CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

From a marketing perspective, sales and profits belongs to the tangible asset in

firms valuation and the impact of marketing strategies (e.g. Advertising) on sales

and profit has been well documented for both the short run (e.g., Lodish, Leonard

M., Magid, Livelsberger, Lubetkin, Richardson, and Stevens, 1995) and the long

run (e.g., Nijs, Vincent, Marnik, Jan-Benedict, and Hanssens 2001; Simester, Hu,

Brynjolfsson, and Anderson. 2009.), for multinational corporation (e.g., Joshi &

Hanssens, 2010) and local industry in company in Nigeria (e.g., Adekoya, 2011).

Advertisement in such a media as print (newspaper, magazines, billboards, flyers)

or broadcast (radio, television) typically consist of pictures, headlines, information

about the product and occasionally a response coupon. Broadcast advertisement on

the other hand consists of an audio or video narrative that can range from

15seconds spots to longer segments known as infomercials, which generally last 30

to 60 minutes (Busari, Olannye and Taiwo, 2002). Advertisements can also be seen

on the seats of grocery carts, on the wall of airport walkways, on the sides of buses,

airplane and train. Advertisements are usually placed anywhere an audience can

easily and/or frequently access visual and/or video (Busari et al, 2002). Advertising

create awareness about a product and service to the prospective customer and

hence stimulate interest and buying decision which increase sales revenue and
profit. Advertisement may be paid and non paid promotional tools in form of print,

audio and video advertisement. Olusegun (2006) opined that all advertisement

must be honest and follow ethical standards and must not be perceived by the

target consumer as lie; otherwise it can batter the image of a company and hinder it

from building successful brands.

Profitability on the other hand is composed of two words, namely, profit and

ability. The term profit is explained as revenue minus cost (direct and indirect cost)

and the term ability indicates the power of a business entity to earn profits

(Tulsian, 2012). The ability of a concern also denotes its earning power or

operating performance. The profitability may be defined as the ability of a given

investment to earn a return from its use. Profitability is a relative concept whereas

profit is an absolute connotation. Despite being closely related to and mutually

interdependent, profit and profitability are two different concepts. In other words,

in spite of their generic nature, each one of them has a distinct role in business.

Greuning H.V (2005: 27), making some interpretation about International

Financial reporting Standards (IFRS), considers that the profitability indicators

generally mean "an indication of how a company's profit margins are associated

with sales, average capital and own average capital.

In explaining the relationship between the advertising expenditure and the

profitability of business, Akanbi and Adeyeye (2011) examined the relationship

between advertising and sales volume of Nigerian Bottling Company Plc between

1999 and 2009 and conclude that there is a significant relationship between
advertising and sales volume of the company. In supporting the view of Akanbi

and Adeyeye (2011), Olufayo, Ladipo and Bakare (2012) evaluate the relationship

between advertising and patronage of a new product using Nestle Plc as a case

study. Olufayo, Ladipo and Bakare (2012) posit that there is relationship between

advertising and consumer patronage as well as between budget allocation to

advertising and sales volume of the firm. Dauda (2015) in his study observe a

reservation with respect to relationship and significant of advertisement in

explaining increase in sales revenue and profitability as observed by Olufayo,

Ladipo and Bakare (2012) Akanbi and Adeyeye (2011) by examining the effect of

advertising on the sales revenue and profitability of selected food and beverages

firms in Nigeria, He therefore assert that advertising is one of the most important

medium of communication influencing the companies performance in more than

one ways but that its influential strategic importance could be suppressed by other

factors such as sales promotion, personal selling, and publicity, public relation

which also try to receive equal attention at time of deciding any sales and

profitability strategy.

1.2 Statement of the Problem

The business world is highly competitive with every companies jostling for a share

of the market and striving to increase their sales revenue and profitability.

Advertising techniques employed by one firm are easily becoming outdated with

new strategies and the surging growth in E-marketing tools through the worldwide
web introduced by another firm. This high competition has rendered most

advertising effort ineffective and the sales revenue vis-à-vis the profitability of

companies in Nigeria had dwindled instead of increasing. The goal of this study is

hence to study the effectiveness of advertisement in improving profitability of

business organization in a highly competitive financial industry in Nigeria.

Extensive study on the impact of effective advertisement on sales revenue and

profitability has been carried out over the years and various recommendation made

on how to increase profit through effective advertisement. Previous studies have

used various data analysis techniques to establish relationship between advertising

cost and organization sales and profitability. For example Dauda (2015) uses a

stationary test, ordinary least square and correlation techniques to analysis a time

series data based on the flaw identify in Akanbi and Adeyeye (2011) he however

create a room for further complexity and study in examining the proportion of

impact that advertisement have on profitability in relation to other promotional

tools.

This study will therefore attempt to understand whether the advertisement have any

influence on the profitability of business organization in Nigeria and whether such

influence is significance enough to justify the importance of advertisement in an

organization.

1.3 Research Question

Based on the statement of the problem the following research questions needed

answers;
1. Does advertisement cost have any significance impact on the profitability of the

banking sector in Nigeria?

2. What are the benefit of advertisement to the organization

3. Is there any disadvantages in advertisement expenditure to the banking sector in

Nigeria

4. Is expenditure on advertising a necessity in promoting and improving bank

profitability?

5. How can we measure the effectiveness of advertising expenditure in increasing

the profit of the Nigerian banking sector?

6. What factors determine the choice of advertising media of a business

organization

1.4 Objectives of the Study

The main objective of the study is to find out the impact of advertising on

profitability of business organization.

Other objectives of the study are to;

1. Determine the extent to which advertising costs impact profitability of business

organization.

2. Evaluate the impact of the advertising costs on the profit of UBA.

3. Identify the major merits and demerits of advertising.

4. Get to know the concepts of advertising, forms of advertising, functions and

criticism

5. Explained the basic tools for measuring advertisement effectiveness.

6. Identified the possible factors which can shape and determine the choice of

advert media used by business organization in Nigeria.

1.5 Statement of Hypotheses

The hypotheses to be tested by the study; stated in the null form, are as follows:

Hypothesis one

Ho: Advertising does not have any significant impact on the profitability of

business organization.

Hi: Advertising has a significant impact on the profitability of business

organization

1.6 Significance of the Study

The study is expects to yield a number of desirable benefits, the most important of

which is contribution to existing knowledge. Specifically, the findings of the study

would provide direction as to the impact of advertising costs or expenditures on the

sales revenue and profitability vis-à-vis sales profitability of commercial banks in

Nigeria sector. The study will help also help to verified and contribute to the

body of knowledge by explaining the proportion of profitability increase explain

by advertisement only as a promotional tool in the banking sector of Nigeria..

Similarly, the study also hopes to expand the frontiers of knowledge in the area of

conducting its analysis through the use of techniques that have been hitherto

overlooked not well interpreted by the previous researcher by previous researchers

on the effect of advertising on the profitability of business organization with

special consideration of the banking industry.

Apparently, the advertising budget of the Nigerian commercial banks had grown

over the years to constitute a reasonable chunk of expenditure for the financial

sector in Nigeria; little research attention has been paid to the effect of such

advertising costs on the sales revenue and net profit of the banks in Nigeria.

The importance of the findings of the study to the managers of financial sectors in

Nigeria, especially those in the commercial bank in could not be quantified in that

it would provide evidence with respect to the justification of managers‟ increased

resource commitment to advertising in Nigeria over the years. The findings would

equip managers with better insights on how to juxtapose the benefits of increase in

advertising expenditure vis-à-vis sales revenue and net profit.

Furthermore, the study was also expected to be of immense utility to shareholders

whose primary goal is to maximize their wealth. The findings of the study would

help shareholders in their bid to monitor managers and ensure that only costs that

could ensure the maximization of shareholders‟ wealth were incurred by managers

on behalf of shareholders.

1.7 Scope of the Study

This study is concerned with assessing the impact of advertising on profitability of

business organization using a selected commercial bank in Nigeria. The study

restricted itself to the banking sector in Nigeria using the United Bank of Africa as
a case study, based on the important role the bank play in the economic growth and

job creation in the country.

The study is also limited to the impact of advertising expenditure only and other

factor which impact on the profitability of business organization in the banking

sector are not consider. A period of 11 years was adopted for the study ranging

from 2004-2014. The choice of the period has implications for the study because it

is the period within which commercial bank in Nigeria were restructured and

reorganized due to a number of merger and acquisition by Nigerian banks during

this period and also considering the fact that the advertising expenditure increased

arithmetically during this period.

1.8 Limitation of the Study

One of the major limitations for this study is the transportation cost incurred by the

researcher. The data for this study which were extracted from the annual reports

and accounts of the companies under study were got at the Abuja stock Exchange

libraries. This entailed huge sum of money to execute and had affect the scope of

the study.

Financial statement of the bank from the 1999-2003 could not be located in the

library and this affect the ability of the researcher to take a long term analysis of

the significant impact of advertising on the profitability on business organization.

This explains the reason why the scope of the study is limited to 11 years i.e. 2004-

2014 based on the available data from the financial statement.

Further, many number of commercial bank under the financial sector would have

been studied, but unavailability paucity and reliability of necessary data due to the

changed in accounting standard from the international accounting standard (IAS)

to the international Financial reporting standard (IFRS) had been stumbling block

which limit the scope of this study. The researcher had no any other available

option to him than to restrict the scope of this study to the United Bank of Africa

Financial Statement that that are available.

1.9 Definition of Terms

The following terms were in view of their operational meanings:

Advertising: It is any paid message presented through various media, such as

television, radio, magazine, newspapers or billboards by an identified source.

Advertising is a means of creating awareness about a company product and

services as well as stimulating buying and re-buying decision.

Marketing Strategy: It means marketing actions by management to off-set actual

or potential actions of competitors. Marketing strategies consist of various

marketing tools used by business organization to sell its products and services.

Marketing strategies includes the marketing mix of price, Promotion, place and

product; green marketing, telemarketing, online marketing and other tools of

making product and services attractive as well stimulate purchase.

Profitability: It is defined as either accounting profits or economic profits.

Accounting profits mean net income, while economic profits mean net worth.
Profitability is the difference between the turnover or sales and the operating cost

of business organization.

Financial sector: The financial sector consist of the commercial banks, the

mortgage bank, the microfinance bank, finance institution such as AFDB,

merchant bank, Nexim bank etc.

