The Effect of Advertisement on the Success of a Business Organization
CHAPTER ONE
Objectives of the Study
The main objective of the study is to find out the impact of advertising on profitability of business organization.
Other objectives of the study are to;
- Determine the extent to which advertising costs impact profitability of business organization.
- Evaluate the impact of the advertising costs on the profit of Unilever Nigeria Plc.
- Identify the major merits and demerits of advertising.
- Get to know the concepts of advertising, forms of advertising, functions and criticism
- Explained the basic tools for measuring advertisement effectiveness.
- Identified the possible factors which can shape and determine the choice of advert media used by business organization in Nigeria.
Chapter two
literature review
Introduction
This chapter focused on the review of studies related to the variables of the study. It discussed the concept of advertising, its functions, 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. The chapter also presents the argument against the need for advertising and also explained the dynamic and monopoly theory of profitability as it relate to business. Lastly, theory of advertising such as persuasion theory, reason action theory and 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 (2000) 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.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter discussed the methodology of research by considering the research design and strategies that provide direction to the research, the population of study and the sample needed for analysis and making inference about the population. The chapter also discusses the sources and method data collection that the research will adopt in reaching a dependable solution to the research problem and provide answer to the research question. The method of data analysis and the reason for choosing the method of data analysis to examine the significance impact of advertising (independent/ predictor variable) on the profitability (dependent/ response variable) of business organization in Nigeria was also discussed.
Research Design
Research design represents a directional plan and guidelines with which a research is been coordinated. For the purpose of the study a quantitative correlational research design based on Mohammed and Aina, (2014) dichotomous design classification will be used. These approach to research design help us to identify the impact of one variable on the other. According to Mark et. al. (2009), correlation is referred to 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 profitability of the selected food and beverages firms in Nigeria.
Sources of Data Collection
According to Mohammed and Aina (2014:66) there are basically 2 types and sources of data collection namely;
Primary Data
The primary sources of data collection are data that are specifically gather for the purpose of a research at hand. The data originate first hand from the field study carried out by a researcher, the primary sources is used to complement the secondary source
Secondary Data
The secondary sources of data collection on the other hand are data which are previously gathered by another researcher for the purpose of his own study but which is found relevant and useful for the attainment of the current research objectives. The secondary source includes data on National population census, financial statement, data gotten from the bureau of statistics, literature review, journal, books etc.
For the purpose of the study the Data for the study was collected purely through secondary sources by extracting the relevant time series data from the Annual report and consolidated financial statement of the United Company for Africa for a time span of eleven years i.e. 2004 to 2014.
Chapter four
Data presentation, analysis and interpretation
Introduction
The previous chapter highlights the methodology to be applied in this research with respect to the research design, sampling technique, method of data analysis and justification for the method of data analysis. This chapter is the implementation aspect of the methodology stated in chapter three of this study. The chapter presents the data, analyze the data, interpret the result of the analysis and provide a summary of the finding based on the interpretation of result so as to arrive at a conclusion on the impact of advertising on profitability of business organization.
Data presentation
Here the data to be used for data analyses and for testing our set hypothesis will be presented, the data consist of advertising cost of Unilever Nigeria Plc which serve as the predictor or independent variable (x) and the profit after tax which is the response or dependent variable (y) over a time period (N) of 11 years 2004- 2014.
Chapter five
SUMMARY, CONLUSION AND RECOMMENDATIONS
Summary
Advertising is a tool which helps create awareness about a company product and services and make personal selling of good and services to the customer superfluous and easy. Effective advertising makes the entire marketing tool and mix more efficient, often lowering total marketing and selling costs. This study examined the impact of advertising on profitability of a business organization. The study commenced by establishing the gap that spurs this study. It was observed that advertising despite its numerous benefits to the organization with respect to increase in sales is still shrouded in ambiguity since some criticism against the use of advertising makes it less desirable. It is also discussed that advertising involve a sunk cost which is irrecoverable by business and that advertising often eat deep into the organization profitability. 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 actually understand the impact of such kind of expenditure on profit and the proportion of the change in Profit that is due to the increase/decrease in advertising cost of First company. The specific objectives of the study are as follows;
- Determine the extent to which advertising costs impact profitability of business organization.
- Evaluate the impact of the advertising on the profitability of Unilever Nigeria Plc.
- Identify the major merits and demerits of advertising.
- Get to know the concepts of advertising, forms of advertising, functions and criticism
- Explained the basic tools for measuring advertisement effectiveness.
- Identified the possible factors which can shape and determine the choice of advert media used by business organization in Nigeria.
