An assessment of the role of Promotional Strategy on Sales and Profit

ABSTRACT

The study assesses the impact of promotion on the profitability of the Nigeria Bottling Company Plc, Enugu Plant. The population of the study was made up of 56 management staff drawn from marketing, sales and accounting/finance departments of the company. Employing a census technique, the whole population of 56 management staff constituted the sample size of the study and data obtained from the 56 copies of the questionnaire were presented using descriptive statistics whereas, multiple regression analysis with the aid of the Statistical Package for Social Science (SPSS) was conducted to test both the company’s financial statement from the year 2003 to 2012 and the hypotheses. The findings from data analysis of company’s financial statement shows that, profit is slightly influenced by the variables of sales income not necessary cost of promotion, while the results of the hypotheses

testing indicated that, advertising has no significant impact on profitability; sales promotion has a significant impact on profitability; personal selling has no significant impact on profitability; public relations has a significant impact on profitability. The need for an organization to properly coordinate its promotional strategies to achieve a clear consistent and competitive message about itself and its products has become an issue of concern to every result driving firm. The study concluded that, promotion is an important tool that helps companies to improve their profitability. We recommended that there is the need for organizations to increasingly integrate effective promotion in their activities to improved their profitability and competitive advantage.

CHAPTER 1 INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Promotion is an integral part of our social and economic systems. In our complex society, promotion has evolved into a vital communications system for both consumers and businesses. The ability of promotion methods to deliver carefully prepared

messages to target audiences has given the marketers a major role in the marketing programs of most organizations (Belch and Belch, 2009). The authors further stated that, companies ranging from large multinational corporations to small businesses increasingly rely on promotion to help them (companies) market their products and services which in turn increases their profitability. In market-based economies, consumers have learned to rely on promotion for information they can use in making purchase decisions (Belch and

Belch, 2009). Firms use promotion to reach, inform and persuade the existing and potential customers to buy the needed satisfying

product for resale or ultimate consumption. Promotion focuses on preparing the organizational messages effectively, as effectively designed messages influence the behaviors of consumers, which result in improved sales and profit. Promotion mix works as a bridge between the seller and customer. The seller uses different promotional tools for reaching the target market, depending on the nature of the product and mental filter of the target audience. It also helps the seller to have a two way discourse with the consumer at preselling, selling, consumption and post purchase stages of the product. Effectively employed promotional tools for a product influence the buying and consumption patterns of the customers and provide maximum return on investment to seller. However, one of the great challenges to a firm in the modern competitive environment is to make customers brand loyal, and to retain them for its survival and profitability, and this retention is based on the product features, not the price and place, and promotional activities.Promotions expenditure in India, different marketing companies are projected to be Rs 5,000 crores, and focus on activities of sales promotion by the industry of Indian has increased by the figure of 500 to 600 percent during the last 3 to 5 years (Economic Times, June 15, 2003). In year 2001, there were as many as 2,050 schemes of promotion that amounted to Rs 80,000 crore in the Fast Moving Consumer Goods (FMCG) Industry (Rizvi & Malik 2011) cited (Dang, Koshy, & Sharma, 2005). In Nigeria, promotion started with the multinational trading companies like UTC, Leventis and Kingsway. It was until the late 1980s that promotion took a very dramatic turn in Nigeria marketing environment. It becomes increasingly used by many organizations in order to compete effectively with their competitors in the market. It is obvious that evidence show that organizations, private and public, local or international, small or big, and the traditional local medicine dealers and practitioners are not left out in promotion

because of the services they render to the public (Abdullahi, 2012) .

The total promotion campaign expenditures spent in Nigeria each year is approximately Twenty one billion naira (N21, 000,000,000)

(Aren, 2009). According to the report of Aren (2009) on ‘Contemporary Advertising’ where 35 percent (35%)of this capital

expenditure goes on Television commercials, 20 percent (20%)on Radio campaigns, 15 percent (15%)on Billboard advert, 8 percent (8%)on Press advert, 12 percent (12%)on shows, 5 percent (5%)on

below the belt like Posters and Hand bills, while the remaining 5 percent (5%)is on Point of Sales adverts. Large multinationals and indigenous companies like MTN, Celtel, Glo, Coca-Cola, Pepsi, Nokia, Motorola, Procter & Gamble, Cadbury, Liver-brothers, Unilever, Nestle, Guinness (etc) budget as much as almost 10-30 percent (10%-30%)of their entire budget on promotion campaign

each year (Aren, 2009). In a similar vein, Awe, Sholotan & Asaolu (2010) observed that, the Nigerian Fast Moving Consumer Goods (FMCG) sector involves manufacturing and marketing of soaps,

detergents, home and personal care products, and electrical goods, as well as food and nutritional products. This sector comprises of four major companies – PZ, Unilever, Procter and Gamble (P&G) and

Reckitt Benckiser (RB).