Business organization: A business organization represent a any institution set up

to put resources together toward providing utilities with the sole aim of making

profit.
References

Adekoya Olusola (2011): “Impact of advertising on sales volume of a product”.

Subject of Bachelor’s thesis VALKEAKOSKI Degree Programme in

International Business Global Marketing.

Akanbi, P.A. & Adeyeye, T.O. (2011). The association between advertising and

sales volume: A case study of Nigerian Bottling Company Plc.

Journal of Engineering Trends in Economics and Management

Science (JETEMS) 2(2).

Amit Joshi & Dominique M. Hanssens (2010):“The Direct and Indirect Effects of

Advertising Spending on Firm Value”. Journal of Marketing Vol. 74

(January 2010), 20–33 © 2010, American Marketing Association

ISSN: 0022-2429 (print), 1547-7185 (electronic)

Busari, O.S., Olannye, P.A, Taiwo, C.A. (2002): “Essentials of Marketing”. 1st

Edition, Wadtson Dusme Limited, Mushin, Lagos

Dauda A. (2015): “Effect of Advertising on the Sales Revenue and Profitability of

Selected Food and Beverages Firms in Nigeria”. Department of

Business Administration, Faculty of Administration, Ahmadu Bello

University, Zaria

Greuning H.V (2005: 27) as cited in Tulsian 2014 “Profitability Analysis (A

comparative study of SAIL & TATA Steel)”. IOSR Journal of

 Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN:

2321-5925.Volume 3, Issue 2.

Lodish, Leonard M., Magid M. Abraham, Jeanne Livelsberger, Beth Lubetkin,

Bruce Richardson, and Mary Ellen Stevens (1995), “A Summary of

Fifty-Five In-Market Experimental Estimates of the Long-Term

Effects of TV Advertising,” Marketing Science, 14 (3), G133–40.

Nijs, Vincent R., Marnik G. Dekimpe, Jan-Benedict E.M. Steenkamp, and

Dominique M. Hanssens (2001), “The Category- Demand Effects of

Price Promotions,” Marketing Science, 20 (1), 1–22 Olufayo, T.O.

Ladipo, P.K.A. & Bakare, R.D. (2012). Effect of Advertising on the

Patronage of a New Product. International Journal of Humanities and

Social Science Vol. 12 no. 17; September 2012.

Simester, Duncan, Yu (Jeffrey) Hu, Eric Brynjolfsson, and Eric T. Anderson

(2009), “Dynamics of Retail Advertising: Evidence from a Field

Experiment,” Economic Inquiry, 47 (3), 482–99.

Tulsian, M. (2014): “Profitability Analysis (A comparative study of SAIL &

TATA Steel)”. IOSR Journal of Economics and Finance (IOSR-JEF)

e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 3, Issue 2. Ver. I

(Mar. - Apr. 2014), PP 19-22 www.iosrjournals.org

 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter focused on the review of studies related to the variables of the study.

It discussed the concept of advertising, its functions, and the measure of

advertising effectiveness. The chapter also reviewed a number of empirical studies

and presented the theoretical framework upon which the study rests. The chapter

also presents the argument against the need for advertising and also explained the

dynamic and monopoly theory of profitability as it relate to business. Lastly,

theory of advertising such as persuasion theory, reason action theory and a

summary of the chapter is presented at the end of the chapter.

2.2 The Concept of Advertising

The meaning of advertising cannot be definite as it means different things to

different people depending on their perceptions of what it is. According to Kotler

(2000), advertising is any non-personal presentation and promotion of ideas,

goods, or services by an identified sponsor. Advertiser includes not only business

firms but also museums, charitable organizations and government agencies that

direct messages to target public. Advertising can also be defined as any paid non-

personal communication about an organization, products, services or ideas by an

identified sponsor (Bennet, 2006). Advertising is any paid message presented

through various media, such as television, radio, magazine, newspapers or

billboards by an identified source.

Scholars such as Sandage and Rotzoll (2002) have argued that advertising is a cost-

effective way to disseminate messages, for instance to build brand preference for a

product or to educate people about government policies or to avoid consumption of

hard drugs. Companies embark upon advertising not only to sell their products,

promote their goods, but also to create efficient defense to curtail competitors‟

moves. Frank (2005) saw advertising with the aim to persuade people to buy.

Modern advertising is a product of the twentieth century; however, communication

has been a part of the selling process ever since the exchange of goods between

people started (Kazimi, 2005). Modern commercial advertising is the persuasive

force that aims at changing customer‟s behaviors. This is important because

consumer wants and needs change as their economic positions improve and as they

pass through different stages. It is therefore desirable for advertisers to assess the

impact of advertisement on their products‟ performance from time to time (Kotler,

2000). Shimp (2007) in corroborating Richards and Curran (2002) defined

advertising as a paid, mediated form of communication from an identifiable source,

designed to persuade the receiver to take some action, now or in the future. A

broad variety of rational motives can be used as the source for advertising appeals

such as convenience, economy, health, sensory benefits, quality, performance,

comfort, reliability, durability, efficiency, efficacy etc; all of these are to stimulate

the consumer to patronize a product (Duncan,2002).

According to Giles (1974) as cited in Adewale (2004) advertising is a non-personal

communication directed at target audience through various media in order to

present and promote products, services and ideas. Hancock and Holloway (2000)

stated that advertising are those marketing activities other than personal selling,

publicity and public relations that stimulate consumer purchasing and dealers

effectiveness, such as displays, shows and exhibitions, demonstrations and various

non-recurrent selling efforts not in ordinary routine. Wright (2000) defined

advertising as a short term incentive to the traders or consumers to induce the

purchase of a product. Engel (2000) stated that advertising informs customers

about a product and also sells the product.

All the aforementioned definitions made modest efforts to define advertising.

However, one or two deficiencies can be observed from some of the definitions.

The study finds the definition by Bennet (2006) that advertising is any paid non-

personal communication about an organization, products, services or ideas by an

identified sponsor as a better one and hence it was adopted by it. The definition

appears to be adequate for the purpose of the study, and encompasses all the

important dimensions to advertising such as the product, awareness and sales

among others.
2.3 Functions of Advertising

It is undoubtedly true that many products and services would remain unsold were it

not for advertising campaign. Only major firms can afford to produce advertising

campaign because of their high cost and such firms compete fiercely, utilizing

expensive media (East, 2003). Thomas (1991) opined that one of the functions of

advertising is to create differentiation among brands that are otherwise difficult to

distinguish. Schmalensee (1976) argued that established firms achieve a significant

market advantage. This occurs because their advertising effectiveness and product

appeal have been enhanced by consumer experience with the product as well as the

simple aggregate volume of competing advertising messages. Thus, established

firms can impose higher advertising costs on new entrants by increasing their own

advertising barrier to entry, more market power and higher profits. This can be said

to be true of the food and beverages firms in Nigeria because of consumer

experience with their products as well as their product appeal to the minds of their

customers. This is an indisputable fact because major firms such as Cadbury

Nigeria Plc, Nestle Nigeria Plc, NBC and Seven-Up Companies within the food

and beverages sector had eliminated other competitors from the market through

advertising intensity and the commitment of huge advertising financial resources to

advertising programmes.

Adewale (2004) postulated that advertising performs the following functions: It

informs the public or potential buyers about the existence of a product or services
and where it can be obtained; it educates the consumers about the use of the

products; it encourages the company to improve its product qualities or services

qualities if it is to remain in the market. Advertising however helps to persuade the

consumers to buy the products. Advertising creates employment opportunities for

the people; to remind the consumers about the continued purchases of the goods.

Also advertising helps to expand the markets for some goods and services and thus

reducing prices, brand loyalty is created, and for instance some people will not take

any type of milk. It presents good image of the company to the public. Advertising

increases volume of sales and thus increase profits and it provides information

about changes in price and quality of the goods and services.

Akanbi and Adeyeye (2011) observed that advertising set off a chain reaction of

economic events. Why do consumers prefer advertised brands as compared to

unadvertised brands in the same product category? Not necessary because

advertised brands are superior but because advertising can add value to a brand in

the consumers mind. While advertising may not speak directly about a products

quality, the image created by advertising may imply quality and make the product

more desirable by adding value to it. Advertising also adds value by educating

consumers about their options of choosing their desired value in the products or

services they buy. Advertising also offers consumers the opportunity to satisfy

their psychic or symbolic needs and wants through products or services they use.

Advertising contributes to the self-interest by adding value to products and services

in a free market system. Furthermore, it encourages competition which adds to the

consumers’ self-interest.

In accordance with the work of Young (2005), Shimp (2007) asserted that many

business firms as well as not- for-profit organizations have faith in advertising

majorly because it performs five critical communications functions which are

informing, influencing, reminding and increasing salience, adding value, and

assisting other company efforts. One of the advertising’s most important functions

is to publicize brands (Ehrenberg, Barnard Kennedy, and Bloom, 2002).

Advertising is an efficient form of communication capable of reaching mass

audiences at a relatively low cost per contact, it facilitates the introduction of new

brands and increases demand for existing brands, largely by increasing consumer’s

top-of-mind awareness for established brands in matured products categories

(Ehrenberg, Barnard, Kennedy, and Bloom, 2002). Advertising performs most

valuable information role – both for the advertised brand and the consumer by

teaching new uses for existing brands hence encouraging customers to exhibit

willingness to patronize such a brand (Wansink and Ray, 1996). Scholars agreed

that effective advertising assists in influencing perceived quality and other

perceptions of a product thereby leading to increased market share and greater

profitability. Machleit, Allen, and Madden (1993), asserted that effective

advertising increases the consumers interest in matured brands and thus the

likelihood of purchasing brands that otherwise might not have been chosen just as
they maintained that advertising has demonstrated having influence over brands

with tendency of consumers who have not recently purchased a brand. Advertising

is used to maintain sales and to stabilize or increase profits levels. It can help to

change attitudes leading to favoring one firm’s product over another’s. More often

than not, it is used to bring new goods and services to the attention of the buying

public and build good will between producers and customers.

Bisi (1992) stated that advertising is used to clarify the negative opinions people

have about a product which may be as a result of what they have heard other

people say about the product. The writers on the function in advertising shared

similar opinions especially the advertising is used to influence consumer behavior

by persuading them to buy.

