Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis

29 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis 83 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 -7. 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 advertisement expenditure and sales revenue of 134 randomly selected sample companies operating in India over the period from 1992/93 to /7 which are further classified 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 1 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 Classification: Research Paper Key Words: Sales Revenue, Advertisement, Panel Data, Manufacturing and Non- Manufacturing Dr. S. Sharma, Dr. J. Sharma - Sales and Advertisement Relationship for Selected Companies Operating in India

84 School of Doctoral Studies (European Union) Journal July Advertising is a prominent feature of modern business operations. One can encounter advertising messages, while watching TV, reading magazines, listening to the radio, surfing the internet, or even simply while walking down the street, as advertisement has a stimulating influence on purchasing behaviour of the customer. This mammoth surge of advertisements from every possible source is basically to fulfil 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 profits of the organisation and causing impact on the business cycle has been emphasised at various points of time by different studies (Robinson, 1933; Kaldor, 195; Nelson, 1974; Ozga, 196; Stigler, 1961; Sundarsan, ). Broadly the role of advertising expenses in an economy can be classified under two heads. According to one school of thought, advertising increases profits 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 profits by informing the customers about prices and quality (Greunes et al, ). 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 sufficient 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 firm s 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 profit. The subject of advertisement has remained a topic of debate either on one pretext or another for decades. At the beginning of 19 th 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 19 th 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 firm 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 School of Doctoral Studies (European Union) Journal - July, 29 No. 1

29 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis 85 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 India s 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 () using cointegration technique found a strong positive relationship between advertising expenditure and sales. Similarly, Lee et al () 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 () 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 () revealed that advertising has a significant positive effect on food industry sales and this relationship between advertising expenditure and sales appears to be stable. Pagan et al () 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 company s advertising expenditure and its sales during the recession, Kamber () found a measurable relationship between advertising expenditure and sales, even after controlling other factors, such as, company size and past sales growth, etc. Guo () 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 () evaluated the effectiveness of advertising on sales of small and large firms, and for multinational corporations. The results showed that advertising has influenced sales, though its relative effectiveness was not the same for all the categories of firms. 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 longterm 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 advertising s persuasive character work to alter consumers wants and consequently sales have received scant attention. With this backdrop, the present study has been designed to find out the extent to which advertisement expenses cause impact on sales revenue. More specifically the objectives of the study are to examine the growth pattern and trend of sales revenue and advertisement expenses for the 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. Dr. S. Sharma, Dr. J. Sharma - Sales and Advertisement Relationship for Selected Companies Operating in India

86 School of Doctoral Studies (European Union) Journal July 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 nature and collected from PROWESS (29) of Centre for Monitoring Indian Economy, New Delhi, India for the period 1992/93 to /7. 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 classified 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. 1 cr and Type-2 companies are the companies whose sales revenue is more than Rs. 1 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 Effect Model LnS it LnA it + u it Where, S= Sales Revenue, A= Advertisement, Ln = Natural Logarithm, u it = Stochastic term MODEL-2 Differential Intercept Dummy 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 coefficient beta (b 1 ) 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, ). LnS it + a 1 D 1 Ln A it + u it D 1 = for Type-1 companies, D 1 = 1 for Type-2 companies. LnS it + a 1 D 2 LnA it + u it D 2 = for Type-3 companies, D 2 = 1 for Type-4 companies. MODEL-3 Differential Slope Dummy Variable Model In this model, the possibility that the slope coefficient (b 1 ) may be different for different types of companies has been studied. It is assumed that the intercept term a 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. LnS it LnA it + b2lna it *D 1 + u it D 1 = for Type-1 companies, D 1 = 1 for Type-2 companies. LnS it LnA it + b 2 LnA it *D 2 + u it D 2 = for Type-3 companies, D 2 = 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. 38359.45 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. School of Doctoral Studies (European Union) Journal - July, 29 No. 1

