Full Project – The impact of advertising on organizational profitability

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CHAPTER ONE

INTRODUCTION

1.1      Background to the Study

Theories of industrial economics have had different applications in economic sectors during the recent years. There have been numerous studies in this field, among which Leone (1995), Ericson et al. (1992), and Aaker & Keller (2007) have demonstrated the positive effect of advertising on sales and profitability. According to Aaker and Keller, advertising brings brand equity for a firm which leads to higher sales and profitability. Kim (2007) studied the effects of marketing on the reputation and revenue of top American firms which were listed in Fortune magazine; 12 firms out of his sample of 18, presented a significant positive relation between advertising costs and reputation. 14 cases also showed a positive relation between advertising costs and revenue. 5 firms reportedly had a meaningful relation between public relations and advertising costs. Advertising costs and revenue were positively related in 4 firms of the sample.

In another study, Kundu (2008) investigated the effect of advertising on profitability (Tobin’s Q ratio) and firm value among 172 Indian firms. He concluded that there is a meaningful positive relationship between advertising costs and firm’s profitability; however, this relationship is rather estimated to be of low intensity. According to this study -compared to other industries- financial and bank services enjoy a higher effect of advertising on profitability. It is worth mentioning that no significant relationship was found between advertising and firm value.

In the case of automotive industries, advertising intensity was positively related to return on assets, profit margin and sales growth. The combined results of the study confirms that advertising intensity has a meaningful positive effect on performance and profitability of the firms, with automotive firms enjoying a more positive effect compared to food industries. In another work, Khodadad-kashi et al (1391) studied the mutual effects among market structure, innovation and R&D of Iranian factories (1375-1386). They applied simultaneous equations system and two-step least squares method on the combined data obtained from Iranian factories.

The ultimate objective of every business is to increase the sales of good that it deals in several methods can be adopted for the achievements for this goal, some are direct while others are indirect. Advertising is an empirical form of communication essential for persuading customers including middle men along with various channels of distribution to adopt a favorable attitude to an identified period on organizational products or services. Advertising on the other hand undoubtedly has positive features, it is used to promote desirable social aims like saving and investment, family planning purchases of fertilizers to improve agriculture output etc. it provide customers with information about possible patterns of expenditure. This could be done in much more limited way “Advertising” this project is focused on the impact of advertising on organization profitability. Advertising is one of the four (4) means of sales promotion, advertising is a policy variable which has been utilized at different levels depending on the objectives of the firm and the market structure under which its operate. The organization provides itself by advertising. There are two forms of advertisement which are informative and persuasive advertisement. Advertisement is defined as any paid forms of non-personal presentation and promotion is deals, goods and services by identified persons or sponsor. Advertising as become an important factor in any organization set up. Fundamentally the only reason for advertisement is to sell a product, service or an idea. Advertisement also facilitates the introduction of a new product. Services expounds  the industry and the company sales, building good will for the firm and improving its reputation regarding the service product.

Advertising has become a powerful communication tool in passing message about the products and services to both customers and potential customers. When there is adequate awareness through advertising, high patronage will be achieved, which will result to an increase in sales volume, productivity and profit level of the organizations.

However, poor product communication to the final consumers could give competitors an edge in term of loyalty to brands, sales volume and high market share. Consequence of this has been the major setbacks for matured industries.

Akanbi and Adeyeye (2011) believe that advertising campaign cannot solely responsible for recorded increase in its sales after campaign. Other unrecognizable factors like higher income for potential customers, reduction problems of competitors, improved customer relation of distributors and retailers and other unnoticeable factors apart from the campaign may be responsible for the company’s improved sales (Akanbi and Adeyeye, 2011). Morden (1991) believes that advertising gives the knowledge about the product and create the idea in mind about it.

Busari, (2002) as cited in Adekoya,( 2011) says that advertisements can also be seen on the seats of grocery carts, on the wall of airport walkways, on the sides of buses, airplane and train. Advertisements are usually placed anywhere an audience can easily and/or frequently a access visual and/or video. Akanbi and Adeyeye, (2011) discover that advertising as a subset of promotion mix has a significant effect on sales turnover. Adekoya (2011) finds that advertising influence consumer buying behavior, which means it helps to increase sales turnover. It is on this premise that this research work wishes to examine the impact of advertising on organizational sales turnover with special reference to Nigerian Breweries Plc.

