Assessing the effects of advertising on sales : a study in quick service restaurant advertising and consumption in the United States 1986-2007
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Advertising is an important mechanism by which firms are able to communicate with their current and potential consumers. An advertising campaign may satisfy a multitude of objectives for a firm. Namely, advertising can be used to create awareness for a product or brand. It may be used to inform consumers about the usage features and benefits specific to a brand or a given product, or generate favorable attitudes and preferences amongst customers. Additionally, advertising may aim to persuade consumers towards trial or purchase. All these objectives enhance e consumers’ response towards the firm and its products/brands, and in turn, advertising helps to achieve sales for the advertised firm in the long run. This dissertation examined the relationship between advertising expenditures and sales revenue at the aggregate and brand level for the Quick Service Restaurant (QSR) industry in the United States from 1986 to 2007. Two main objectives of this study were to: 1) analyze the relationship between advertising expenditures and sales revenue within the QSR industry; and 2) provide analysis of the relationship between advertising and sales revenues for leading QSR firms, in the United States during the observed period. Thus, the current study provides the most comprehensive analysis of the relationships between advertising and sales in the QSR industry to date. Hypotheses were tested by time series analysis. Specifically, a stepwise regression analysis with backwards elimination of non-significant predicators was utilized to select a set of statistically significant predictor variables. This study controlled for factors expected to affect sales revenues such as population size, price and inflationary effects. Findings from this study indicate that aggregate advertising expenditures and aggregate sales for the QSR industry in the United States were significantly and positively related from 1986 to 2007. This is the first study to examine this relationship over such an extended period of time—twenty-two years. Results from brand level show a positive and significant relationship between advertising expenditures and sales revenues for certain QSR brands. Additional analysis, explored the relationship between advertising expenditures and another measure of consumption, market share, for QSR firms in the United States during 1986 to 2007. Results from this set of analysis, demonstrated a positive and significant relationship between electronic advertising expenditures and market share for several QSR brands. A Chow test (Chow, 1960) was also conducted on the brand level models to test for the presence of structural breaks in the data. Other means of analysis are also offered, and the implications of the results to research and theory are drawn. The study also identified future directions for research.