigeria to understand the burden that advertising might constitute
to the long-run growth and survival of firms in Nigeria, its benefit
notwithstanding.
1.15
Scope of the Study
This study is concerned with the
effect of advertising on the sales revenue and net profit of the selected food
and beverages companies in Nigeria. The study restricted itself to the food and
beverages firms in Nigeria because of the revelations by Kingsley (2012) which
explained that Euro Monitor International in its findings showed that the
Nigerian food and beverages sector was ranked one of the best-performing
segments of Nigeria’s manufacturing industry. The findings further revealed
that operating capacity was generally at a higher level in the sector than
within the Nigerian manufacturing sector as a whole, and the sector had shown
good returns in the Stock Exchange.
A period of thirteen years was
adopted for the study ranging from 2004-2017, both years inclusive. The choice
of the period has implications for the study because it is the period within
which manufacturing companies in Nigeria especially food and beverages firms in
Nigeria attached increasing importance to advertising programmes. Thus, by
implication, the period was chosen because manufacturing companies witnessed
increasing importance of advertising budgets during the period.
1.16
Limitation of the Study
One of the major limitations for this
study is the transportation cost incurred by the researcher. The data for this
study which were extracted from the annual reports and accounts of the companies
under study were gotten from the stock Exchange library. This entailed huge sum
of money to execute and had delayed the completion of this research beyond the
time frame set by the researcher.
Further, many number of firms under
the food and beverages sector would have been studied, but unavailability of
necessary data had been a source of stumbling block. The researcher had no any
other available option to him than to restrict the scope of this study to the
companies under study.
Finally, the findings from this study
could not be generalized across other firms since the data collected for this
study were limited to food and beverages firms in Nigeria.
1.17
Definition of Terms
The following terms were
in view of their technical meanings:
1.9.8 Advertising: It
is any paid message presented through various media, such as television, radio,
magazine, newspapers or billboards by an identified source.
1.9.9 Brand equity: It
is the marketing effects and outcomes that accrue to a product with its brand
name compared with those that would accrue if the same product did not have
brand name.
1.9.10 Brand loyalty: It
is referred to the strength of buyer’s preference for particular goods or
services usually resulting in repeat purchases.
1.9.11 Carryover: It
is the rate at which the effect of advertising expenditure wears out with the
passage of time.
1.9.12 Expenses: Expenses
are the costs of resources used up or consumed by the activities of the
business.
1.9.13 Strategy: It
means marketing actions by management to off-set actual or potential actions of
competitors
1.9.14 Profitability: It
is defined as either accounting profits or economic profits. Accounting profits
mean net income, while economic profits mean net worth.
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