29 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis 87 TABLE 1. SUMMARY STATISTICS OF SALES REVENUE AND ADVERTEMENT EXPENSES Summary Statistics Sales Revenue (Amount in Rs. Cr.) Advertisement Mean 38359.45 8684.26 Median 336491.26 8536.23 Minimum 12746.7 545.95 Maximum 92761.79 12474.6 Standard Deviation Coefficient of Variation 2447.21 259.54 62.71 23.72 No. of Firms 134 134 Source: Calculated from the data available at Prowess (28), CMIE TABLE 2. SUMMARY STATISTICS OF SALES REVENUE AND ADVERTISEMENT EXPENSES FOR TYPE-1 AND TYPE-2 COMPANIES Summary Statistics Type-1 Sales Revenue Type-1 Advertisement (Amount in Rs. Cr.) Type-2 Sales Revenue Type-2 Advertisement Mean 16274.96 546.51 367234.49 8137.76 Median 17388.33 65.66 31872.74 7859.29 Minimum 7994.96 198.89 94751.74 7632.71 Maximum 23932.1 78.18 93669.69 11693.88 Standard Deviation Coefficient of Variation No. of Firms 4534.13 194.7 236385.16 2124.3 27.86 35.51 64.37 26.11 79 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 Summary Statistics Type-3 Sales Revenue Type-3 Advertisement (Amount in Rs. Cr.) Type-4 Sales Revenue Type-4 Advertisement Mean 36678.22 828.97 1681.23 475.29 Median 317117.55 791.52 19373.71 496.26 Minimum 9746.53 4914.55 5286.17 127.79 Maximum 9534.8 1162.15 22296.99 871.91 Standard Deviation Coefficient of Variation No. of Firms 19635.27 292.81 5123.45 243.55 51.99 25.49 3.49 51.24 19 19 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 sales revenue is greater than Rs. 1 cr. Further, the mean expenditure on advertisement is reflected more in case of Type-3 companies, i.e. the manufacturing companies. The coefficient 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. nonmanufacturing 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.12746.7 crore in 1992/93 and it had rapidly increased to Rs. 92761.79 crore during the financial year /7. This is being Dr. S. Sharma, Dr. J. Sharma - Sales and Advertisement Relationship for Selected Companies Operating in India

88 School of Doctoral Studies (European Union) Journal July reflected by the 16. per cent ACGR of total sales revenue over the period of study (refer table IV). Further, it is apparent from figure I that during the initial period of study total advertising expenses of selected companies are increasing but later on during /95 the trend was reversed and similar tendency was observed during /98 to /1 periods and after which it increased continuously till /7. This fluctuation of advertisement expenses over the study period is confirmed by low ACGR of advertisement expenses, which is at the level of -.6 per cent (refer table IV). necessary to examine the advertisement expenditure in relation to the size of the company s sales revenue. Accordingly, the share of advertisements expenses to the sales revenue of selected companies is presented in figure II, displays a downward trend except during /98 to /99. This may be due to the presence of companies which either due 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. R2.84.99.99.69.98 t- value 127.2* 235.6* 247.57* 71.22* 233.85* Companies Advertisement Type-1 Type-2 Type-3 Type-4 Total ACGR 9.3-1.1-1.2 14.4 -.6 R2.76.3.4.95.1 t- value 72.85* 58.81* 6.83* 118.88* 65.44* Share of Advertisement to Sales Share of Advertisement to Sales of Selected Companies 1. 8. 6. 4. 2.. Source: Same as in the table I. Note: (i) * t- values are significant at 1 per cent level of significance. Year Source: Same as in the figure I The size of advertisement expenditure incurred by the companies itself may be important, but it is Sales of the Type 1 Companies Sales of Type 2 Companies 3 25 15 1 5 1 9 8 7 6 5 4 3 1 Type 1 Companies Sales Years Type 2 Companies Sales Years Source: Same as in the figure I First part of figure III reflects the sales revenue behaviour of Type-1 companies i.e. companies whose sales revenue is less than Rs. 1 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 figure III infers that the sales revenue of Type-2 companies i.e. the companies, whose sales revenue is more than Rs. 1 crore, is increasing monotonically and rapidly. The sales revenue was at Rs 94751.74 crore in 1992/93 and it has increased to Rs.93669.69 crore in /7 School of Doctoral Studies (European Union) Journal - July, 29 No. 1