1.2      Statement of the Problem

Having known that the objective of every business is to increase the profitability of an organization which deals with several methods in order to adopt the achievement for this goals, some of those methods are direct while others are indirect and profitability is one of them because it is adverse and intensive tool used by many to maintain the market share of new and similar product coming to the market in west African from time to time, it is known that Nigeria is a depressed economy. This has given rise to poor economic activities such that the population’s purchasing power had reduced trastically and most companies are folding up. The few ones that have been able to survive are faced with stiff competition from foreign goods. The consumer’s patronage of totally produce goods have dwindled overtime. Profit level of these companies has fallen astronoun sales revenue has not improved either consumers loyalty and brand presences have shifted negatively. Therefore this study fills the gap by looking at how advertising could be used to combat these negative tendencies.

1.3      Research Questions

1. What are the various forms of advertisement put in place by the organization?
2. What is the level of the company’s budget on advertising?
3. Does advertising influence organization performance?
4. What is the relationship between advertising and organizational profitability?

1.4      Research Objectives

1. To identify the form of advertisement used by Nigerian bottling company.
2. To determine the level of budget for advertising.
3. To examine the relationship between advertising and sales performance
4. To assess the relationship between advertising and organizational profitability

1.5       Research Hypothesis

H₀:      There is no significant relationship between advertising and organizational profitability

1.6      Significance of the Study

1. The study findings will offer a basis for organization of evaluating advertisement, techniques towards enhancing organizational sales performance.
2. The finding will provide an insight to influence positively the techniques of advertisement, hence a basis for policy and decision design in marketing mechanisms regarding advertisement which constitute a big proportion of the organizations transactions.
3. Being an academic study, it will generate knowledge for Nigerian bottling company and help in amending the areas which are badly affected.

1.7      Scope of the Study

            The researcher has chosen Nigerian bottling company plc Ibadan plant as a case study and then looked into the impact of advertising in the marketing system which leads to their excellent performance and profitability of the company.

Also, the product works include the definition of advertising, strategies, agency and media and also definition of the word sales profitability

1.8      Limitation of the Study

Including a research of this nature by students, researchers are bound to move some limitations that limit the extent to which students could go. The limitation traced by this researcher includes finance, time and attitude of respondent and an availability of accurate and updated statistics in Nigeria.

Finance handicap, which is a serious experience during the excursion of this project. The researchers does not have scholarship or binary from any financial or government institution at the time the research was being conducted.

Considerable time has to be given to the type of important research work.

The attitude of the interviewer constituted another limitation. Researchers in Nigeria are still at its infancy stage of the background date and not readily available and these available one are becoming outdated.

1.9       Historical Background of the Case Study

The Nigeria bottling company plc was registered in Nigeria as a plant in 1951 and established in the same year by the founder A.G levities

The first Bottling plant was located at Apapa in Lagos and after turned out to be the head quarters of Nigeria Bottling company plc.

In March 1953 and its first production was Coca cola due to the success of its product in the market Nigerian Bottling company (NBC) 1955 then introduction ten depots in and around Lagos and in 1957 set up a plant at warts road Apapa with two product lines.

During all this period Nigeria bottling company use to impact but later its commission its first carbo-eliaxide plant and to meets up completion. Nigeria bottling company estabilished a new plant in 1963. As at today Nigeria number one soft drink producer if not in the world with a sales record of an average of six million per day.

The company at present has over sixteen plant (16) and over thirty (30) depots spread all over the country among its products include Fanta, Coke, Tonic, Water, Ainger, Sprite, Soda water, Schweppes and Diet Coke and Krest tonic water.

Finally introduce Fanta lemon in terms of sales, the company enjoys a wide acceptance of its products

Ranging NBC plc as a whole its performance is highly appreciated.

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Full Project – The impact of advertising on organizational profitability