Sales Drive Advertising Expenditures: Evidence for Consumer Packaged and Durable Goods in Germany

Juliane A Lischka,Stephanie Kienzler,Ulrike Mellmann

doi:10.5539/ijms.v6n1p31

Juliane A Lischka, Stephanie Kienzler + Show 1 more

Open Access

https://doi.org/10.5539/ijms.v6n1p31

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Abstract

The relation between sales and advertising is both complex and diverse. Whether advertising activities drive orfollow sales is still unclear. We uncover this relation distinguishing between consumer packaged goods (CPG)and durable consumer goods (DCG) industries. We fit vector autoregressive models to sales and advertisingexpenditures of four CPG and three DCG industries in Germany from 1991 q1 to 2009 q4. Findings reveal thatadvertising expenditures do not increase total sales of industries according to the distribution hypothesis.According to the deterministic view, advertising budgeting is often influenced by previous sales and partly byfuture sales expectations. We conclude that past sales and partly sales expectations may change company andmarketing goals that eventually affect the use of strategic communication instruments such as advertising.

Highlights

Advertising can be understood as a sub-discipline of strategic communication “which is defined as the purposeful use of communication by an organization to fulfill its mission” (Hallahan, Holtzhausen, van Ruler, Verčič, & Sriramesh, 2007, p.3)
Advertising expenditures strongly depend on past sales for the automobile industry, durable consumer goods (DCG) advertising expenditures do not show a sales dependency throughout, and consumer packaged goods (CPG) advertising expenditures depend on sales
This study provides insight into the advertising budgeting logic of an industry assessing the relation between sales and advertising expenditures controlling for available household income, exports, and GDP for four consumer packaged goods industries and three durable consumer goods industries

Summary

Introduction

Advertising can be understood as a sub-discipline of strategic communication “which is defined as the purposeful use of communication by an organization to fulfill its mission” (Hallahan, Holtzhausen, van Ruler, Verčič, & Sriramesh, 2007, p.3). Current knowledge indicates a complex relation between sales and advertising. From both a theoretical and empirical point of view, no conclusion can be reached regarding the direction of influence. The distribution hypothesis predicts no impact of advertising on sales on an aggregate level (Simon, 1970). From this perspective, advertising can only drive sales within a market or industry. The deterministic view expects that higher sales lead to higher advertising expenses. This idea conforms to the practitioners’ rule of thumb to use a certain share of past sales for advertising expenditures. Others find the exact opposite, i.e., a causal relation from consumption to advertising expenditures (see e.g., Quarles and Jeffres 1983 in a cross-national study; Ashley et al 1980 and Hsu et al 2002 for U.S data; O’Donovan et al 2000 for New Zealand data)

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