2.4 Types of Advertising

Advertising can be classified on different bases. The most common typologies are

on the basis of media, sponsor, geography, audience and the stage in product life

cycle in which advertising is being done. According to Colley (1961),

classification may be on the basis of what is being advertised and the kind of

demand the advertising is intended to stimulate or create; and these classification

can be summarized as follow.

i. Classification by Media: The advertising medium is the route through which

advertising is channeled; thus, we can identify two important media, these are print

and electronic advertising.

a. Printing advertising: It is the advertising that relies on the printed words and it is

further subdivided into newspaper advertising in which daily magazines/journals

advertising (weekly magazines or monthly journals) are used to advertise products

e.g. Daily Trust, New Nigeria Newspaper, Standard Newspaper, Weekly Trust,

Vanguard Newspaper, etc. This also includes outdoor advertising through which

sign boards, posters, and billboards are mounted on major roads to display

products or services.

b. Electronic advertising: Advertising could also be channeled through the use of

electronic media such as the radio, television, cinema, home video etc.

ii. Classification by sponsor: Manufacturer –producers advertising are those

advertising sponsored by manufacturers or producers of a product. These are

common with manufacturers and producers of household items such as the

Unilever, Peterson Zochlis, and others.

a. Cooperative advertising it is the type of advert that is being sponsored by two

organizations in the same business line of production. This could involve joint

sponsorship of advertising campaign by firms in different stage of production.

iii. Classification by Geographical Coverage: This type of advertising campaign is

usually tailored on a particular audience or customers. This may prompt an

advertising covering wider or limited geographical areas. This involves local and

national advertising. Local advertising is a geographically localized advertising by

local newspapers or radio station, while the national advertising has its coverage in

the entire country utilizing national newspapers or radio station.

iv. Classification by Intended Audience: Advertising is often aimed at different

target audience depending on the product and primary purpose for which it is being

used. Curry and Penman (2004) asserted that consumer advertising is aimed at

individuals and households who buy for domestic non-business use. But, Industrial

advertising has its target audience on those who buy for resales or for production

of goods and services for sales. However, trade and professional advertising are

those advertising focused on those who buy for resales and those who do not use

product themselves but recommend them for use by others.

v. Classification by Stage in Product Cycle: According to Lavidge and Steiner

(1961), a product passes through many stages during its life span. When a new

product is being introduced for the first time into the market, it is through the

pioneering advertising. Pioneering advertising is used to herald a new product into

the market, introduce it to the potential users and demonstrate its usefulness. As a

competitor develops new products, each competitor tries to demonstrate the

competitiveness superiority of his products over others. In this stage of the product

life cycle, there is competitive advertising which is used to fight competition in the

market place and for improving market share of the company. At the maturity

stage of the life cycle of the product, the main purpose of advertising is to regain

the company’s current customers‟ patronage.

The main advertising approaches according to Kotler (2000) are:

1. Competitive: Advertising is where one firm tries to outdo others competing for

buyers using the most expensive medium i.e. television and showing its ads as

often as it can afford.

2. Specialty: Advertising, a firm produces small promotional articles which are

given away freely to potential customers. These might include pens, pencils

dairies, key rings and a vast of array of stickers.

3. Defensive: Advertising a firm has no choice but to advertise even if it had no

intention of doing so. This can be regarded as „forced advertising‟ brought upon

the firm by competitors who wish to prevent it from getting a hold on the market.

This is costly as firms must act fast and advertise in order to wade off such attacks

(Abiraji, 1998). Companies are advised to select the best medium of

communication of their products to the consumers. While selecting the best

medium of communication, they must make sure that they select the less costly

medium in order to reduce expenses on their activities. Also, their choice of

communication process should be capable of reaching the consumers at all the

time.

2.5 Factors That Determine the Choice of Media

The selection of advertisement media is a primary concern to an advertising

agency. This is due to its paramount importance towards successful, effective and
meaningful response from its advertisement message (Shimp, 2002). It is not to say

the right thing about the right thing but to the right people using the right choice of

media. The factors that a business organisation must be considered before arriving

at a logical decision about the choice of media are:

i. Cost: The cost of medium varies, while some are very costly, some are relatively

cheap. This must be weighted with the financial resources made availaible for the

advertisement to ensure compatibility.

ii. Product features: The nature of the product is very significant, some products

are very complex, while others are simple. The unique features of a complex

products must be explained while simple products are more or less of a mass

market.

iii. Audience characteristics: This greatly influence the choice of not only message

but also equally the mean of advertisement.

iv. Objective of advertisement: The reason of advertising a product or service must

be uppermost when choosing a medium. This is because each of the media has its

own objective, thus, for a round peg to be a round hole, there must be coincidence

of objectives.

v. Message characteristics: The message that each medium can contain equally

varies. Thus, for a better communication, the advertisement message must be in

line with what the advertisement medium or media can obtain.

vi. Location, Demography, Religion: All these will determine the kind of

advertisement message that could be distributed. However, advertising research is

key to determining the success of an advert in any country or region. The ability to

identify which demerits and or moments of an advert that contributes to its success

is how economies of scale are maximized. Although the message is vital to

advertising success, an equally important factor is the medium through which it is

presented (Andre, 2004).

Business -to-business media are selected by target audience – the particular

purchased decision participants to be reached. Generally, the first decision is

whether to use trade publications, direct mail, or both. Selection of a particular

media also involves budgetary considerations: where Naira best spent to generate

the customer contact desired. The media planner has to know the capacity of the

major media types to deliver reach, frequency and impact. The major advertizing

media along with their cost, advantages, and limitations are shown below.

Table 2.1: The Dimensions of Advertising Media, Advantages and Limitations

Combines sight, sound and motion; High absolute cost; high
Medium Advantages
appealing to the sense; Limitations
high clutter, fleeting exposure,
Newspapers Flexibility,
attention; andtimeliness;
high reach. good Short and life, less poor audience
local market coverage, broad reproduction
selectivity quality
acceptance; and high and small “pass-along”
believability. audience.

Television

Direct mail Audience selectivity, flexibility, no Relatively high cost;

ad competition within the same “junk mail” image.
medium, and personalization.
Radio Mass use; high geographic and Audio presentation only;
demographic selectivity; low cost lowers attention than
television; non
standardized rate
structures; fleeting
exposure.

Magazines High geographic and demographic Long ad purchase lead

selectivity, credibility and prestige; time some waster
high-quality reproduction; long life; circulation; no guarantee
good pass along readership. of position.

Outdoor Flexibility, high repeat exposure; Limited audience

low competition selectivity creative
limitations.

Yellow pages Excellent local coverage; high High competition; long ad

believability; wide reach; low cost. purchase lead time;
creative limitations.

Newsletters Very high selectivity, full control, Costs could run away`
interactive opportunities, relative
low cost.

Brochures Flexibility, full control, can Over production could

dramatize messages. lead to run-away cost.

Telephone Many users; opportunity to give a Relative high cost unless

personal touch volunteers are used.

Internet High selectivity; interactive Relative new media with

possibilities, relatively low cost a low number of users in
some countries.

Source: Kotler (2000), Marketing Management

The above table shows different medium of advertizing with their advantages and

limitations. The advertisers or companies can decide to make use of any of them

which is suitable to their needs. The left hand side shows the medium used for
advertising, the advantages for each of the medium. While the right hand side

depicts the limitations of the available medium utilize for advertising.

2.6 Criticisms of Advertising

As beautiful as any advertising is, yet they are being criticized because of their

intents. Also, despite the various functions performed by advertising in helping to

make sales for companies, they are being attacked. Adewale (2004) posited that

advertising has been criticized from the following areas: it may lead to impulse buy

i.e. buying what you don‟t need; prices may increase because the cost of the

advertising is built into the price. Another area which advertising has been

criticized is that products may be embellished that it may mislead the consumers; it

may corrupt the youths as in the case of alcohol and cigarette. Moreover,

advertising may lead to rivalry or competition. Powerful companies may drive

away poor ones and thus becoming a monopolist with its attendant problems. Some

advertising media employed by some companies have limited coverage and so only

those who have access to the media benefit from the product. Also because some

producers enjoy very expensive advertising they enjoy patronage which they do

not deserve and advertising may limit the choice of consumers and thus limiting

the markets for producers and the effect is little or no profit.

According to Akanbi and Adeyeye (2011), advertising is criticized for being

untruthful and deceptive, offensive and it is said to also exploit valuable groups. It

is generally agreed that advertising exerts a powerful social influence and it is

criticized for encouraging materialism in society. Advertising is blamed for

manipulating consumers to buy things for which they have no real need, depicting

stereotypes and controlling the media. Many people wonder whether advertising

encourages materialism or merely reflects values and attitudes that develop as a

consequence of more important sociological forces. Economists are critical of

advertising because it creates a barrier to entry of smaller firms which have fewer

resources and cannot match the power of large firm with huge advertising budgets.

High cost may inhibit their entry and brands of large firms could benefit greatly

from this barrier. This results in less competition and consequently higher prices

(Bennett, 2006).

The criticisms notwithstanding advertising is known to be one of the most efficient

ways of educating current and perspective consumers about a product or service

and its inherent features. It is also believed- by many to be one effective medium

of reaching out to a large number of target markets with fewer encumbrances.

Most importantly, advertising is very essential to the survival of a company,

especially in the 21st Century because it helps in the improvement of company

sales revenue through increased product awareness.

2.7 Measuring Advertising Effectiveness

Advertising is designed to create awareness, stimulate loyalty to the company, or

create a favorable attitude towards a product. Even though advertising may not

directly precipitate a purchase decision, advertising programs must be held

accountable. Thus, the business advertiser must be able to measure the result of

current advertising in order to improve future advertising and must be able to

evaluate the effectiveness of advertising expenditures against expenditures on other

elements of marketing strategy (Akanbi & Adeyeye, 2011). The theory is that

advertising can affect awareness, knowledge, and other dimensions that more

readily lend themselves to measurement. In essence, the advertiser attempts to

gauge advertising’s ability to move an individual through the purchase decision

process.

It is easier for instance to estimate the effect of a new machine in the factory than it

is to predict the impact of higher advertising outlays (Kamber, 2002). Kotler

(2000) asserted that advertising effectiveness is predicated upon message content,

medium use, product perception and other factors which in varying degree

determine its effectiveness. Good planning and control of advertising depend on

measures of advertising effectiveness. However, most measurements of advertising

effectiveness deal with specific advertising campaigns. Most of the money is spent

by agencies on pretesting ads, and much less is spent on evaluating their

effectiveness. Most advertisers try to measure the communication effects of an ad,

that is, its potential effect on awareness, knowledge or preference, and on sales

efficiency (Kotler, 2000). Forester (1999) and Russel (1999) posited that

advertising sales effect is generally harder to measure than its communication

effects. Sales are influenced by many factors such as the product features, price
and availability as well as competitor‟ actions. They argued that the few or more

controllable these other factors are, the easier it is to measure effect on sales.

