THE IMPACT OF ADVERTISING ON THE BUSINESS PERFORMANCE IN NIGERIA
ABSTRACT
Advertising is very relevant in modern business performance today. The public bumps into 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 reviews has proven that advertising increases sales revenue of manufacturing companies. Advertising provides a platform for manufacturing companies 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 primary and secondary data obtained from Unilever Nigeria Plc. 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 company in Nigeria. The researcher concluded that advertising is one of the most important medium of communication influencing the companies’ performance in various ways.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The recent and vast industrial expansion, resulted in massive production which led to competition and aggressive selling. These developments forced manufacturing companies to source out for marketers and buyers for their products. Advertising was therefore recognized by business enterprises as a profitable method of building demand for their products.
Today, Nigerian consumers are becoming very difficult to satisfy especially in the area of exposure to advertising messages. This is largely due to their expectation of good value for the money spent. Pike (2008) asserts that marketers are now faced with escalating media costs, often in tandem with declining advertising budget, thus leading them to increased interest in below-the-line promotional opportunities. According to Kotler (2009), marketing is totally about customers, hence the core mission of marketers is to provide the solution to customers’ needs and wants by identifying and meeting them. There are four main factors on which marketing have been built up; these are four elements of the marketing mix: place, product, price and promotion. Advertising, as a component of the promotional mix further enhance creation of customers’ awareness towards organizational products and then the need to patronize such products if it meets the needs, expectation and satisfaction of the consumers (Belch & Belch, 2003).
According to Morden (1991), who is of the opinion that advertising is used to establish a basic awareness of the product or service in the mind of the potential customer and to build up knowledge about it. Kotler (2002) sees advertising as one of the four major tools companies use to direct persuasive communications to target buyers and public noting that it consists of non-personal forms of communication conducted through paid media under clear sponsorship. According to Kotler (2002), the purpose of advertising is to enhance prospects’ responses to the organization and its offering.
The contribution of sales marketing 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. 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.
There are various forms of advertising like informative advertising, persuasive advertising, comparison advertising, and reminder advertising. Informative advertising is used to inform consumers about a new product, service or future or build primary demand. It describes available products and services, corrects false impressions and builds the image of the company, (Kotler, 2010).Advertising can be done through print media which includes newspapers ,magazines ,brochures ,Audio media for example Radio, and visual media which includes billboards, and television (Kotler and Armstrong 2010).Consequently, this study was conducted with the intent of establishing the extent to which the advertising of company’s products affect their sales revenue and net profits.
1.2 STATEMENT OF THE PROBLEM
It is an established fact that advertising plays a vital role in creating product or service awareness in manufacturing companies. 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). 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. Abiodun (2011) examined the impact of advertising on sales volume of Starcomms Plc. The study used frequency tables, percentages and Chi-square to establish relationship between advertising and sales volume of the company. Despite the attempt made by the study to establish relationship between advertising and sales volume of the company, the study suffered from a number of weaknesses. The study failed to clearly reveal the impact of advertising on the sales volume of the firm because it utilized primary data that does not adequately capture the impact of relationships. Similarly, the sampling procedure of the study and the absence of validity and reliability test for the research instruments may have affected the data collected and by implication the findings of the study. Lastly, the number of questionnaire copies filled and returned was not adequate by any systematic standard for the test of hypothesis. 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 Unilever Nigeria Plc from 2000 to 2014.The previous studies usedprimary 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.
1.3 OBJECTIVES OF THE STUDY
The main objectives of the study is to determine the impact of advertising on the business performance in Nigeria. The researcher intend to outline the following sub-objectives in the course of the study;
i) To evaluate the effect of the advertising costs on the net profit of Unilever Nigeria Plc.
ii) Investigate the effects of advertisement on the patronage of new products of Unilever Nigeria Plc
iii) Examine how customers are informed of new products by Unilever Nigeria Plc.
iv) Examine the effect of advertising on the ability of Unilever Nigeria Plcto educate customers of the benefits of new products
v) Ascertain how advertising could change people’s culture to patronize new products
1.4 RESEARCH QUESTIONS
In order to achieve the purpose of this study, the following research questions are proposed:
1. What are the effects of advertisement on the patronage of new products of Unilever Nigeria Plc.?
2. How are customers informed of new products by Unilever Nigeria Plc?
3. What are the effects of advertising on the ability of Unilever Nigeria Plcto educate customers of the benefits of new products?
4. Does advertising change people’s culture to patronizing new products?
5. What type of advertising move customers to patronize a new product?
6. Does budget allocation for advertising have any significant effect on sales volume
1.5 RESEARCH HYPOTHESES
H0: Advertising does not have any significant effect on the rate of patronage of a new product
H1: Advertising does have a significant effect on the rate of patronage of a new product
H0: Budget allocation for advertising does not have any significant effect on sales volume
H2:Budget allocation for advertising does have a significant effect on sales volume
1.6 SIGNIFICANT OF THE STUDY
At the completion of this study, the finding will specifically be beneficial to Unilever Nigeria Plc as it will reawake their marketing strategies. The study will help manufacturing companies understand the importance of advertising. It will also enable them structure their adverts and brands to make them more appealing in order to improve sales and lead to better performance. As this study gives a clear insight into how advertisement can influence consumer behaviour, many firms will be encouraged into using adverts to market their products. When firms start making more sales and profits as a result of advertising, the economy of Nigeria will be boosted, as more income from tax will be accrued to the government of Nigeria. The findings and recommendations of this study will go a long way in helping firms to adopt good advertising strategies, and appealing brand designs to help get more consumers for their products and services. Finally, the results derived from this study will serve as a reference material to scholars who intend to embark on a study of this nature in future.
1.7 SCOPE AND LIMITATION OF THE STUDY
The study covered advertising as the independent variable and sales performance as the dependant variable. Specifically the study was cantered at the Unilever Nigeria Plc in Lagos because it’s the headquarter of the industry where marketing plan is carried out, and it has large sales volume. In the cause of the study, the researcher encounters some limitations which limited the scope of the study;
Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.
Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.8 Definition of Key Terms
Advertising:Advertising is an audio or visual form of marketing communication that employs an openly sponsored, non-personal message to promote or sell a product, service or idea. Sponsors of advertisingare often businesses who wish to promote their products or services.
Consumer behavior:One “official” definition of consumer behavior is “The study of individuals, groups, or organizations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society.”
Marketing:Marketing is the study and management of exchange relationships. The American Marketing Association has defined marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”
Customer: is defined as a person who buys goods or services from a shop or business.
Patronage:Patronage is the support, encouragement, privilege, or financial aid that an organization or individual bestows to another. In the history of art, arts patronage refers to the support that kings, popes, and the wealthy have provided to artists such as musicians, painters, and sculptors. It can also refer to the right of bestowing offices or church benefices, the business given to a store by a regular customer, and the guardianship of saints.
1.9 OVERVIEW OF THE STUDY
This research work is presented in five (5) chapters in accordance with the standard presentation of research work. Chapter one contains the introduction which include; background of the study, statement of the problem, aim and objectives of study, research questions, significance of study, scope of study and overview of the study. Chapter two deals with review of related literature. Chapter three dwelt on research methodology which include; brief description of the study area, research design, sources of data, population of the study, sample size and sampling technique, instrument of data collection, validity of instrument, reliability of instrument and method of data presentation and analysis. Chapter four consists of data presentation and analysis while chapter five is the summary of findings, recommendations and conclusion.
THE IMPACT OF ADVERTISING ON THE BUSINESS PERFORMANCE IN NIGERIA