29 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis 89 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 R 2 and t-values are also significant which further validate the results. Figure IV shows that there is consistent increase in advertising expenses of Type-1 companies till /2 but afterwards it decreased during /3 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). Advertisement of Type 1 Companies Advertisement of Type 2 Companies Type 1 Companies Advertisement 1 8 6 4 2 14 1 1 8 6 4 Years Year Type 2 Companies Advertisement Source: Same as in the figure I While in case of Type-2 companies 1992/93 to /1, 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 significant 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 figure 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 figure I Sales of Type 4 Companies Sales of Type 3 Companies 25 15 1 5 1 9 8 7 6 5 4 3 1 Type 4 Companies Sales Type 3 Companies Sales Years Years Source: Same as in the figure I On the same lines, second part of figure VI reflects 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 first graph of figure 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 Dr. S. Sharma, Dr. J. Sharma - Sales and Advertisement Relationship for Selected Companies Operating in India

9 School of Doctoral Studies (European Union) Journal July 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 firms and invested a lot for advertisements in the beginning and afterwards the growth of investment under this head become slower Advertisement of Type 3 Companies Advertisement of Type 4 Companies Type 3 Companies Advertisement 14 1 1 8 6 4 1 8 6 4 2 Year Year Type 4 Companies Advertisement Source: Same as in figure 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 /97. Afterwards it has shown an increasing trend at a slow rate till /1, 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 /98 and /, afterwards it has remained constant. It may be because of this reason that Type-2 companies due to their size started enjoying benefits of economies of scale and the expenses on advertisement display a downward trend. 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. Share of Advertisement to Sales Share of Advertisement to Sales 4.5 4. 3.5 3. 2.5 2. 1.5 1..5. Share of Advertisement to Sales for Type 1 Companies 1. 8. 6. 4. 2. o.oo Years Share of Advertisement to Sales for Type 2 Companies Year Source: Same as in the figure I. In case of Type-4 companies the share of advertisement 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 coefficient related to the advertising expenditure is significant at 1 per cent level of significance. From the results, it can be seen that there is a strong and positive relationship between sales revenue and advertisement expenses. The advertising elasticity coefficient.657 in equation 1 for 1992/93-/7 explains that 1 per cent increase in advertising expenditure leads to.657 per cent increase in sales. Positive and statistically significant intercept values reveal that School of Doctoral Studies (European Union) Journal - July, 29 No. 1

29 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis 91 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 Effect Model Ln S it Ln A it + u it Ln S it = 4.681 +.657Ln A it ---------------- ------- Equation (1) (134.61)* (53.63)* R=.76, R 2 =.58, N=134 Note: (i) t-values are given in the parentheses. (ii)* t- values are significant at 1 per cent level of significance 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 coefficients of dummy variable are statistically significant revealing the existence of difference in relationship of advertising expenses and sales revenue between the Type-1 and Type-2 companies. The results show that the coefficient of determination, i.e., R 2, has improved substantially in the case of dummy variable model. Higher coefficient 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 Intercept Dummy Variable Model a) Ln S = a + a D + b Ln A + u it 1 1 1 it it Ln Sales = 4.391 + 1.578 D +.454LnA it 1 -------------------- Equation (2) it (138.78)* (35.23)* (27.9)* R=.83, R 2 =.69, N=134 b) Ln S = a + a D + b Ln A + u it 1 2 1 it it Ln Sales = 4.767.417 D +.652 Ln it 2 A it -------------------- Equation (3) (127.34*) (-5.99)* (53.523)* R=.77, R 2 =.59, N=134 Note: (i) t-values are given in the parentheses. (ii)* t- values are significant at 1 per cent level of significance. 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 coefficients are statistically significant at 1 per cent level. However, the coefficient of dummy variable is negative. The negative coefficient 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 coefficient is same for both the categories. Model -3 Differential Slope Dummy Variable Model a) Ln S it Ln A it + b 2 Ln A it *D 1 + u it Ln S it = 4.61 +.394Ln A it +.385Ln A it *D1--- Equation (4) (144.42)* (22.6)* (19.66)* R=.81, R 2 =.65, N=134 b) Ln S it Ln A it + b 2 Ln A it *D 2 + Dr. S. Sharma, Dr. J. Sharma - Sales and Advertisement Relationship for Selected Companies Operating in India

