Academic journal article IUP Journal of Business Strategy

The Impact of Marketing Variables on Business Performance: An Analysis of FMCG, Consumer Durables and Textile Industries

Academic journal article IUP Journal of Business Strategy

The Impact of Marketing Variables on Business Performance: An Analysis of FMCG, Consumer Durables and Textile Industries

Article excerpt

Introduction

The Indian economy has gone through rapid changes in the last 20 years or so. There is heightened competition in every sector. Companies are vying for a share of the market by trying to outsmart each other. Global competition has added to this competitive intensity. The changes in the structure of the economy have brought about a significant change in market dynamics. Increased competition from every corner of the world has forced the companies to bring changes in their strategy regarding marketing, operations and human resources so that they can sustain the competition.

The Marketing Leadership Council (2001) reported that 70% of advertising budgets are in decline, compared with 51% and 47% of human resources and information technology. Most marketers are unable to justify the returns on their investments. Over $245 bn was spent on advertising alone in the US in 2003 (Advertising Age, 2005), most of which was not attributable to a significant growth performance of the firms that spent this money. Marketing practitioners are under increased pressure to be accountable for and to show how marketing expenditures increase sales and add to shareholder value (Doyle, 2000). Despite enormous levels of spending, an important economic question is yet to be resolved. (1) Is there any association between sales and marketing expenditure? If yes, is this a positive association or otherwise? This question motivated the author to explore further and analyze the impact of these firm-level variables on the sales of the companies shortlisted for the study.

Literature Review

Sales of any brand are influenced by many factors, of which brand's advertising expenditure is the most significant one. Other than brand's advertising expenditure, there are other marketing variables such as pricing, product quality, new variety introductions, distribution, and dealer activities which also affect the sales of the company. Industry factors such as the product's primary demand and competitors' activities also play an important role in influencing the sales of any brand. The first two categories consist of variables that are controllable to a great extent by the firm, whereas the third category represents factors that are not. The interaction of marketing mix variables has been studied extensively in marketing literature. The focus has been on how marketing variables affect competition, and central to this issue is the impact of advertising on price elasticity (Omstein, 1977; and Comanor et al., 1979). Several studies have been done by researchers to find the relationship between the firm level variable and sales.

Stewart (1996) examined a model on the data taken from the Canadian automobile market, which used three explanatory variables to explain variation in the ratio of promotional expenditure to sales. These are market share, market growth and the interaction between both. They concluded that the expenditure on promotional activity is clearly an important element in the total marketing costs incurred by many organizations. Dekimpe and Hanssens (1995) found that marketing efforts do affect the long-term trends in sales of a firm. They had introduced persistence modeling to derive long-term marketing effectiveness from timeseries observations on sales and marketing expenditures taking the example of sales and media spending for a chain of home-improvement store. A similar study was done by Bawa and Shoemaker (1987) where they analyzed the impact of sales promotion activities on customers' brand choice behavior. Their analysis showed the positive long-term and shortterm effects on the brand choice behavior of customers. Later on, Jones (1989) also conducted a similar study to identify the impact of both long-term and short-term promotion activities on sales by multivariate techniques. The results showed that the impact is greater in the short term than the long term.

Butters (1977) discussed the effect of advertising expenses on sales. …

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