Fountain Journal of Management and Social Sciences: 2014; 3(1) 67-72

A publication of College of Management and Social Sciences, Fountain University, Osogbo.

Journal homepage: www.fountainjournals.com
ISSN: 2315 - 6325

EFFECTS OF ADVERTISING ON ORGANIZATIONAL PROFITABILITY

*AREMU M. A1., OLODO H. B2., ABINA M. B3. and MUSA, A4.
Department of Business Administration, College of Management Sciences, AL-Hikmah University

Abstract
This study examines the effect of advertising on organizational profitability through the use of secondary data. The
hypothesis was postulated and tested using Pearson Product Moment Correlation (PPMC). The finding shows that
advertising has significant effect on organizational profitability and hence it concluded that the means employed by the
organization has helped to increase the returns in terms of profit generated by the organization. It therefore recommended
that management should endeavor to engage more in advertising activities so that they can have access to global market
and company-wide awareness of their products.
Keywords: Advertising, Organizational Profitability, PPMC, Nigeria

Introduction
The importance of marketing program in the development, growth and expansion of any organization is enormous
in any economy. Marketing is more than mere distribution of activities from manufacturer to the final consumer. In other
words, producing goods and services alone does not guarantee growth and success, rather complimentary effort has to be
taken in order to create the necessary awareness for the goods and services in the minds of both current and potential
consumers. It is however made up of all stages between creation of the products and after sale services which follow the
eventual sales and one of these stages is advertising. Thus, Advertising as a marketing tool is used by business organization
to inform consumer that the right product is available at the right place, right price and to convince the consumer to purchase
them. Advertising comprises all messages that are paid for in the media owned and controlled by people other than the
company making the advertisement Therefore; advertising must be tailored towards consumers satisfaction and
organizational performance.
In spite of the impact of advertising on companys sales volume, the role and effectiveness of advertising in
achieving organization marketing objectives include increased sales volume which has become a subject of controversy
among marketers, advertisers and business experts. While advertising is being criticized by some, on the other hand, argued
in favour of advertising as a tool for increasing companys sales and organizational profitability. The study examined the
effect of advertising on organizational profitability.
*Corresponding author:
Email address: babsabina@yahoo.com; moriam3@yahoo.co.uk

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Literature Review
Theoretical Review
Hierarchy of Effects Model
The hierarchy of Effects model was created in 1961 by Robert .J. Lavidge and Gary .A. Steiner. This marketing
communication model suggests that there are six steps from viewing a product advertisement (advert) to product
purchase. The job of the advertiser is to encourage the customer to go through the six steps and purchase the product.
Awareness: The customer becomes aware of the product through advertising. This is a challenging step; there is no
guarantee that the customer will be aware of the product brand after they view the advert. Customers see many adverts
each day but will only remember the brand of a tiny fraction of products.
Knowledge: The customer begins to gain knowledge about the product for example, through the internet, retail advisors
and product packaging. In todays digital world, this step has become more important as customers expect to gather
product knowledge at the click of a button. Customer will quickly move to competitors brands if they do not get the
information they want. The advertisers job is to ensure that product information is easily available.
Liking: An advertiser should promote some features that will encourage customers to like his products.
Preference: Customers may like more than one product brand and could end up buying any one of them. At this stage,
advertisers will want the customers to disconnect from rivals products and focus on their particular product. Advertisers
will want to highlight their brands benefits and unique selling points so that the customer can differentiate it from
competitors brands.
Conviction: This is about creating the customers desire to purchase the product. Advertisers may encourage conviction
by allowing customers to test or sample the product.
Purchase: Here, the advertiser wants the customer to purchase their product. This stage needs to be simple and easy,
otherwise the customer will get fed up and walk away. A variety of payment options encourages purchase whilst a
complicate and slow website discourages purchase.
Lavidge and steiner suggested that the six steps can be split into three stages of consumer behaviors which are
cognitive (consumer becomes product aware and gathers product knowledge), Affective (so that consumer likes the
product brand and has conviction in it), and co native (so that the customer buys the product brand).
Awareness

COGNITIVE

Knowledge
Liking

AFFECTIVE

Preference
Conviction

CONATIVE

Purchase

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Fountain Journal of Management and Social Sciences: 2014; 3(1) 67-72