92 School of Doctoral Studies (European Union) Journal July u it Ln S it = 4.6 +.689Ln A it.215ln A it *D 2 --- Equation (5) (136.77)* (54.29)* (-8.16)* R=.77, R 2 =.61, N=134 Note: (i) t-values are given in the parentheses. (ii)* t- values are significant at 1 per cent level of significance 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 coefficient of the model. The results show that all the coefficients are statistically significant at 1 per cent level and the R 2 is also satisfactory. The coefficient of dummy variable (D 1 ) representing the shift in the slope variable is highly significant 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-1 companies. 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 coefficients including the coefficients of dummy variable are statistically significant. The results are very interesting as the coefficient of dummy variable is negative. The negative coefficient 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, they spend more on advertisement as compared to Type-3 companies. This is also verified 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 influences 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 (28) of Centre for Monitoring Indian Economy, New Delhi, India for the period from 1992/93 to /7. In this study for 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 classified 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 significant intercept values. It exhibits that factors other than advertising are also School of Doctoral Studies (European Union) Journal - July, 29 No. 1

29 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis 93 in operation and therefore, determine the sales revenue of company besides the advertisement expenses. The Type-4 companies i.e. nonmanufacturing 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 efficient in making utilisation of its advertisement expenses as compared to Type 3 companies. The findings 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 firm/small firm or manufacturing/non-manufacturing firm. 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 firms 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 that advertisement 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 influencing the organisations performance in more than one ways. But its influential 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. References Ekelund, Robert B., and William P. Gramm (1969), A Reconsideration of Advertising Expenditures, Aggregate Demand and Stabilization, Quarterly Review of Economics and Business (summer), pp.71-77. Elliot, C. (), A Cointegration Analysis of Advertisement and Sales Data, Review of Industrial Organization, Vol. 18, pp.417-26 Greunes, M.R., Kamershcen, D.R., and Kllin, P.G. (), The Competitive Effects of Advertising in the US Automobile Industry 197-94, International Journal of Economies and Business, Vol. 7(3), pp. 245-61. Gujrati, Damodar N. (), Basic Econometrics, Mc-Graw- Hill Companies, Inc.: New York. Guo, Chiquan (), Cointegration Analysis of Advertising Consumption Relationship, Journal of the Academy of Business and Economics, February, Obtained through the internet: www.findarticles.com, [accessed on 3 rd February, 28]. Hansens, M. Dominique (198), Bivariate Time Series Analysis of the Relationship between Advertising and Sales, Applied Economics, pp-329-39 Jagpal, Harsharanjeet S. (1981), Measuring Joint Advertising Effects in Multiproduct Firms: Use of a Hierarchy-of-Effects Advertising- Sales Model, Journal of Advertising Research, Vol. 21 (1), pp. 65-75 Kaldor, N. V. (195), The Economic Aspects of Advertising, Review of Economic Studies, Vol. 18, pp.1-27. Kamber,T. (), The Brand Managers Dilemma: Understanding How Advertising Expenditures Affect Sales growth during the Dr. S. Sharma, Dr. J. Sharma - Sales and Advertisement Relationship for Selected Companies Operating in India