Sundarsan (2007) found that the sales impact is easier to measure in direct-

marketing or corporate image building advertising. But the present study has

decided to look into the sales revenue and the profitability of the firms under study.

John and Judy (1996) observed that a growing number of researchers are striving

to measure the sales effect of advertising expenditure instead of settling on

communication effect measure.

In summary, advertising effectiveness can be measured through a number of

parameters, depending on the nature of the product and the advertising medium

employed. Most studies measure the effectiveness of advertising by concentrating

on its communication effect (its effect on awareness, knowledge or preference)

while others measure such effectiveness from the viewpoint of sales revenue in

relation to the expenditure on advertising campaigns.

2.8 Profitability

Furthermore, profitability is defined as either accounting profits or economic

profits. Accounting profits means net income, while economic profits, means net

worth. Profitability is the primary goal of all business ventures. Without

profitability the business will not survive in the long run. So measuring current and

past profitability and projecting future profitability is very important. Profitability

is measured with income and expenses. Income is money generated from the
activities of the business. For example, if crops and livestock are produced and

sold, income is generated. However, money coming into the business from

activities like borrowing money does not create income. This is simply a cash

transaction between the business and the lender to generate cash for operating the

business or buying assets. Profitability is measured with an “income statement”.

This is essentially a listing of income and expenses during a period of time (usually

a year) for the entire business. An income statement is traditionally used to

measure profitability of the business for the past accounting period. However, a

“pro forma income statement” measures projected profitability of the business for

the upcoming accounting period. A budget may be used when you want to project

profitability for a particular project or a portion of a business.

Whether you are recording profitability for the past period or projecting

profitability for the coming period, measuring profitability is the most important

measure of the success of the business. A business that is not profitable cannot

survive. Conversely, a business that is highly profitable has the ability to reward its

owners with a large return on their investment. Increasing profitability is one of the

most important tasks of the business managers. Managers constantly look for ways

to change the business to improve profitability.

2.9 Theoretical Framework

The theory that underpin the concept of Advertising are; Persuasion knowledge

theory, Elaboration Likelihood Theory and the theory of Reasonable Action, while

the theory of profitability on the hand is underline by the dynamic theory and the

Monopoly theory.

2.9.1 The Dynamic and Monopoly Theory of Profitability

Until recently, firms managers were solely expected to maximize the firms‟

wealth. If that is the case, managers are now expected to take decisions that take

account of the interests of the firms in term of profits. Measuring profitability is the

most important measure of the success of the business. Therefore, managers must

do their best to ensure that their firms are operating at marginal level of certainty of

returns to warrant profitability for the firm.

Theories have been formulated over the years to explain the variable of

profitability. Few of such theories to mention are dynamic theory of profit,

compensation theory of profit, monopoly theory of profit, uncertainty theory of

profitability, risk taking theory of profit and innovative theory of profit. The

compensation theory of profitability is further divided into compensation or reward

for uncertainty bearing and reward for risk bearing. This paper focus on explaining

the concept of dynamic theory of profit and Monopoly theory of Profit based on its

relevance to the study at hand.

2.9.1.1 Dynamic theory of Profit

The theory of dynamism is associated with the scholar J. B. Clark, who stated that

there can be no profit in a static world where size and composition of the

population, the number and variety of human tastes and desire, techniques of

production, technical knowledge commercial organization etc. remain constant. In

a world like according to him everything is known and knowable and can be

accurately foreseen, there is certainty and no uncertainty, no risk and hence no

profit. Cost of good and services and the selling price of goods and services in a

static world are always equal and there can be no profit beyond wages for the

routine work of supervision. However, the world we leave in now is non stationary

or static, it keeps changing due to internal and external factors which affect it. A

clever entrepreneur will often foresee these changes and become a pioneer who

takes advantages of these changes. He is the first to foresee the changes and take

risk into the unknown future.

The changing and dynamic world offers an opportunity to the far sighted daring

and clever entrepreneur to make profit by turning the fact of the dynamic situation

in there own favour. This is possible because the businesses worlds in which they

operate is dynamic and make it possible for them to keep the lead and make the

profit. In a static state profit will disappears and entrepreneurs will only earn wages

of management not necessary the t profit.

Buttressing the perspective of J. B. Clark on the dynamism of Profit, Don (2009)

propounded that the dynamic theory of profit is the residue; the difference between
price and cost, due to the reductions in the cost effected by changes in the economy

such as population increase (this reduces wages), increased capital supply (this

reduces the interest rate charged and hence the cost of capital comes down), and

technological improvements (reduces the costs). This theory treats profits as a

residue in price after deducting costs.

Criticism of Dynamic Theory of Profitability

Professor Knight in his own analytical view observer that it not possible to make to

make profit from those changes which can be foreseen but profit can only be

derived from changes which can not be foreseen or provided for in advance can

only yield profit. Changes in advertising cost are usually not foreseen or make

provision for in advance, hence it will yield profit. But if this changes advertising

cost can be foreseen and make provision for in advance based on Professor Knight

perception, the business organization may not make enough profit.

Due to the reason giving above, Prof. Knight assert that it can not then be change

or dynamism which is the cause of profit, since if the law of change is known, no

profit can arise. Change may however cause a situation where profit will be made,

if it brings about ignorance of the future. Hence, it’s argue that ignorance of the

future or uncertainty and not superfluously change is responsible for profit

2.9.1.2 Monopoly Theory of Profitability

The monopoly theory of profit is based on the believed that the output is control by

monopolist to the extent that price of goods and services are not allowed to fall

below cost of production of good and services. By restricting entry of new firms

into the business by means of agreement and the use of a patent right and similar

devices, monopolist are able to reap a monopolist or abnormal profit. But the most

common monopoly profit lies in monopolistic competition or product

differentiation which is the situation with business organization in Nigeria,

especially the commercial banks.

An element of monopoly profit can also be traced to the innovation theory of profit

according to Schumpeter’s (1956) and the pioneering profit. Any business

organization who produce a new products or services and is able to discover new

material or cheap process or a new market will always be able to make an extra

gain until the rivals and competitor catch up or are able to match up to the new

discovery. The ability of a monopolist to enjoy a monopoly power and make profit

depends on ultimately on the restrictions they are able to impose on the entry of the

new firms

2.9.2 Theory of Advertising

There are various theory of advertising develop by scholars based on their

individual divergent view. Some of the theory are; the utility theory of advertising

(informative and less informative advertising), the reason action theory, the

persuasion theory, the elaboration likelihood theory.

2.9.2.1 Theory of reasoned action

Although perhaps not a strict persuasion theory, the theory of reasoned action is a

model of behavioral intentions developed by Fishbein and Ajzen (1975). The

model incorporates both attitudes and subjective norms that people hold in

predicting their future behavior. Formally, the theory of reasoned action is:

b ~ bi = aact(w1) + sn(w2)

Where

b = a particular behavior

bi = intention to engage in the particular behavior

aact = attitude toward engaging in the behavior

sn = subjective norm pertaining to what others think

The theory posits that the most proximal input into a behavior is a person’s

intention to engage in that behavior. (Although seemingly obvious, this assumption

is important because it implies that behavior is intentional.) in turn, behavioral

intentions are determined by one’s attitude toward performing the behavior or act

(aact) and one’s beliefs about what important others think about one performing

the behavior (sn). the weights for each component (w1 ,w2) indicate that the

relative weights for each component of behavioral intention will vary across people

and situations. for example, some behavioral intentions may be overly influenced
by subjective norms (wearing a particular brand of clothing), whereas other

intentions are more heavily influenced by personal attitudes (choice of chewing

gum). Fishbein and Ajzen (2010) further specified that each component of

intention, attitudes, and subjective norms were themselves determined by specific

beliefs about each. Using an expectancy-value approach, they quantified attitude

toward the behavior as a cross-product of the subjective likelihood that performing

a particular behavior (b) would lead to a specified outcome (i) and their evaluation

of that outcome (e):

aact = σ biei

i=1

Where n represents the number of different consequences that come to mind.

similarly, Fishbein and Ajzen quantified the subjective norm component as the

cross-product of the belief that an important other (j) thinks one should perform a

particular behavior (b) and one’s own motivation to comply with that important

other (m):

sn = σ bjej

j=1

2.9.2.2 Persuasion Knowledge Model

Unlike the theory of reasoned action and elaboration likelihood model, both of

which originated in the field of social psychology, the persuasion knowledge

model (Friestad & Wright, 1994) is uniquely marketing-focused. Although the

model could likely be applied to persuasion in other contexts, to date its focus has

been on the interaction between marketers and consumers (Shrum et. al. 2012).

Because the model is relatively new and has had little exposure outside of the

marketing literature, we begin with a more thorough description of the model

compared to the previous ones we discussed, and then proceed to discuss recent

tests of the model.

The persuasion knowledge model was formally introduced in 1994 as the first

model to explain how knowledge of marketers’ persuasion tactics affects

consumers’ responses to such tactics (Friestad & Wright, 1994). The model asserts

that over time, consumers develop knowledge of marketers’ persuasion tactics and,

in doing so, become better able to adapt and respond to such attempts in order to

achieve their own personal goals (for a review, see Campbell & Kirmani, 2008).

Friestad and Wright (1994) decompose the persuasion process into two primary

elements: the target and the agent. The target refers to the intended recipient of the

persuasion attempt (the consumer), whereas the agent represents whomever the

target identifies as the creator of the persuasion attempt (the marketer). The

persuasion attempt encompasses not only the message of the agent, which itself is

influenced by the agent’s knowledge of the topic, target, and the effectiveness and
applicability of different persuasion tactics, but also the target’s perception of the

agent’s persuasion strategy.