Conceptual Review
Lubert (2001) defined advertising as very sensitive activity which does not only create product and corporate
awareness, but also create a long term relationship with consumer and strive towards profit maximization through
increased sales. Kotler (2000) further defined advertising as one of the major marketing tools used by company to
direct, persuade and communicate to the target market. Hence, according to Kotler, advertising consist of interpersonal
or one way form of communication through paid media under identified sponsorship. Alonge, (2001), Fishbein, (2004),
and Frederick, (2000) also defined advertising as any personal paid form of non-personal communication which is
directed to the consumers or target audiences through various media in order to present and promote a product, services
and idea.
Objectives of Advertising
Crilley, (2003) believe it is incumbent on any marketing manager to develop an advertising objective
effectively, however in developing the programme, marketing manager must always start by identifying the target
market and buyers motive. He also said that the main objective of advertising is to increase, boost and promote sale and
seeks to aid acceptance of product; change behavior to stimulate change and create good will.
However, looking at it from another perspective, Shahid, (1999) identified six fundamental principles on which
advertising campaign run - These include score attention; arousing of interest; developing and sustaining of interest;
creating desire; inciting action and creating goodwill.
Thus, in essence, advertising objectives includes performance objectives what the advertisement should do and
the audience with whom the firm wishes to communicate with. Setting objectives are important in order to evaluate the
success of the advertisement and to learn what works and what does not particularly, since one can always observe
immediate change in sales from advertising campaign.
Classification of Advertising
Advertising normally conforms to one of two basic types: Product Oriented or Institutional (Berkowitz et al, 1992).

Product-Oriented
Focuses on the product or service being offered, whether for profit or not. Its prime task is to support the product in
achieving its marketing goals. Product-oriented advertising can itself take one of three alternative forms which are:
pioneering; competitive and reminder and reinforcement advertising.

Pioneering Advertising
This is used in the early stages of the life-cycle when it is necessary to explain just what the product will do and
the benefits it can offer. Depending on the products newness, the prime emphasis might well be on stimulating basic
generic demand rather than attempting to beat competition. In this case, the prime emphasis in the advertising is to
provide enough information to allow potential buyers to see how this product might relate to them, and thus to stimulate
enough interest to encourage further investigation and possibly trial.
Competitive Advertising
This is concerned with emphasizing the special features of the product or brand as a means of outselling the
competition. Usually, the seller seeks to communicate the unique benefits that distinguish the product and give its
competitive edge.
Reminder and Reinforcement Advertising
This tends to operate after purchase. It reminds customers that the product still exists and that it has certain positive
properties and benefits. This increases the chances of repurchases and sometimes might even persuade customers to
larger quantities.
aaaaaa
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Institutional Advertising
It is not product specific. It aims to build a sound reputation and image for the whole organization to achieve a
wide range of objectives with different target audiences. These could include the community, financial stakeholders,
government and customers, to name but a few.
Types of Advertising Media and their Selection
Before proceeding to examine the advertising media, several basic terms need to be defined, based on Fill (1999).
These are:
Reach: - Is the percentage of the target market that is exposed to the message at least once during the relevant period.
Reach is not concerned with the entire population, but only with a clearly defined target audience.
Ratings: - Otherwise known as TVRs, measure the percentage of all households owning a television that are viewing at a
particular time. Ratings are a prime determinant of the fees charged for the various advertising slots on
television.
Frequency: - Is the average number of times that a member of the target audience will have been exposed to a media
vehicle during the specified time period.
Opportunity to see (OTS): - Describes how many times a member of the target audience will have on opportunity to see
the advertisement.
There are different types of advertising media and some of them are summarized below;
Television: - Televisions impact can be high, as it not only intrudes into the consumers home but also offers a
combination of sound, colour, motion and entertainment that has a strong chance of grabbing attention and
getting a message across. Avoided that the television is switched on, the message in vision or at least sound is
being delivered.
Radio: - Radio has always provided an important means of broadcast communication for smaller companies operating
within a restricted geographic area. While still not as important as television, in general terms radio can play a
valuable supportive role in extending reach and increasing frequency. Despite being restricted to sound only,
radio still offers wide creative and imaginative advertising possibilities.
Magazines: - The main advantage of a printed medium is that information can be presented and then examined
selectively at the readers leisure. A copy of a magazine tends to be passed around among a number of people
and kept for quite a long time. There are different types of magazine carrying advertising. These are: general and
news-based magazines; special interest magazines; trade and technical journals: - which are targeted at specific
occupations, professions or industries.
Newspapers: The main role of newspaper is to communicate quickly and flexibly to a large audience.
Advertising and Organizational Profitability
Profit is the most important measure of the firms performance in the free market economy. The essence of
advertising is to get product, service or idea sold profitably. According to Lubert (2001) advertising is very sensitive
activity which does not only create product and corporate awareness, but also create a long term relationship with
consumer and strive towards profit maximization through increased sales. Therefore the impact of advertising cannot be
over emphasized in the profit maximization of any company. Profit is a guide for allocating resources efficiently;
therefore, it is important to evaluate the reasonableness and usefulness of profits plan and other budget and sales forecast
prepaid by management.
Empirical Review
Damerion (2000) carried out a survey, 50% of the interviewed said that advertisement gives them all
information they want on a product. Also more than 50% of respondent said that widely advertised products are the best
he then concluded that without advertisement giving to customers; they would find it difficult to satisfy their wants. Mark
(1998) in his research found out that 48% of Nigerians relied on adverts for information; the persuasive content of
advertising, firms have succeeded, through their promotional efforts in creating a high degree of brand consciousness.
Thus advertising plays a persuasive role in influencing the customer by building the image of a product when brand
differences are minimal. Benson (1999), in his analysis of three brands of tooth paste stated that individuals exposure to
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Fountain Journal of Management and Social Sciences: 2014; 3(1) 67-72