94 School of Doctoral Studies (European Union) Journal July recession, The Journal of Brand Management, Vol.1(2), pp.16-2. Leach, F. Daniel and Reekie, W. D. (), A Natural Experiment of the Effect of Advertising on Sale: The SASOL Case, Applied Economics, Vol.28, pp.181-91. Lee, Junsoo, Shin, B. S and InChung (), Causality between Advertising and Sales: New Evidence from Cointegration, Applied Economic Letters, Vol.3, pp, 299-31. Leong, S. M., Outiaris, S. and Franke, G. R. (), Estimating Long Term Effects of Advertising on Sales: A Cointergration Perspective, Journal of marketing Communication, Vol.2 (2), pp, 111-22. Nelson, P. (1974), The Economic Value of Advertising, in Brozen, Y. (Ed.,) Advertising and Society, New York: New York University Press, pp.43-66. Nelson, P. (1975), The Economic Consequences of Advertising, Journal of Business, Vol. 48, pp.213-41. Ozga, S. A. (196), Imperfect Markets Through Lack of Knowledge, Quarter Journal of Economics, Vol. 74, pp.29-52. Pagan J., Sethi, S. and Soydemir, G.A. (), The Impact of Promotion/Advertising Expenditures on Citrus Sales, Applied Economic Letters, Vol.8 (1), pp.659-63. Prowess (28), Centre for Monitoring Indian Economy, New Delhi. Ramanathan, R. (), Introductory Econometrics with Applications, Harcourt College Publishers. Robinson, J. (1933), Economics of Imperfect Competition, MacMillan and Co.: London. Stigler, G. J. (1961), The Economics of Information, Journal of Political Economy, Vol. 69, pp.213-25. Suchdeva, Sudhu (1988), Advertising in India: Some Characteristics and Trends, WP 1988/5, Institute for Studies in Industrial Development, Obtained through the internet: Http:// isdev. nic./pdf/sudh.pdf, [accessed on March, 28]. Sundarsan, P.K. (), Evaluating Effectiveness of Advertising on Sales A Study Using Firm Level Data, ICFAI Journal of Managerial Economics, Vol. V(1), pp.54-62 Taylor, Lester D. and Daniel, Weiserbs (1972), Advertising and Aggregate Consumption Function, American Economic Review, Vol. LX11 (4), pp.642-55. Verdon, Walter A., Campell, R. McConeell and Theodore, W. Roester (1968), Advertising Expenditures as an Economic Stabilizer: 1945-64, Quarterly Review of Economics and Business, (spring), pp. 7-18. School of Doctoral Studies (European Union) Journal - July, 29 No. 1