The persuasion knowledge model presumes that consumers formulate coping

strategies in order to decide how to respond to marketers’ persuasion attempts in a

way that optimally aligns with their own goals. When creating such strategies,

consumer targets are said to be motivated to utilize and allocate cognitive

resources between three different knowledge structures: knowledge of persuasion,

knowledge of the agent, and knowledge of the persuasion topic(s). A target’s

knowledge of persuasion typically depends on three factors: experience, cognitive

ability, and motivation. Experience and cognitive ability are straightforward;

however, motivation can be influenced in a number of ways. It can be enhanced by

factors such as unfamiliarity with the agent, similar persuasion behaviors having

been observed in a different context, use of an uncharacteristic persuasion tactic, or

belief that knowledge of the agent is outdated. It can also be deterred by factors

such as difficulty in the identification of the agent, perceived leeway of a

salesperson, or perceived irrelevance of the agent in the target’s personal,

professional, and marketplace relationships.

Cultural differences may also play a role in motivation. For example, individuals in

independent self-construal (e.g., Western) cultures may interpret persuasion

attempts predominantly in terms of a personal attitude on the persuasion topic,

whereas individuals in interdependent self construal cultures (e.g., Eastern) may

interpret such attempts in terms of a personal attitude on the social relationship

with the agent. Such different interpretations may lead to different persuasion

responses. The interaction of the target’s coping behaviors and the agent’s

persuasion attempt forms what Friestad and Wright (1994) refer to as the

persuasion episode. The persuasion episode may include one encounter, such as a

sales presentation, or multiple episodes, such as a series of television

advertisements presented over time. Furthermore, consumers and marketers may

switch roles, with the consumer becoming the agent and the marketer becoming the

target when, for example, a consumer attempts to negotiate or bargain, or

otherwise influence a firm’s selling tactics in any way. Regardless of who occupies

which role, the model assumes that both agents and targets want to maximize the

effectiveness of their persuasion production and persuasion coping behavior

respectively.

The persuasion knowledge model also asserts that consumers utilize persuasion

knowledge to evaluate marketers’ persuasion behavior on two primary dimensions:

perceived effectiveness and perceived appropriateness. Consumer’s judge

persuasion behavior to be effective when it seems to have produced psychological

effects that strongly influence purchase decisions. Consumers deem persuasion

behavior appropriate to the extent it appears to be ethical or normatively acceptable

(i.e., within the rules of the game), especially with regard to consumers’

relationship expectations. For example, if a marketer’s persuasion attempts are

perceived as disrespectful or unexpectedly careless, it will likely lead to a negative

consumer evaluation, potentially damaging brand equity and the reputation of the

firm overall.

The model also rests on the fundamental assumption that people are “moving

targets.” In other words, the validity of a consumer’s knowledge about the

marketer, the marketer’s persuasion tactics, and the persuasion topic will ebb and

flow over time. A similar thing can be said for marketers, as their knowledge of

consumers’ interests, preferences, and expectations is also likely to fluctuate over

time. As a result, causal relationships between firm behavior and consumer

responses are prone to changing over time as well, and, as such, must be

reexamined every so often to ensure that they are still valid.

2.9.2.3 Elaboration Likelihood Model

The ELM is a model of persuasion that proposes two distinct routes to persuasion,

the central route and the peripheral route which refer to attitude changes that occur

through different levels of evaluative processing. In the central route, attitudes are

formed through an extensive, effortful process that scrutinizes a message for the

quality of its arguments. In many respects, this highly effortful central route to

persuasion resembles the highly effortful process of attitude formation described

by the theory of reasoned action. In contrast, the peripheral route refers to attitude

formation that is based on non-argument cues, such as mood, source attractiveness

(when not relevant to the argument quality), and heuristics (e.g., number of

arguments, source expertise, message length).

The ELM provides an integrative model that addresses some of the perplexing

inconsistencies in earlier attitude research. As Petty and Wegener (1999) note,

attitude research in the late 1970s was in a remarkable state of disarray. Commonly

accepted variables of attitude change, such as the mood of the receiver and the

credibility of the message source, often produced conflicting effects (Sternthal,

Dholakia, & Leavitt, 1978; Zanna, Kiesler, & Pilkonis, 1970). The ELM was

intended to provide a unifying framework that could explain how the classic inputs

into persuasion (source, message, recipient, context) could have different impacts,

depending on the particular route to persuasion. Thus, either the central route or the

peripheral route can be evoked in various situations involving different message

types, individual differences among receivers, and environmental (or situational)

factors.

Persuasion can be effective in both routes, although the strength, durability, and

resistance of attitudes formed via the two routes may differ (Haugtvedt & Kasmer,

2008; Petty & Wegener, 1998). The underlying mechanism of the ELM is

indicated in its name: elaboration likelihood. The model posits that when people

have both the motivation and the ability to process the information presented in a

persuasive communication, the likelihood of message elaboration is high, and

people will take the central route. In contrast, when the likelihood of message

elaboration is low as a result of either lack of motivation or ability to process

information, people tend to take the peripheral route to persuasion. Which route is

taken has a number of important implications. First, it determines which

components of a persuasive communication will be the most effective, either

central cues (message quality) or peripheral cues (mood, expertise, source

attractiveness). This helps explain the rather counterintuitive finding that quality of

the message may have little effect on persuasion in some situations, such as when

motivation or ability to process the arguments is low, but other seemingly

comparatively trivial variables (liking for background music in an ad) may have

strong effects.

A second important implication of which route to persuasion is taken pertains to

the qualities of the attitudes formed. The two routes may yield attitudes that are of

equal valence and extremity. However, other important qualities of the attitudes

will differ as a function of the two routes. Attitudes formed through the central

route tend to be more highly accessible, held with more confidence, more

predictive of behavior, more resistant to change, and persist longer over time,

compared to attitudes formed through the peripheral route (Petty & Krosnick,

1995).

Attitudes formed through the central route result from active information

processing and a well integrated cognitive structure, whereas attitudes formed

through the peripheral route are led by passive acceptance or rejection of simple

cues and are weaker, particularly over the long term.

2.10 Previous Studies

Okeji (2008) evaluated is effective advertising as an effective marketing tool in

Nigeria: Evidence from food and beverages industry. He employed a total sample

of fifty members of staff of the Nigerian Bottling Company as respondents to

investigate their perception regarding the effectiveness of advertising as a

marketing tool in the company. The responses were analyzed using correlation and

the Chi-square statistic. The study found that advertising contributes positively to

sales of the Nigerian Bottling Company Plc as depicted by 100% response rate.

The weakness of the study lies in its arbitrary drawing of sample size without

recourse to any objective criteria. Thus it becomes very difficult and unsafe to

generalize based on the findings of the study.

Abiodun (2011) examined the impact of advertising on sales volume of Starcomms

Plc. The study used frequency tables, percentages and Chi-square to establish

relationship between advertising and sales volume of the company.

Despite the attempt made by the study to establish relationship between advertising

and sales volume of the company, the study suffers from a number of weaknesses.

The study failed to clearly reveal the impact of advertising on the sales volume of

the firm because it utilized primary data that does not adequately capture the

impact of relationships. Similarly, the sampling procedure of the study and the

absence of validity and reliability test for the research instruments may have

affected the data collected and by implication the findings of the study. Lastly, the
number of questionnaire copies filled and returned was not adequate by any

systematic standard for the test of hypothesis.

In a related study, Akanbi and Adeyeye (2011) examined the relationship between

advertising and sales volume of Nigerian Bottling Company Plc between 1999 and

2009. Using the OLS regression technique and t-test on annual time series data of

advert costs and sales volume as surrogates; the study found a significant

relationship between advertising and sales volume of the company. Despite the

fact that the study provided a modest attempt to establish relationship between

advertising and sales volume of NBC Plc, it is not completely spared of some

limitations. First and foremost, the study failed to establish the stationarity of the

time series data used for testing the relationship. Furthermore, given that the study

aims at finding out how advert costs can improve sales, the right proxies to employ

should have been advert cost and sales in their absolute values. Thus, it is highly

unlikely if the results of the study were not affected by these methodological

issues.

Furthermore, Akeen (2011) evaluated customer attitude towards internet

advertising and online sales using MTN Nigeria as a case study. In the study, a

simple random probability sampling technique, simple frequency tables and the

Chi-square statistical tools were adopted for data analysis. The finding has shown

that there is relationship between availability of uninterruptible power supply and

effective internet advertising/online sales.

A close look at the methodology of the study reveals a number of shortfalls. First

and foremost, the study failed to employ the right measures of the variables to

establish the relationship. Furthermore, the fact that the sampling procedure was

not systematic gave rise to the arbitrary selection of sample size that is inadequate

to provide a rigorous study of online sales. Finally, the study’s major

recommendation has no linkage with any of its findings as the study was concerned

with customer attitudes toward advertising and not the factors that affect online

advertising generally. Olufayo, Ladipo and Bakare (2012) evaluated the

relationship between advertising and patronage of a new product using Nestle Plc

as a case study. They utilized responses from 170 copies of a questionnaire

administered to customers, employees and distributors of Nestle Plc. The

descriptive statistics of the various responses were presented and analyzed while

the hypotheses of the study were tested using Spearman’s correlation coefficient.

The study found that there is relationship between advertising and consumer

patronage as well as between budget allocation to advertising and sales volume of

the firm. The study suffers from a number of issues which include the use of

responses to establish relationships between variables. Similarly, the mere presence

of correlation between the variables of the study is not in any way suggestive of the

direction of influence since correlation does not reveal which variable influences

the other. Lastly, the conclusion of the study may not have been derived from the

results obtained from data analysis because of the inability of correlation to explain

causality. In a nutshell, there are relatively few studies that have sought to
empirically establish the connection between advertising as a cost element and the

behavior of total sales volume of the food and beverages firms in Nigeria

Dauda (2015) in his study provide some reservation with respect to relationship

and significant of advertisement in explaining increase in sales revenue and

profitability as observed by Olufayo, Ladipo and Bakare (2012) Akanbi and

Adeyeye (2011) by examining the effect of advertising on the sales revenue and

profitability of selected food and beverages firms in Nigeria, the study uses a

secondary data collected for advertising expenditures, sales revenue and profit of

food and beverages companies listed in the Nigerian Stock Exchange over the

period of 2000 to 2012. Ordinary least square and correlation analysis was

employed in analyzing the data. He therefore conclude that advertising is one of

the most important medium of communication influencing the companies

performance in more than one ways but quickly warn that its influential strategic

importance could be suppressed by other factors such as sales promotion, personal

selling, and publicity, public relation which also try to receive equal attention at

time of deciding any sales and profitability strategy. The conclusion of Dauda

(2015) is not well spell out and contradicts itself as well as creates more

complexity in understanding the actual effect of advertising on sales revenue and

profitability. Secondly Dauda (2015) fails to explain the proportion of joint

variability that the data used for analysis have in common in explaining the impact

of advertisement on sales revenue and unemployment.

