Table of Contents
RELATIONSHIP BETWEEN SALES AND ADVERTISING
MEASUREMENTS TO EVALUATE ADVERTISING EFFECTIVENESS
Today, advertising appears everywhere; we see and hear a lot of advertisements on TV, newspapers, magazines, internet, billboards, public transports and so on. The more popular advertising is, the more important role of advertising in business is reinforced. The main aim of advertising is to build customer’s attention to a brand or product, then may lead to brand awareness, brand loyalty or increasing sales volume (Corkindale, 1983). Although the role of advertising is undeniable, the effectiveness of advertising is still hard to measure. People usually think that sales volume is the direct and appropriate tool to measure advertising effectiveness, while the others argue that advertising is used to gain brand awareness and brand loyalty as well, not only increasing sales, thus sales is not the appropriate way to measure advertising effectiveness. For many years, influential writers on advertising argued that sales were, for practical purposes, an irrelevant measure of advertising effect. This argument comes from the fact that the relationship between advertising and sales has long been a subject of controversy and research as has the relationship between profits and advertising. This paper will indicate the relationship between sales and advertising to find out whether advertising impacts sales volume, and then introduce some other measurements to evaluate advertising effectiveness.
2. RELATIONSHIP BETWEEN SALES AND ADVERTISING
The relationship between sales and advertising has been a topic of argument and research for a long time since 1942 (Marquardt & Murdock, 1984). The inquiry about this relationship probably comes from the question about advertising’s ROI and how to measure the profit advertising brings to business; and because it is hard to indicate the answer clearly then sales volume becomes a potential candidate. According to Marquardt and Murdock (1984), a study is implemented to determine if the percentage of sales spending on advertising is different between department stores and supermarkets, and correlation between a change in advertising and sales. And the result is that advertising really impacts sales. Retail advertising expenditures appear to have a very significant effect upon retail sales as changes in advertising are highly correlated with changes in retail sales. This relationship is very strong as evidenced by the calculated correlation coefficient of about 0.9 for both groups of retailers (Table 1). Table 1:
Source: Marquardt & Murdock (1984)
The very high and significant values of the coefficient of determination do indicate that firms get a direct response when they increase advertising expenditures as sales are positively related to these expenditures. In addition to expected increases in sales obtained from increasing advertising expenditures, it is found that there are additional benefits to be derived from being consistent in advertising such as brand loyalty, brand awareness, and cost efficiency (Marquardt & Murdock, 1984). Indeed, although the percentage annual change in sales is found to be nearly the same for both the most consistent advertisers and the least consistent advertisers, it is apparent that the consistent advertisers use advertising in a more efficient manner since they achieve the same increase in sales by increasing their advertising expenditures by a much smaller amount than did the inconsistent advertisers (Marquardt & Murdock, 1984). Furthermore, based on different amounts of advertising expenditure between department stores and supermarkets (Table 2 and 3), it can be safely concluded that advertising is not the only way to push sales. Different business will use advertising in different ways to achieve their objectives; in...
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