Advertising & Profitability

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Fountain Journal of Management and Social Sciences: 2014; 3(1) 67-72

EFFECTS OF ADVERTISING ON ORGANIZATIONAL PROFITABILITY

*AREMU M. A1., OLODO H. B2., ABINA M. B3. and MUSA, A4.

Department of Business Administration, College of Management Sciences, AL-Hikmah University

AbstractThis study examines the effect of advertising on organizational profitability through the use of secondary data. The hypothesis was postulated and tested using Pearson Product Moment Correlation (PPMC). The finding shows that advertising has significant effect on organizational profitability and hence it concluded that the means employed by the organization has helped to increase the returns in terms of profit generated by the organization. It therefore recommended that management should endeavor to engage more in advertising activities so that they can have access to global market and company-wide awareness of their products.

Keywords: Advertising, Organizational Profitability, PPMC, Nigeria

IntroductionThe importance of marketing program in the development, growth and expansion of any organization is enormous

in any economy. Marketing is more than mere distribution of activities from manufacturer to the final consumer. In other words, producing goods and services alone does not guarantee growth and success, rather complimentary effort has to be taken in order to create the necessary awareness for the goods and services in the minds of both current and potential consumers. It is however made up of all stages between creation of the products and after sale services which follow the eventual sales and one of these stages is advertising. Thus, Advertising as a marketing tool is used by business organizationto inform consumer that the right product is available at the right place, right price and to convince the consumer to purchase them. Advertising comprises all messages that are paid for in the media owned and controlled by people other than the company making the advertisement Therefore; advertising must be tailored towards consumer’s satisfaction and organizational performance.

In spite of the impact of advertising on company’s sales volume, the role and effectiveness of advertising in achieving organization marketing objectives include increased sales volume which has become a subject of controversy among marketers, advertisers and business experts. While advertising is being criticized by some, on the other hand, argued in favour of advertising as a tool for increasing company’s sales and organizational profitability. The study examined the effect of advertising on organizational profitability.

*Corresponding author: Email address: [email protected]; [email protected]

A publication of College of Management and Social Sciences, Fountain University, Osogbo.Journal homepage: www.fountainjournals.com

ISSN: 2315 - 6325

Aremu et al.,

© 2014 FUJMAS. All rights Reserved 68

Literature Review

Theoretical Review

Hierarchy of Effects ModelThe hierarchy of Effects model was created in 1961 by Robert .J. Lavidge and Gary .A. Steiner. This marketing

communication model suggests that there are six steps from viewing a product advertisement (advert) to product purchase. The job of the advertiser is to encourage the customer to go through the six steps and purchase the product.

Awareness: The customer becomes aware of the product through advertising. This is a challenging step; there is no guarantee that the customer will be aware of the product brand after they view the advert. Customers see many adverts each day but will only remember the brand of a tiny fraction of products.

Knowledge: The customer begins to gain knowledge about the product for example, through the internet, retail advisors and product packaging. In today’s digital world, this step has become more important as customers expect to gather product knowledge at the click of a button. Customer will quickly move to competitor’s brands if they do not get the information they want. The advertiser’s job is to ensure that product information is easily available.

Liking: An advertiser should promote some features that will encourage customers to like his products.

Preference: Customers may like more than one product brand and could end up buying any one of them. At this stage, advertisers will want the customers to disconnect from rivals products and focus on their particular product. Advertisers will want to highlight their brands benefits and unique selling points so that the customer can differentiate it from competitor’s brands.

Conviction: This is about creating the customer’s desire to purchase the product. Advertisers may encourage conviction by allowing customers to test or sample the product.

Purchase: Here, the advertiser wants the customer to purchase their product. This stage needs to be simple and easy, otherwise the customer will get fed up and walk away. A variety of payment options encourages purchase whilst a complicate and slow website discourages purchase.

Lavidge and steiner suggested that the six steps can be split into three stages of consumer behaviors which are cognitive (consumer becomes product aware and gathers product knowledge), Affective (so that consumer likes the product brand and has conviction in it), and co native (so that the customer buys the product brand).

Awareness COGNITIVE

Knowledge

Liking AFFECTIVE

Preference

Conviction CONATIVE

Purchase

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Conceptual ReviewLubert (2001) defined advertising as very sensitive activity which does not only create product and corporate

awareness, but also create a long term relationship with consumer and strive towards profit maximization through increased sales. Kotler (2000) further defined advertising as one of the major marketing tools used by company to direct, persuade and communicate to the target market. Hence, according to Kotler, advertising consist of interpersonal or one way form of communication through paid media under identified sponsorship. Alonge, (2001), Fishbein, (2004), and Frederick, (2000) also defined advertising as any personal paid form of non-personal communication which is directed to the consumers or target audiences through various media in order to present and promote a product, services and idea.