29 Sales and Advertisement Relationship for Selected Companies Operating in India: A Panel Data Analysis 95 Annexure - I List Of Randomly Selected 134 Companies Of Indian Corpotrate Sector 1. 3M INDIA 32. GODREJ AGROVET 64. RELIANCE CHEMOTEX INDS. 2. ABHISHEK INDUSTRIES 33. GODREJ INDUSTRIES 3. ANIK INDUSTRIES 34. GREAVES COTTON 65. SANDESH 4. APEEJAY TEA 35. GULF OIL CORPN. 66. SHARP INDIA 5. APEEJAY SHIPPING 36. H E G 67. SINGER INDIA 6. ASIAN ELECTRONICS 37. H M T (INTERNATIONAL) 68. SUPER FORGINGS & STEELS 7. ASSAM CO. 38. H M T BEARINGS 8. ASSOCIATED STONE INDS. 39. H M T 69. SUPER SALES INDIA (KOTAH) 4. HARRISONS MALAYALAM 7. SUPER SPINNING MILLS 9. AVAYA GLOBALCONNECT 41. HINDUSTAN BREWERIES & 1. B P L BOTTLING 71. SUPERTEX INDUSTRIES 11. BHARAT BIJLEE 42. HINDUSTAN COMPOSITES 72. SURYAJYOTI SPINNING MILLS 12. BHARAT FERTILISER INDS. 43. HINDUSTAN DORR-OLIVER 13. BHARAT GEARS 44. HINDUSTAN EVEREST TOOLS 73. SURYALAKSHMI COTTON MILLS 14. BHARAT HOTELS 15. BIRLA POWER SOLUTIONS 45. HINDUSTAN ORGANIC 74. SURYALATA SPINNING MILLS 16. BIRLA PRECISION CHEMICALS TECHNOLOGIES 46. HINDUSTAN SANITARYWARE & 75. SURYAVANSHI SPINNING MILLS 17. BIRLA TRANSASIA CARPETS INDS. 47. HINDUSTAN TIN WORKS 76. TATA COFFEE 18. BIRLA V X L 48. HYDERABAD INDUSTRIES 77. TATA REFRACTORIES 19. BOMBAY BURMAH TRDG. 49. I F B INDUSTRIES 78. TAYO ROLLS CORPN. 5. INDIAN SUCROSE 79. UNIVERSAL CABLES 2. BOMBAY CYCLE & MOTOR 51. J C T 8. A B B AGENCY 52. JAY SHREE TEA & INDS. 81. A C C 21. BOMBAY DYEING & MFG. CO. 53. JINDAL DRILLING & INDS. 82. AGRO TECH FOODS 54. MAHINDRA UGINE STEEL CO. 83. APAR INDUSTRIES 22. BOMBAY PAINTS 84. APOLLO TYRES 23. BRABOURNE ENTERPRISES 55. MILKFOOD 85. ASIAN PAINTS 24. CHLORIDE INTERNATIONAL 56. NAHAR INVESTMENTS & 86. B E M L HOLDING 87. BHARAT ELECTRONICS 25. CONSOLIDATED FINVEST & 57. NAHAR SPINNING MILLS 88. BHARAT FORGE HOLDINGS 58. NOVARTIS INDIA 89. BHARAT HEAVY ELECTRICALS 26. ELECTRONICA MACHINE TOOLS 59. OSWAL CHEMICALS & FERTILIZERS 9. BHARAT PETROLEUM CORPN. 27. ELECTROTHERM (INDIA) 6. PANASONIC BATTERY INDIA 28. EUROTEX INDUSTRIES & CO. 91. BIRLA CORPORATION EXPORTS 61. PANASONIC HOME APPLIANCES 92. BRITANNIA INDUSTRIES 29. EVEREADY INDUSTRIES (INDIA) INDIA CO. 93. CADBURY INDIA 62. RAJSHREE SUGARS & 94. CASTROL INDIA 3. FOSECO INDIA CHEMICALS 95. CENTURY ENKA 31. GANDHI SPECIAL TUBES 63. RAYMOND APPAREL 96. CENTURY TEXTILES & INDS. Dr. S. Sharma, Dr. J. Sharma - Sales and Advertisement Relationship for Selected Companies Operating in India

96 School of Doctoral Studies (European Union) Journal July 19. I T C 97. CIPLA 11. INDIAN OIL CORPN. 122. R S W M 98. CUMMINS INDIA 111. ISPAT INDUSTRIES 123. RANBAXY LABORATORIES 99. DABUR INDIA 112. JINDAL SAW 1. ELECTROSTEEL CASTINGS 113. KIRLOSKAR BROTHERS 124. RAYMOND 114. MAHANAGAR TELEPHONE 125. RELIANCE ENERGY 11. EXIDE INDUSTRIES NIGAM 126. RELIANCE INDUSTRIES 12. FORCE MOTORS 115. MAHINDRA & MAHINDRA 127. SINTEX INDUSTRIES 13. GLAXOSMITHKLINE 128. SURYA ROSHNI CONSUMER HEALTHCARE 116. MARUTI SUZUKI INDIA 129. TATA CHEMICALS 117. MICRO INKS 13. TATA COMMUNICATIONS 14. HERO HONDA MOTORS 118. N T P C 15. HINDALCO INDUSTRIES 119. NAHAR INDUSTRIAL 131. TATA MOTORS 16. HINDUSTAN PETROLEUM ENTERPRISES 132. TATA POWER CO. CORPN. 12. NESTLE INDIA 133. TATA STEEL 17. HINDUSTAN UNILEVER 121. PHILIPS ELECTRONICS INDIA 134. TATA TEA LTD 18. HINDUSTAN ZINC School of Doctoral Studies (European Union) Journal - July, 29 No. 1