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THE IMPACT OF ADVERTISING IN A CORPORATE ORGANIZATION

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 

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