Objectives of AdvertisingCrilley, (2003) believe it is incumbent on any marketing manager to develop an advertising objective

effectively, however in developing the programme, marketing manager must always start by identifying the target market and buyers motive. He also said that the main objective of advertising is to increase, boost and promote sale and seeks to aid acceptance of product; change behavior to stimulate change and create good will.

However, looking at it from another perspective, Shahid, (1999) identified six fundamental principles on which advertising campaign run - These include score attention; arousing of interest; developing and sustaining of interest; creating desire; inciting action and creating goodwill.

Thus, in essence, advertising objectives includes performance objectives what the advertisement should do and the audience with whom the firm wishes to communicate with. Setting objectives are important in order to evaluate the success of the advertisement and to learn what works and what does not particularly, since one can always observe immediate change in sales from advertising campaign.

Classification of AdvertisingAdvertising normally conforms to one of two basic types: Product Oriented or Institutional (Berkowitz et al, 1992).

Product-OrientedFocuses on the product or service being offered, whether for profit or not. Its prime task is to support the product in

achieving its marketing goals. Product-oriented advertising can itself take one of three alternative forms which are: pioneering; competitive and reminder and reinforcement advertising.

Pioneering AdvertisingThis is used in the early stages of the life-cycle when it is necessary to explain just what the product will do and

the benefits it can offer. Depending on the product’s newness, the prime emphasis might well be on stimulating basic generic demand rather than attempting to beat competition. In this case, the prime emphasis in the advertising is to provide enough information to allow potential buyers to see how this product might relate to them, and thus to stimulate enough interest to encourage further investigation and possibly trial.

Competitive AdvertisingThis is concerned with emphasizing the special features of the product or brand as a means of outselling the

competition. Usually, the seller seeks to communicate the unique benefits that distinguish the product and give its competitive edge.

Reminder and Reinforcement AdvertisingThis tends to operate after purchase. It reminds customers that the product still exists and that it has certain positive properties and benefits. This increases the chances of repurchases and sometimes might even persuade customers tolarger quantities.

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Institutional AdvertisingIt is not product specific. It aims to build a sound reputation and image for the whole organization to achieve a

wide range of objectives with different target audiences. These could include the community, financial stakeholders, government and customers, to name but a few.

Types of Advertising Media and their SelectionBefore proceeding to examine the advertising media, several basic terms need to be defined, based on Fill (1999).

These are:Reach: - Is the percentage of the target market that is exposed to the message at least once during the relevant period.

Reach is not concerned with the entire population, but only with a clearly defined target audience.Ratings: - Otherwise known as TVRs, measure the percentage of all households owning a television that are viewing at a

particular time. Ratings are a prime determinant of the fees charged for the various advertising slots ontelevision.

Frequency: - Is the average number of times that a member of the target audience will have been exposed to a mediavehicle during the specified time period.

Opportunity to see (OTS): - Describes how many times a member of the target audience will have on opportunity to seethe advertisement.

There are different types of advertising media and some of them are summarized below;Television: - Television’s impact can be high, as it not only intrudes into the consumer’s home but also offers a

combination of sound, colour, motion and entertainment that has a strong chance of grabbing attention andgetting a message across. Avoided that the television is switched on, the message in vision or at least sound isbeing delivered.

Radio: - Radio has always provided an important means of broadcast communication for smaller companies operatingwithin a restricted geographic area. While still not as important as television, in general terms radio can play avaluable supportive role in extending reach and increasing frequency. Despite being restricted to sound only,radio still offers wide creative and imaginative advertising possibilities.

Magazines: - The main advantage of a printed medium is that information can be presented and then examinedselectively at the reader’s leisure. A copy of a magazine tends to be passed around among a number of peopleand kept for quite a long time. There are different types of magazine carrying advertising. These are: general andnews-based magazines; special interest magazines; trade and technical journals: - which are targeted at specificoccupations, professions or industries.

Newspapers: The main role of newspaper is to communicate quickly and flexibly to a large audience.

Advertising and Organizational ProfitabilityProfit is the most important measure of the firm’s performance in the free market economy. The essence of

advertising is to get product, service or idea sold profitably. According to Lubert (2001) advertising is very sensitive activity which does not only create product and corporate awareness, but also create a long term relationship with consumer and strive towards profit maximization through increased sales. Therefore the impact of advertising cannot be over emphasized in the profit maximization of any company. Profit is a guide for allocating resources efficiently; therefore, it is important to evaluate the reasonableness and usefulness of profits plan and other budget and sales forecast prepaid by management.

