Academic journal article IUP Journal of Management Research

Advertising Media Efficiency of FMCG Firms in India: An Empirical Investigation Using Data Envelopment Analysis

Academic journal article IUP Journal of Management Research

Advertising Media Efficiency of FMCG Firms in India: An Empirical Investigation Using Data Envelopment Analysis

Article excerpt

Introduction

Advertising is a significant aspect of marketing strategies. Effective advertising is necessary to get the positive corresponding demand from the customer at a profitable price (Hadad et al., 2005). Advertising by itself cannot be bad or good as it is just a tool, which can have beneficial results or negative impact (Nagendra and Agrawal, 2011).

The urge for advertising is simply because of the need to sell and so it is necessary that the prospective buyers be informed. The advent of the new technology has altered the trend of traditional one-way flow of information to real-time interactive sessions where consumers or the prospective buyers have also become a part of the process. Users are now getting empowered to choose, instead of being fed forcefully with the advertisement (Shukla et al., 2012).

The market share of the product depends on the awareness of consumers. Hence, the organizations and agencies advertise their product via multimedia channels, either electronic or print or sometimes both. Not only the economic factors like per capita income change the consumer preferences about the choice of product but also impact the repetition of advertisement.

Companies invest large amounts of money in advertising and expect their spending to have a positive impact on their bottom line. Therefore, advertisers are expressing great concern to ensure that their advertising dollars are being well spent. If companies are spending inefficiently on their advertising budgets, they could be losing sales and profits (Brown and Cheong, 2013). Companies are interested to know the effectiveness of advertisement to identify possible sources of inefficiency.

From the aforementioned discussion, it can be assessed that advertising is an important aspect of any marketing strategy. Therefore, the present study examines the effectiveness of advertising spending in generating revenue of FMCG firms in India. DEA technique has been employed using multi-stage analysis. It has been chosen as a suitable method for the analysis because it can deal with the concerns in marketing literature and advertising spending decisions are often prepared by keeping competitors in consideration (Rust et al., 2004).

Literature Review

The efficiency of advertising spending is defined as output per unit of input (Coelli et al., 1998). Efficiency in advertising stresses productivity or the relationship between the effects of advertising and underlying inv estment. Based on the definition given above, advertising efficiency can be increased by either cutting down spending on advertising or utilizing the maximum advertising Return on Investment (ROI). It is important to assess the advertising spending efficiency of a company to set the appropriate budgeting, particularly during challenging economic times. A vast number of studies have indicated that the increase in advertising expenditure does not always bring more ROI. But it may rather generate diminishing ROI when the advertising is not regulated (Aaker and Carman, 1982; Stewart, 1989; and Briggs and Stuart, 2006).

Many scholars in this field have discussed the relationship between advertising expenditure and sales. Some of them have pointed out that the relationship is reciprocal and claimed that the influence of sales on media spending is more direct than vice versa (Riedesel, 2002). On the other hand, numerous studies in the field of management science, marketing, and advertising have proven the causal relationshi p between media spending and sales volume, advising that first a company advertises in places where it acquires the most ROI and spends more money to advertise in those places as advertising spending rises (Aaker and Carman, 1982; Stewart, 1989; Mesak, 1999; and Feinberg, 2001). Further, Danaher and Rust (1994) pointed out that the optimal level of media spending could be achieved by maximizing advertising efficiency. Following these studies, advertising spending can be treated as inputs and revenues can be treated as outputs in DEA. …

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