In chapter two of this study the concept of advertising was discussed and the persuasion theory of advertising and the dynamic theory of profitability was explained. The chapter reviews the work of other scholars on the impact of advertising on profitability of a business organization Chapter three discussed the methodology adopted for this study. The research design used in this study is the qualitative and quantitative relational research design, which allowed for the examination of the impact of advertising on Profitability of business organization. The ordinary least square (OLS) regression method and the T-test of significance impact of advertising on profit were used to analyze the hypothesis developed.
In the data analysis section, data on advertising expenses and profit after tax obtained from the secondary sources which consists of the Unilever Nigeria Plc Financial statement for a period of 11 years (2004-2014) and review of relevant literature were extracted and subject to quantitative and qualitative analysis. The result of the analysis revealed the following;
- That there is a relationship between advertising of Unilever Nigeria Plc and the profitability of the company, which is inversely or a negatively linearly related and that advertising expenditures does not significantly impact on profitability of Unilever Nigeria Plc even there is a very weak negative relationship between the advertising cost and profit of Unilever Nigeria Plc
- That despite the weak negative relationship between advertising cost and profit of the company we can not say that advertising significantly impacted the profit of Unilever Nigeria Plc negatively and that any negative impact that may exist is only due to chance.
- That unit change in advertising will reduce the profitability of Unilever Nigeria Plc by 0.97% and that this reduction in profitability is explained by -0.106% advertising expenditure.
- That advertising effectiveness can be measured through the effect of communication on consumer (i.e. its effect on awareness, knowledge or preference) and sales revenue in relation to the expenditure on advertising campaigns.
- Factor that determine the choice of advertising media used by Nigerian manufacturing industry are; Product features, Cost, Audience characteristics, Objective of advertisement, Location, Demography and Religion as well as the Message characteristics.
Conclusions
Customers are assumed to be unaware of a new product and services unless awareness is created by business organization through advertisement in print and electronic media (Tv, Radio and internet). As soon as people are aware about the usefulness and basic features of product and services, their drive to try out product and services is stimulated and this in turn lead to buying and re-buying decision if they are satisfy with the product. The purchase of the product leads to increase in sales revenue for the organization. In the long run say 5-10years however, as the company increase its expenditure on advertising, the drive to purchase good and services will decrease from customer due to innovation in new competing and substitute product as well as a change in taste and fashion of the customer. The expenditure on advertising will start having negative impact on the profitability of business and the marginal contribution of the additional unit of advertising expenditure will start to have a diminishing effect on the profitability of business organization.
Based on the result of the analysis although relationships exist between profit and advertising expenditure of Unilever Nigeria Plc, the benefit derived from advertising through increased sales revenue is easily eroded by an increase in advertising expenditure. It can therefore be concluded that although advert expenditure relatively impact profit negatively by reducing profit, Advertising expenditure however is not the only factor that is responsible for the marginal reduction in the profit after tax and interest of Unilever Nigeria Plc. Other factors such as; sales promotion effort, personal selling effort, public relation, low patronage, employee’s attitude towards customers, service effectiveness, investment into infrastructure, ICT and company product attractiveness are responsible for the decrease in profit. In fact, advertising is a very weak predictor of why there is a decrease in profit as its only responsible for -11% variations or change in Unilever Nigeria Plc profitability. Other factor explained the 89% decline in profit of Unilever Nigeria Plc overtime. This study hence corroborate the findings of Dauda, (2015) that although advertising have a relationship with sales revenue and profitability of business organization and that advertising is one of the most important medium of communication influencing the companies performance in more than one ways, its influential strategic importance could be however suppressed by other factors such as sales promotion, personal selling, and publicity, public relation which also try to receive equal attention at time of deciding any sales and profitability strategy.
Recommendations
Based on the findings of this research the following recommendations are put forward;
- Top management should be involved in the continuous evaluation and monitoring of advertising to ensure that the goals and objectives set are achieved and appropriate corrective actions are taken in the event of deficiencies.
- The company should harmonize all departments so as to realize the goals and objectives of advertising as this study has shown that advertising expenditure has a negative weak impact on the profitability of business organization.
- Attention should be focused on the how to effectively marshal the advertising campaign plan to meet the need of customer and not just as an annual activities that must be carry out by marketing department.
- Advertising department should consider the effect of factors such as location, product and services features and other factors on the choice of advertising media to be selected.
- Since the study also revealed that the negative impact of advertising on profitability of Unilever Nigeria Plc is not significant enough and that any reduction in Profitability is due to chance. The company should ensure that they increase the personal selling and sales promotion effort so as to complement for the loss in profitability.
- Innovation in product design and good customer retention policy should be the mode of operation of the company.
- The company should ensure that it maintain a good customer- business relationship so as to maintain the customer loyalty to the brand and achieve greater sales.