This study will therefore attempt to confirm whether there exist a relationship

between advertising expenditure and profitability of a selected commercial bank as

observed by Dauda (2015) as well as establishing the extent or proportion of the

influence on profitability explain or predicted by advertising cost. The study will

also examine the trend and strength of this relationship so as to arrive at a

dependable solution; hence help in contributing to the body of knowledge available

on the literature. The study intend to build on the work of Akanbi and Adeyeye

(2011) and Dauda (2015) to help provide a better conclusion and recommendation

2.11 Chapter Summary

The chapter reviewed literature on the concept of advertising, its functions and

criticism of advertising the mean of measuring the effectiveness of an advertising

programme was also discussed in the study to include the communication effect

and the profitability measurement. Furthermore, the chapter also reviewed a

number of local and international studies on the relationship between advertising

and sales volume as well as its impact on profitability in the food and beverage

industry such as; Okeji (2008), Abiodun (2011), Akanbi and Adeyeye (2011),

Akeen (2011) and Olufayo, Ladipo and Bakare (2012).

Finally, the chapter highlighted the theory of profitability such as the dynamic

theory, compensation theory, monopoly and innovative theory of profit and

provides an explanation on the dynamic theory of profit which deals with the

residue as a result of differences between sales and cost caused by change in

population, reduction in wages and decrease in cost. The monopoly theory of

profit and theory of advertising such as elaborate likelihood model, persuasuion

knowledge model and the reasoned action model were all discussed in this chapter.
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 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter discussed the methodology of research by considering the research

design and strategies that provide direction to the research, the population of study

and the sample needed for analysis and making inference about the population. The

chapter also discusses the sources and method data collection that the research will

adopt in reaching a dependable solution to the research problem and provide

answer to the research question. The method of data analysis and the reason for

choosing the method of data analysis to examine the significance impact of

advertising (independent/ predictor variable) on the profitability (dependent/

response variable) of business organization in Nigeria was also discussed.

3.2 Research Design

Research design represents a directional plan and guidelines with which a research

is been coordinated. For the purpose of the study a quantitative correlational

research design based on Mohammed and Aina, (2014) dichotomous design

classification will be used. These approach to research design help us to identify

the impact of one variable on the other. According to Mark et. al. (2009),

correlation is referred to a change in one variable is accompanied by a change in

another variable, but it is not clear which variable caused the other to change. The
choice of the design is necessitated by the fact that the study sought to establish

relationship among variables. Since the study specifically intended to establish the

effect of advertising costs on profitability of the selected food and beverages firms

in Nigeria.

3.3 Sources of Data Collection

According to Mohammed and Aina (2014:66) there are basically 2 types and

sources of data collection namely;

a. Primary Data

The primary sources of data collection are data that are specifically gather for the

purpose of a research at hand. The data originate first hand from the field study

carried out by a researcher, the primary sources is used to complement the

secondary source

b. Secondary Data

The secondary sources of data collection on the other hand are data which are

previously gathered by another researcher for the purpose of his own study but

which is found relevant and useful for the attainment of the current research

objectives. The secondary source includes data on National population census,

financial statement, data gotten from the bureau of statistics, literature review,

journal, books etc.

For the purpose of the study the Data for the study was collected purely through

secondary sources by extracting the relevant time series data from the Annual
report and consolidated financial statement of the United Bank for Africa for a

time span of eleven years i.e. 2004 to 2014.

3.4 Method of Data Collection

Different methods are available for collecting data for the purpose of further

analysis. The following are the four most popular method of data collection;

1. Direct Observation: Observation is a method of collecting, evaluating

information in which the evaluator watches the subject in his/her usual

environment without altering that environment. It is used when other data

collection procedures such as surveys, questionnaire are not effective. The

goal of observation is to evaluate an ongoing behaviour process, event or

situation or when there are physical outcomes that can be readily seen. It can

be overt when the individual in the environment know the purpose of the

observation or covert when the individual in the environment is not aware of

the purpose of the observation.

2. Questionnaire: This is a list of a research or survey question that is been

asked from respondents and designed to extract specific information. A

questionnaire is defined as most frequent, very concise, preplanned set of

questions designed to yield specific information to meet a particular need for

research information about a pertinent topic. The research information is

obtained from respondents normally from a related interest area.

3. Interview: This is a verbal conversation between two people with the

objectives of collecting relevant information for the purpose of a research or

study. It is particularly useful for getting the story behind a particular

experience. The interviewer can pursue in depth information around the

topic and it involves asking questions and getting answers from the

participant in a study.

4. Documentation: Documentation is evidence provided in form of endnotes,

footnotes and entries in bibliography for information and ideas borrowed

from others. The evidence includes primary and secondary sources in

research studies. Documentation shows the reader what ideas are yours and

what information and ideas that are taking from other sources to support the

point or issue in view.

Based on the secondary sources of data collection adopted in this research, the

method to be utilized in collecting data is documentation method. The study

therefore used annual figures for advertising expenses available in the annual

report and accounts of the selected commercial bank from 2004 to 2014 as a

measure of advertising. Further, data relating to the data on the profit after tax or

the net profit of the companies which are also available in the annual report and

accounts were collected for the purpose of analysis in this research work.

3.5 Method of Data Analysis

Method of data analyses ranges from the parametric method such as ordinary least

square ANOVAs, regression analysis, correlation analysis etc. and non-parametric

data analysis technique such as the Mann Whitney U test, kruskal Wallis,

Friedman test chi square test etc. Also there are descriptive data analytics tool

such as the mean, Skewness, Kurtosis and so on.

The analysis commenced by first of all testing for the assumption of normality and

linearity of the time series data to enable us apply the parametric method of

Correlation analysis otherwise non parametric method such as chi square, kruskal

Wallis, Mann Whitney U test etc. are best suited for the analysis.

The research used descriptive statistics and inferential statistics such as the

ordinary least square, Pearson correlation coefficient method of data analysis and

the T-test statistic to ascertain the impact of advertising on the profitability of

Business organization.

The researcher uses the R version 3.2.3 statistical software for data analysis to

analyzed the data and arrived at a dependable conclusion. The R statistical

Software is a robust statistical command line programming language with many

computational capabilities that cover every area of human endeavor. It has more

capabilities since it’s a command line programming language and can be compared

if not more powerful than most advanced proprietary statistical software such as

SPSS, SAS, Minitab etc.

3.5.1 Ordinary least square (OLS) Regression Method

Regression analysis is based on data on two quantitative variables aim at

describing the relationship between the two variables and/or to predict the value of
one variable when we only know the other variable. It is Interested in a linear

relationship between the two variables X and Y. Y = predicted variable =

dependent variable = response variable = outcome variable while X = predictor

variable = independent variable = carrier variable = input variable. It consist of a

Simple linear regression - when there is only one predictor variable, which we will

consider in this study and a Multiple or multivariate regression - when there is

more than one predictor variable

3.5.2 Pearson Correlation Coefficients

The correlation coefficient is a measure of the scatter of the data points around an

underlying trend, interchanging variables will not change the value of the

correlation coefficient. The value of r does not depend on the unit of measurement

for either variable and the associated hypothesis test for the correlation coefficient

null hypothesis equal 0 i.e. r = 0), for this to be valid. The two variables must be

observed on a random sample of individuals, the data for at least one of the

variables must be normally distributed in the population According to Eleisa Heron

(2009:5) r takes values between -1 and +1

– An r value of -1 or +1 indicates perfect correlation

– Values close to -1 indicate high negative correlation

– Values close to +1 indicate high positive correlation

– Values close equal to 0 indicate no correlation

3.6 Model Specification

The model of the study was premised on the simple linear relationship that

advertising should have some sort of impact on Profitability. This relationship

could be modeled below:

PATi,t= αo+β1+ ACi,t+ ϵi,t…………………………………………………..(1)

Where PATi,t is the profit after tax for the company i at time t, αo and β1 are the

intercept and coefficients to be estimated, ACi,t is the advertising cost of the

company i at time t, and ϵi,t is the random disturbance term.

Thus, hypothesis of the study would be tested using equation (1),

The table below provided a summary of the variables and their descriptions as they

were used by the study.

Table 3.1: Variable Measurement

Variable Name Variable Description

Advertising Measured by annual total costs of
advertising by the company
discounted to its present value
for value not given by the annual
report

Profitability Measured by annual Profit/Loss

after tax reported by the
company.
3.7 Justification of Data Analysis Methods

Correlation basically tests the impact of one variable on the other to identify the

pattern of dependence among two variables, without having a prior knowledge of

which variable influence the other variable.

Another justification for using OLS method and Pearson correlation is that both

variable under study are measured at interval level for 11 years and are discrete

data not ranked (ordinal) or continuous data.

The T-test statistic measure of significance of the impact of advertisement on the

profitability of the commercial banks in Nigeria is appropriate for a sample size of

less than 30 (n< 30)and for the study the research cover a period of 11 years I.e.

2004-2014 hence the sample size or the number of cases or observation is 11

References

Agung 2009

Eleisa Heron, (2009): “Correlation and Regression”.

Mark, S., Philip, L., & Adrian, T.(2009). Research Methods for business

Students.Peason Education Limited, Edinburgh Gate, Harlow Essex CM20

2JE England

Mohammed, U.D. and Aina, O. K. (2014): “Business Research Method” Ollyprint

Limited, Abuja Nigeria ISBN 973-978-49801-0-6

R Core Team (2015). R: A language and environment for statistical computing. R

Foundation for Statistical Computing, Vienna, Austria. URL https://www.R-

project.org/.
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 INTRODUCTION

The previous chapter highlights the methodology to be applied in this research

with respect to the research design, sampling technique, method of data analysis

and justification for the method of data analysis. This chapter is the

implementation aspect of the methodology stated in chapter three of this study. The

chapter presents the data, analyze the data, interpret the result of the analysis and

provide a summary of the finding based on the interpretation of result so as to

arrive at a conclusion on the impact of advertising on profitability of business

organization.

