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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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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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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
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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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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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
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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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
Type 2 Companies Sales
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.
Source: Same as in the gure I
The size of advertisement expenditure incurred
by the companies itself may be important, but it is
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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
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).
Source: Same as in the gure I
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
Type 2 Companies Advertisement
Expenses
Adver
tisementExpensesofType2
Companies
Source: Same as in the gure I
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.
Source: Same as in the gure I
SalesofType3Companies
1993
1995
1997
1999
2001
2003
2005
2007
Years
1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
Type 3 Companies Sales
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Sale
sofType4Companies
Years
25000
20000
15000
10000
5000
0
Type 4 Companies Sales
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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
Type 3 Companies Advertisement
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
Type 4 Companies Advertisement
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
Share of Advertisement Expenses to
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
Share of Advertisement Expenses to
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
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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
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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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
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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
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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2009 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis
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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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.