1.2 STATEMENT OF RESEARCH PROBLEM

The advent of Industrial Revolution has led to the introduction of modern machines in the production sector to boost the production

of goods and services. This revolution brought about large amount of goods and services available for sales. In this regard, consumers are exposed to varieties of products and are required to select which of the products, from which company will give them optimum satisfaction they desire (Blattberg, Briesch and Fox, 1995). In the light of the foregoing, for a company to surpass her competitors in a highly competitive market, it has to improve and prove some certain level of marketing competences to gain the attention and interest of the consumers. (Kotler and Armstrong, 2006). Consequently, effective promotion usually yields positive results: that impact on profit ratio; hence the product that gets to the final consumer must satisfy his or her want (Kotler and Armstrong, 2006). Nigerian Bottling Company Plc has been using a lot and different promotional strategies to increase sales in recent times.Amongst these are Under the Crown, Premium, Scratch and Win, Free Gift. Also some incentives range from Cash, T-Shirts, Face-Caps, Bags, Openers, Biros, Free drinks, Television, Radio etc to attract more sales (NBC Plc 2012). Despites all these efforts placed by Nigerian

Bottling Company Plc on its promotional activities which costs the organization millions of naira in recent time, the organization still experiences low profit. For example, profit margin dropped from

N87,698,438 in 2005 to N77,609,237 in 2006, it further dropped from N77,609,237 in 2006 to N68,529,128 in 2007 and it dropped from N68,529,128 in 2007 to N59,674,516 in 2008. The situation was more alarming in 2009, where the dwindling profit margin moves from N59, 674,516 in 2008 to N47, 553,874 in 2009. Based on the facts and figures presented above, it becomes worrisome why in spite of all the promotional activities of Nigerian Bottling Company Plc, the prospects of profit keeps dropping abysmally (NBC Plc 2012). It is against this backdrop that the researcher is

conducting a research to determine the impact of promotion on the profitability of an organization with Nigeria Bottling Company Plc Enugu Plant in focus.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to determine the impact of promotion on the profitability of an organization. The specific objectives focus on determining the impact of each of the variables of promotion on profitability of Nigeria Bottling Company Plc, which include the following:

i) To assess the impact of advertising on profitability of Nigeria Bottling Company Plc.

ii) To determine the impact of sales promotion on profitability of Nigeria Bottling Company Plc.

iii)To determine the impact of personal selling on profitability of Nigeria Bottling Company Plc.

iv) To evaluate the impact of public relation on profitability of Nigeria Bottling Company Plc.

CHAPTER 2 LITERATURE REVIEW

Conceptual Clarifications

Promotion

The concept of promotion is regarded as having the same meaning in most of the literature on the subject; Shimp (2003) makes a distinction between these concepts. He describes promotion as the aspect of general marketing that promotion management explicitly deals with.Promotion, on the other hand, is a “more encompassing term” that includes communications via any or all of the marketing mix elements. Promotion represents the collection of all elements in

an organization’s marketing mix that “facilitate exchanges by establishing shared meaning with the organization’s customers

or clients” (Makale, 2004). Promotion in marketing is aimed at creating an awareness of the organization and its product(s) and/or service(s) in order to increase sales and make a profit. The sender

(organization) conveys messages about the organization’s product(s) and/or service(s) to the receiver (customer) in order to persuade the customer to buy the organization’s product(s) or to make use of

its service(s). In order to create a lasting relationship, messages focus on the brand, customers’ needs and the organization’s

commitment to society. A brand is the sum of all emotions, thoughts and recognitions that people in the target audience have about an organization (McNamara, 2001). Promotion is well-suited to accomplishing various marketing objectives, such as stimulating sale force enthusiasm, invigorating sales for a mature brand, facilitating the introduction of new products,increasing on- and off-shelf merchandising space, encouraging repeat purchases, and

reinforcing advertising (Shimp, 2001). Promotion is an exercise that performs the roles of information, persuasion and influence to purchase certain goods and services (Kotler, 2003). Promotion is an

approach used to adjust international market or local market (Kotler, 2004). Promotion has been defined as the coordination of all

seller initiated efforts to setup channels of information and persuasion in order to sell goods and services and to promote an idea (Belch & Belch, 2007). Promotion consists of all activities intended to make a company communicate with its present and potential customers (Alabar, 2007).

Profitability of an organization

Profitability of an Organization refers to a comparison between the profits made from the business with the capital assets of a business. The capital assets include things such as the value of the company’s building, plant and machinery etc. Profitability is

expressed in terms of the rate of return of these capital assets (Wise-GEEK, 2003). Profitability is a business term that is used to

mean the likelihood of a business venture earning the desired level of income and incentives, within a specific period of time, under certain prevailing business conditions (Sweney, 2004). In economics, profitability is the difference between the price and the long run average cost. The difference is equal to zero in the case of a perfectly competitive market or in the case of monopolistic competitive, but it is different from zero in an oligopolistic or in a monopolist market. In addition, in the short run, profitability is obtained by considering the short run cost curves and this could allow the existence of profitability also in a monopolistic competitive market (Luca, 1999).