4.2 DATA PRESENTATION

Here the data to be used for data analyses and for testing our set hypothesis will be

presented, the data consist of advertising cost of UBA which serve as the predictor

or independent variable (x) and the profit after tax which is the response or

dependent variable (y) over a time period (N) of 11 years 2004- 2014.
Table 4.1 ADVERTISING EXPENDITURE AND PROFIT OF UBA BANK
N YEARS OTHER ADVERTISIN PROFIT PROFIT
EXPESES G COST BEFORE AFTER
(MILLIONS (MILLIONS) INTEREST INTEREST
) AND TAX AND TAX
(MILLIONS) (MILLIONS)
1 30/09/200 N 13,099 807.98 5608 4185
4
2 31/03/200 15737 973.47 6239 4653
5
3 31/12/200 43519 2704.08 12514 11468
6
4 31/12/200 42797 2651.06 28615 19831
7
5 31/12/200 58107 3507 54637 40002
8
6 31/12/200 61770 4740.54 22989 12889
9
7 31/12/201 44996 4472.21 16359 2167
0
8 31/12/201 26341 3264.39 -26468 -7966
1
9 31/12/201 24624 1909.29 46180 47375
2
10 31/12/201 44176 2053 51841 46483
3
11 31/12/201 53093 3317 42378 40083
4
Source: UBA financial report and statement of account for the 11 years (2004-

2014).

4.3 RESULT AND DISUSSION

The hypotheses develop will be subjected to analysis under this section both

hypotheses are aims at testing the impact of advertising on the profitability of

business organization: a case study of United Bank of Africa, Nigeria. The analysis

consist three (3) subsections which are: Descriptive statistic; the first order test of
linearity, normality, Stationarity test, and the Heteroskedacity test; Ordinary least

square (OLS) regression test, correlation test and the Test of significance.

4.3.1 DESCRIPTIVE STATISTICS

Table 4.2: TEST OF NORMALITY, NON-LINEARITY
1. NORMALITY TEST (Ho: The data is normally distributed)

TYPE ADVERTISIN P- DECISIO PROFIT P- DECISIO

G VALUE N VALUE N
(ADV) (PAIT)
Doornik 0.0118752 0.99408
Normal 2.69374 0.26005 Normal
-Hansen
test
Shapiro- 0.960708, 0.78049 Normal 0.89164 0.14576 Normal
Wilk W 9
2. NON-LINEARITY TEST (Ho: Relationship is Linear )

Square Decision Logs Decision

Test 2.36344 Linear 3.24048 Linear
statistic:
LM
P- 0.124208 Linear 0.07184 Linear
Value
Sources: R 3.2.3 Output, 2015
Discussion

In the above table test for linearity and normality was carried out on the data so as

to fulfill the assumption of ordinary least square regression and avoid misleading

information. The normality test of a Gaussian distribution or normally distribution

indicate that no strong evidence against the null hypothesis, therefore we can’t

reject the null hypothesis and conclude that the data in the analysis are normally

distributed.
Since the non linearity test p value of 0.124208 and 0.0718395 is greater than the

alpha value of 0.05 we do not reject the null hypothesis of linearity between

advertising and profit of UBA bank. Then we can affirm that both variables have a

linear of straight line relationship.

4.3.2 INFERENCE STATISTICS

HYPOTHESIS ONE

To test for the significant impact of advertising cost on the profitability of business

organization using data obtained from UBA financial statement for 2004-2014, we

employed the correlation method of data analysis to examine the strength and the

trend of the variable under study. The R 3.2.3 statistical software was used in

analyzing the time series data collected.

Ho: Advertising cost does not significantly impact on the profitability of business

organization.

Hi: Advertising cost significantly impact on the profitability of business

organization

Table 4.3 Correlation result for the variables 'ADVBANK' and

'PAITBANK'
Test statistics
Pearson
correlation
Coefficient -0.06242850
T-test (9) -0.187652
P-value 0.8553

Sources: R 3.2.3 Output, 2015

Table 4.4: OLS, using observations 2004-2014 (T = 11)
Dependent variable: PAITBANK
Coefficient Std. Error t-ratio p-value
Const 22803.5 15698.9 1.4526 0.1803
ADVBANK −0.97592 5.20071 −0.1877 0.8553

Mean dependent var 20106.36 S.D. dependent var 19907.71

Sum squared resid 3.95e+09 S.E. of regression 20943.64
R-squared 0.003897 Adjusted R-squared -0.106781
F(1, 9) 0.035213 P-value(F) 0.855312
Log-likelihood −123.9501 Akaike criterion 251.9003
Schwarz criterion 252.6960 Hannan-Quinn 251.3986
Rho 0.383976 Durbin-Watson 1.126776
Sources: R 3.2.3 Output, 2015
Discussion

From the analysis of hypothesis one in table 4.4 which test for the significance of

the impact of advertising and the profitability of business organization, the

correlation reveals that there is a very weak negative linear relationship or

agreement between advertising of UBA and the profitability of the bank at % -6.

This means that an increase in advertising expenditure of UBA by ₦1 will lead to a

little or no decrease in the profit of the bank by 0.06% vice versa. To test for the

significance of the impact the t test statistic computed of -0.187652 is less than the

critical value of 2.262, this means that we can not reject the null hypothesis of no

correlation. Therefore we conclude that advertising does not have significant

impact on profitability business organization even though there is a very weak

negative relationship between the advertising and profitability of UBA banks. This

means that despite the weak negative relationship between advertising cost and

profit of the bank we can not say that advertising significantly impacted the profit

of UBA bank negatively and that any negative impact that may exist is only due to

chance.

To show whether any relationship exist between advertising of UBA and the

profitability of the bank the ordinary least square regression analysis above shows

that for every ₦1 increase in advert expenses the profit made will reduced by ₦

0.976 or put other way a 1unit increase in advert expenses will lead to a 0.976%

reduction in profit. The adjusted R squared shows that the proportion of

variability or variance in profitability and of UBA is explained by -10.6%

advertising expenditure.

To enable us to reject or do not reject the null hypothesis (Ho) of significant

relationship between advertising and profitability of business organization the t-test

statistic and p value is computed. The T-test ratio computed of −0.1877 is

compared to the T-test critical value of 2.262 and the null hypothesis could not be

rejected since the test ratio calculated of -0.1877 is more than ±2.262 critical

values at 5% significance level and 9 degree of freedom. Since the null hypothesis

of no significant relationship could not be rejected, we then conclude that

advertising of have no relationship with the decrease in profitability of Business

Organization. The T-test for significant of the relationship reveals that, there is no
significant relationship between the advertising of UBA and its profitability. This

means that any form of negative linear relationship that exist is not significant

enough and may be due to chance

4.4 SUMMARY OF FINDINGS

From the analysis above the following findings were discovered;

1. That there is a relationship between advertising cost of UBA and the profit after

tax which is inversely or a negatively linearly related.

2. That advertising expenditures does not significantly impact on profitability of

UBA bank even though there is a very weak negative relationship between the

advertising cost and profit of UBA banks.

3. That despite the weak negative relationship between advertising cost and profit

of the bank we can not say that advertising significantly impacted the profit of

UBA bank negatively and that any negative impact that may exist is only due to

chance.

4. That advertising expenditure of UBA has no significant relationship with the

decrease in profit of the banks.

5. That a unit change advertising expenditure will reduced the profit of UBA by

0.97% and that this reduction in profit is explain by -0.106% advertising

expenditure.
References

R Core Team (2015). R: A language and environment for statistical computing. R

Foundation for Statistical Computing, Vienna, Austria. URL https://www.R-

project.org/.

Achim Zeileis, Torsten Hothorn (2002). Diagnostic Checking in Regression

Relationships. R News 2(3), 7-10. URL http://CRAN.R-

project.org/doc/Rnews/

Pfaff, B. (2008) Analysis of Integrated and Cointegrated TimeSeries with R.

Second Edition. Springer, New York. ISBN 0-387-27960-1

Bernhard Pfaff (2008). VAR, SVAR and SVEC Models: Implementation Within R

Package vars. Journal of Statistical Software 27(4). URL

http://www.jstatsoft.org/v27/i04/.

Pfaff, B. (2008) Analysis of Integrated and Cointegrated Time Series with R.

Second Edition. Springer, New York. ISBN 0-387-27960-1

Sebastian Andersson (2013). het.test: White's Test for Heteroskedasticity. R

package version 0.1.https://CRAN.R-project.org/package=het.test

 CHAPTER FIVE

SUMMARY, CONLUSION AND RECOMMENDATIONS

5.1 SUMMARY

Advertising is a tool which helps create awareness about a company product and

services and make personal selling of good and services to the customer

superfluous and easy. Effective advertising makes the entire marketing tool and

mix more efficient, often lowering total marketing and selling costs. This study

examined the impact of advertising on profitability of a business organization. The

study commenced by establishing the gap that spurs this study. It was observed

that advertising despite its numerous benefits to the organization with respect to

increase in sales is still shrouded in ambiguity since some criticism against the use

of advertising makes it less desirable. It is also discussed that advertising involve a

sunk cost which is irrecoverable by business and that advertising often eat deep

into the organization profitability. Despite the fact that the advertising budget of

the companies have grown over the years to constitute a reasonable chunk of

expenditure, little research attention has been paid to actually understand the

impact of such kind of expenditure on profit and the proportion of the change in

Profit that is due to the increase/decrease in advertising cost of Firstbank. The

specific objectives of the study are as follows;

1. Determine the extent to which advertising costs impact profitability of business

organization.
2. Evaluate the impact of the advertising on the profitability of UBA.

3. Identify the major merits and demerits of advertising.

4. Get to know the concepts of advertising, forms of advertising, functions and

criticism

5. Explained the basic tools for measuring advertisement effectiveness.

6. Identified the possible factors which can shape and determine the choice of

advert media used by business organization in Nigeria.

In chapter two of this study the concept of advertising was discussed and the

persuasion theory of advertising and the dynamic theory of profitability was

explained. The chapter reviews the work of other scholars on the impact of

advertising on profitability of a business organization Chapter three discussed the

methodology adopted for this study. The research design used in this study is the

qualitative and quantitative relational research design, which allowed for the

examination of the impact of advertising on Profitability of business organization.

The ordinary least square (OLS) regression method and the T-test of significance

impact of advertising on profit were used to analyze the hypothesis developed.