Empirical ReviewDamerion (2000) carried out a survey, 50% of the interviewed said that advertisement gives them all

information they want on a product. Also more than 50% of respondent said that widely advertised products are the best he then concluded that without advertisement giving to customers; they would find it difficult to satisfy their wants. Mark (1998) in his research found out that 48% of Nigerians relied on adverts for information; the persuasive content of advertising, firms have succeeded, through their promotional efforts in creating a high degree of brand consciousness. Thus advertising plays a persuasive role in influencing the customer by building the image of a product when brand differences are minimal. Benson (1999), in his analysis of three brands of tooth paste stated that individual’s exposure to

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advertising in the market place is very glaring. Brand loyalty cannot be excluding as well because by means of advertising, firms have succeeded, through their promotional efforts in creating a high degree of brand consciousness. Thus advertising plays a persuasive role in influencing the customer by building the image of a product when brand differences are minimal. Benson (1999), in his analysis of three brands of tooth paste stated that individual’s exposure to advertising is correlated with individual brand preference. However brand preference according to him, is also affected by other forces, these include the age of household, satisfaction with old product and price. Thus, despite the negative effect attached to advertising, people still rely on it.

Research MethodologyThe methodology adopted in this study is quantitative in nature. Secondary data was used to carry out this

research. The secondary source of data was derived from the company’s annual report using the record on advertising expenses and profit. The method of data analysis used is Pearson Product Moment Correlation. The technique was employed to determine whether the variables are statistically independent or not. More specifically Pearson Product Moment Correlation was used to test the effect of advertising on organizational profitability.

Statement of Hypothesis HO: There is no significant relationship between advertising and profitability.

Data AnalysisThe data collected were analyzed and discussed using person product moment correlation co-efficient at

significant level of 0.05 for accepting or rejecting the hypothesis. Pearson Product Moment Correlation for the null hypothesis: that there is no significant relationship between advertising and profitability of the organization.

Table 1

Variable N X SD DF Cal r-value Critical value Decision

Organization Profit 6 12705861.7 249383.297 5 .849 .754 H0 RejectedAdvertising expenses 6 5046576.2 157039.716

Source: field survey (2014)

Discussion of FindingsFrom the table above, the Pearson Product Moment Correlation shows that the observed or critical value is

0.754 and the calculated value is 0.849. Thus, the calculated value is greater than the table value of 0.754 at 0.05%, so we reject the null hypothesis. Therefore, we accept the alternative hypothesis and conclude that there is significant relationship between advertising and organizational profitability. More so, organisation spend more on advertising their product and have a good rate of return as this have affect on profitability level.

Conclusion The study shows that advertising means employed by the organisation has helped to increase the returns in

terms of profit generated by the organisation. Also, the null hypothesis tested was rejected and alternative hypothesis is accepted that is there is significant relationship between advertising and organizational profitability. Thus, advertising has effect on the company’s organizational profitability.

Also, advertising and other factors such as sales promotion have really helped and has led to the increase in the profit of the organization. Thus, management should endeavor to engage more in advertising activities so that they can have access to global market and company-wide awareness of their products. More so, advertising can also be done through seminar and workshops to educate and initiate all categories of the employees on the different types of strategies to adopt for advertising. Also, the company should improve budget for advertising every year in order to enable them meet their primary aims and objectives, and for the purpose of continual evaluation and monitoring.

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ReferencesAchumba, I. (1996). The dynamic of consumer behaviour First Edition (Mac –Williams Publisher, Ltd).Alonge, O. A. (2001), Fishbein, M. (2004), & Frederick, H. (2000). Essential of commerce for secondary school,

Advertising Tonad Publishing Limited, Ikeja Lagos.Berkowitz, E.N., Kerin, R.A., Rudelius, W. (1992). Marketing (3rd ed.) Illinois:Irwin.Crilley J. (2003). ‘Public relations through word of mouth marketing” www.websitemarketingplan.com Fill, C. (1999). Marketing communications: context, contents and strategies, 2nd edition, Prentice Hall EuropeKotler, P. (2000). Marketing management millennium edition, (New Delhi, Prentice-hall India).Robert, J. L. & Gary, A. S. (1992). “model for predictive measurement of advertising effectiveness”, Journal of

marketing. 59-62Shahid, M. I. (1999). Mass Communication, 2nd Rev. Edition, Carvan Press, LahoresMark, D. U, Grahame, R. D., & Kathy, H. (1998). Customer loyalty and customer loyalty programmes’, Journal

of Consumer Marketing,Mpalo, B. (1999). Branding in a market economy: A legal view: Being a research project submitted to the university of

Zambia School of Law

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Advertising & Profitability