advertising in the market place is very glaring. Brand loyalty cannot be excluding as well because by means of
advertising, firms have succeeded, through their promotional efforts in creating a high degree of brand consciousness.
Thus advertising plays a persuasive role in influencing the customer by building the image of a product when brand
differences are minimal. Benson (1999), in his analysis of three brands of tooth paste stated that individuals exposure to
advertising is correlated with individual brand preference. However brand preference according to him, is also affected
by other forces, these include the age of household, satisfaction with old product and price. Thus, despite the negative
effect attached to advertising, people still rely on it.
Research Methodology
The methodology adopted in this study is quantitative in nature. Secondary data was used to carry out this
research. The secondary source of data was derived from the companys annual report using the record on advertising
expenses and profit. The method of data analysis used is Pearson Product Moment Correlation.
The technique was
employed to determine whether the variables are statistically independent or not. More specifically Pearson Product
Moment Correlation was used to test the effect of advertising on organizational profitability.
Statement of Hypothesis
HO: There is no significant relationship between advertising and profitability.
Data Analysis
The data collected were analyzed and discussed using person product moment correlation co-efficient at
significant level of 0.05 for accepting or rejecting the hypothesis. Pearson Product Moment Correlation for the null
hypothesis: that there is no significant relationship between advertising and profitability of the organization.
Table 1
Variable
Organization Profit
Advertising expenses

N
6
6

X
12705861.7
5046576.2

SD
249383.297
157039.716

DF
5

Cal r-value
.849

Critical value
.754

Decision
H0 Rejected

Source: field survey (2014)

Discussion of Findings
From the table above, the Pearson Product Moment Correlation shows that the observed or critical value is
0.754 and the calculated value is 0.849. Thus, the calculated value is greater than the table value of 0.754 at 0.05%, so
we reject the null hypothesis. Therefore, we accept the alternative hypothesis and conclude that there is significant
relationship between advertising and organizational profitability. More so, organisation spend more on advertising their
product and have a good rate of return as this have affect on profitability level.
Conclusion
The study shows that advertising means employed by the organisation has helped to increase the returns in
terms of profit generated by the organisation. Also, the null hypothesis tested was rejected and alternative hypothesis is
accepted that is there is significant relationship between advertising and organizational profitability. Thus, advertising
has effect on the companys organizational profitability.
Also, advertising and other factors such as sales promotion have really helped and has led to the increase in the
profit of the organization. Thus, management should endeavor to engage more in advertising activities so that they can
have access to global market and company-wide awareness of their products. More so, advertising can also be done
through seminar and workshops to educate and initiate all categories of the employees on the different types of strategies
to adopt for advertising. Also, the company should improve budget for advertising every year in order to enable them
meet their primary aims and objectives, and for the purpose of continual evaluation and monitoring.
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