In the data analysis section, data on advertising expenses and profit after tax

obtained from the secondary sources which consists of the UBA Financial

statement for a period of 11 years (2004-2014) and review of relevant literature

were extracted and subject to quantitative and qualitative analysis. The result of the

analysis revealed the following;

1. That there is a relationship between advertising of UBA and the profitability

of the bank, which is inversely or a negatively linearly related and that

advertising expenditures does not significantly impact on profitability of

UBA bank even there is a very weak negative relationship between the

advertising cost and profit of UBA banks

2. That despite the weak negative relationship between advertising cost and

profit of the bank we can not say that advertising significantly impacted the

profit of UBA bank negatively and that any negative impact that may exist is

only due to chance.

3. That unit change in advertising will reduce the profitability of UBA by

0.97% and that this reduction in profitability is explained by -0.106%

advertising expenditure.

4. That advertising effectiveness can be measured through the effect of

communication on consumer (i.e. its effect on awareness, knowledge or

preference) and sales revenue in relation to the expenditure on advertising

campaigns.

5. Factor that determine the choice of advertising media used by Nigerian

banking sector are; Product features, Cost, Audience characteristics,

 Objective of advertisement, Location, Demography and Religion as well as

the Message characteristics.

5.2 CONCLUSIONS

Customers are assumed to be unaware of a new product and services unless

awareness is created by business organization through advertisement in print and

electronic media (Tv, Radio and internet). As soon as people are aware about the

usefulness and basic features of product and services, their drive to try out product

and services is stimulated and this in turn lead to buying and re-buying decision if

they are satisfy with the product. The purchase of the product leads to increase in

sales revenue for the organization. In the long run say 5-10years however, as the

company increase its expenditure on advertising, the drive to purchase good and

services will decrease from customer due to innovation in new competing and

substitute product as well as a change in taste and fashion of the customer. The

expenditure on advertising will start having negative impact on the profitability of

business and the marginal contribution of the additional unit of advertising

expenditure will start to have a diminishing effect on the profitability of business

organization.

Based on the result of the analysis although relationships exist between profit and

advertising expenditure of UBA, the benefit derived from advertising through

increased sales revenue is easily eroded by an increase in advertising expenditure.

It can therefore be concluded that although advert expenditure relatively impact

profit negatively by reducing profit, Advertising expenditure however is not the

only factor that is responsible for the marginal reduction in the profit after tax and

interest of UBA. Other factors such as; sales promotion effort, personal selling

effort, public relation, low patronage, employee’s attitude towards customers,

service effectiveness, investment into infrastructure, ICT and company product

attractiveness are responsible for the decrease in profit. In fact, advertising is a

very weak predictor of why there is a decrease in profit as its only responsible for

-11% variations or change in UBA profitability. Other factor explained the 89%

decline in profit of UBA overtime. This study hence corroborate the findings of

Dauda, (2015) that although advertising have a relationship with sales revenue and

profitability of business organization and that advertising is one of the most

important medium of communication influencing the companies performance in

more than one ways, its influential strategic importance could be however

suppressed by other factors such as sales promotion, personal selling, and

publicity, public relation which also try to receive equal attention at time of

deciding any sales and profitability strategy.

5.3 RECOMMENDATIONS

Based on the findings of this research the following recommendations are put

forward;

1. Top management should be involved in the continuous evaluation and

monitoring of advertising to ensure that the goals and objectives set are
 achieved and appropriate corrective actions are taken in the event of

deficiencies.

2. The company should harmonize all departments so as to realize the goals and

objectives of advertising as this study has shown that advertising expenditure

has a negative weak impact on the profitability of business organization.

3. Attention should be focused on the how to effectively marshal the advertising

campaign plan to meet the need of customer and not just as an annual

activities that must be carry out by marketing department.

4. Advertising department should consider the effect of factors such as location,

product and services features and other factors on the choice of advertising

media to be selected.

5. Since the study also revealed that the negative impact of advertising on

profitability of UBA is not significant enough and that any reduction in

Profitability is due to chance. The company should ensure that they increase

the personal selling and sales promotion effort so as to complement for the

loss in profitability.

6. Innovation in product design and good customer retention policy should be

the mode of operation of the company.

7. The company should ensure that it maintain a good customer- business

relationship so as to maintain the customer loyalty to the brand and achieve

greater sales.
 APPENDIX A

OKEKE HENRY

2016-01-14 12:18:35

1. PRE-REQUISITE TEST

a. NORMALITY TEST

Profitability

Jarque-Bera test for normality

JB = 1.0724, p-value = 0.227

Lilliefors (Kolmogorov-Smirnov) normality test

D = 0.20483, p-value = 0.2211

Shapiro-Wilk normality test

W = 0.89164, p-value = 0.1458

Advertising

Lilliefors (Kolmogorov-Smirnov) normality test

D = 0.10747, p-value = 0.9763

Jarque-Bera test for normality

JB = 0.38339, p-value = 0.7775

Shapiro-Wilk normality test

W = 0.96071, p-value = 0.7805

2. OLS REGRESSION
Model1

Residuals:

Min 1Q Median 3Q Max

-27584 -16736 -5288 20569 26435
Coefficients:

Estimate Std. Error t value Pr(>|t|)

(Intercept) 22803.4543 15698.8960 1.453 0.180
ADVBANK -0.9759 5.2007 -0.188 0.855

Residual standard error: 20940 on 9 degrees of freedom

Multiple R-squared: 0.003897, Adjusted R-squared: -0.1068
F-statistic: 0.03521 on 1 and 9 DF, p-value: 0.8553

F statistic (Model1)

Df Sum Sq Mean Sq F value Pr (>F)

ADVBANK 1 1.545e+07 15445733 0.035 0.855
Residuals 9 3.948e+09 438636024

AIC - 253.9003

BIC - [1] 255.0939

'log Lik.' -123.9501 (df=3)

3. CORRELATION TEST

pearson correlation

[1] -0.0624285

Spearman correlation

[1] -0.09090909

> Kendall correlation

[1] -0.09090909

AUTOCORRELATION

Durbin-Watson test
DW = 1.1268, p-value = 0.03204
alternative hypothesis: true autocorrelation is greater than 0
4. UNIT ROOT TEST

a. Unit Root Test (Advertising)

#######################

# KPSS Unit Root Test #

#######################

Test is of type: mu with 2 lags.

Value of test-statistic is: 0.1956

Critical value for a significance level of:

10pct 5pct 2.5pct 1pct

critical values 0.347 0.463 0.574 0.739

###############################################

# Augmented Dickey-Fuller Test Unit Root Test #

###############################################

Test regression none

Call:

lm(formula = z.diff ~ z.lag.1 - 1 + z.diff.lag)

Residuals:

Min 1Q Median 3Q Max

-1005.3 -579.8 655.7 1026.6 1697.9

Coefficients:

Estimate Std. Error t value Pr(>|t|)

z.lag.1 -0.02471 0.12535 -0.197 0.849

z.diff.lag 0.34301 0.40071 0.856 0.420

Residual standard error: 1151 on 7 degrees of freedom

Multiple R-squared: 0.09476, Adjusted R-squared: -0.1639

F-statistic: 0.3664 on 2 and 7 DF, p-value: 0.7058

Value of test-statistic is: -0.1971

Critical values for test statistics:

1pct 5pct 10pct

tau1 -2.66 -1.95 -1.6

##################################

# Phillips-Perron Unit Root Test #

##################################

Test regression with intercept

Call:

lm(formula = y ~ y.l1)

Residuals:

Min 1Q Median 3Q Max

-1369.54 -643.23 19.61 696.01 1322.27

Coefficients:

Estimate Std. Error t value

(Intercept) 1402.5451 689.2499 2.035

y.l1 0.5748 0.2307 2.491

Pr(>|t|)

(Intercept) 0.0763 .

y.l1 0.0375 *

--- Signif. codes:

0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 919.5 on 8 degrees of freedom

Multiple R-squared: 0.4368, Adjusted R-squared: 0.3664

F-statistic: 6.205 on 1 and 8 DF, p-value: 0.03746

Value of test-statistic, type: Z-alpha is: -4.4562

 aux. Z statistics

Z-tau-mu 2.0428

b. Unit root Test (Profit)

#######################

# KPSS Unit Root Test #

#######################

Test is of type: mu with 2 lags.

Value of test-statistic is: 0.2752

Critical value for a significance level of:

10pct 5pct 2.5pct 1pct

critical values 0.347 0.463 0.574 0.739

##################################

# Phillips-Perron Unit Root Test #

##################################

Test regression with intercept

Call:

lm(formula = y ~ y.l1)

Residuals:

Min 1Q Median 3Q Max

-23429 -15929 -2119 11825 35875

Coefficients:

Estimate Std. Error t value

(Intercept) 1.462e+04 8.712e+03 1.678

y.l1 3.911e-01 3.340e-01 1.171

Pr(>|t|)
(Intercept) 0.132

y.l1 0.275

Residual standard error: 19830 on 8 degrees of freedom

Multiple R-squared: 0.1463, Adjusted R-squared: 0.03962

F-statistic: 1.371 on 1 and 8 DF, p-value: 0.2753

Value of test-statistic, type: Z-alpha is: -5.8446

aux. Z statistics

Z-tau-mu 1.6634

###############################################

# Augmented Dickey-Fuller Test Unit Root Test #

###############################################

Test regression none

Call:

lm(formula = z.diff ~ z.lag.1 - 1 + z.diff.lag)

Residuals:

Min 1Q Median 3Q Max

-18319 -5399 7193 10808 54043

Coefficients:

Estimate Std. Error t value Pr(>|t|)

z.lag.1 -0.25718 0.37390 -0.688 0.514

z.diff.lag 0.07407 0.45714 0.162 0.876

Residual standard error: 24590 on 7 degrees of freedom

Multiple R-squared: 0.07563, Adjusted R-squared: -0.1885

F-statistic: 0.2864 on 2 and 7 DF, p-value: 0.7594

Value of test-statistic is: -0.6878

Critical values for test statistics:

 1pct 5pct 10pct

tau1 -2.66 -1.95 -1.6

5. HETEROSKEDACITY TEST
White's Test for Heteroskedasticity:
====================================
No Cross Terms
H0: Homoskedasticity
H1: Heteroskedasticity
Test Statistic:
10.6415
Degrees of Freedom:
12
P-value:
0.5599

Breusch-Pagan test
BP = 0.14711, df = 1, p-value = 0.7013

Studentized Breusch-Pagan Kroenker test

BP = 0.58813, df = 1, p-value = 0.4431

Goldfeld-Quandt test
GQ = 5.2691, df1 = 4, df2 = 3, p-value = 0.1017