Effect of marketing expenditures on sales: the case of Ghana Telecommunication Company Limited (GT)

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Marketing practitioners and scholars are under increased pressure to be more accountable for and to show how marketing expenditure increases sales and adds to shareholder value Doyle (2000). The perceived lack of accountability has undermined marketing’s credibility, threatened marketing’s standing in the firm, and even threatened marketing’s existence as a distinct capability within the firm. The Marketing Leadership Council (2001) reports that 70% of advertising budgets are in decline, compared with 51% and 47% for human resources and information technology. The reason for this is not farfetched, the difficulty of marketers to justify the returns on their investments. Over $245 billion was spent on advertising alone in the United States in 2003 (Advertising Age, 2005). Despite enormous levels of spending, an important economic question has yet to be resolved. Is there a positive association between marketing expenditure and sales? Years of academic research investigating the relationship between advertising and future demand has yielded inconclusive findings. The objective of this study was to find answer to the above question, basically to: • Investigate the marketing expenditure and sales trends and identify the relationship between marketing expenditure and sales using Ghana Telecommunication Company as a case study. Following an extensive literature review a conceptual framework that seeks a synthesis between marketing expenditure relationship with sales was developed. Field survey was used to collect data on marketing expenditure of Ghana Telecommunication Company Limited from 200 1-2005. A regression analysis with ANOVA was used to establish a formal relationship between the dependent variable (sales) and the independent variab1es (customer care expenditure, product development expenditures, distribution expenditure and marketing communication expenditure). The tests were carried out at 95% and 99%significance levels (p ≤0.05 and p≤0.01). The results showed that, all the independent variables were significantly predictive of sales. Thus for GT, the combined effect of customer care expenditure, product development expenditure, distribution expenditure and marketing communication expenditure was the major explanatory variable in determining sales. Customer Service has the greatest positive effect on sales with a coefficient of 0.614, and Marketing Communication having the least effect on sales with a calculated coefficient of 0.026. Analysis of questionnaire also showed that, four external factors namely Political, Competition, Socio —economic and Technology, positively related to sales but were not significantly predictors of sales revenue of GT in the period considered. An R2 of 0.073 indicated that only 7.3% of the changes in the sales of GT were due to the changes in the external environmental factors. It is therefore important for GT to develop a strategy that is consistent and reflects the contributions of the individual marketing expenditure variables especially customer care. The findings help untangle the questions about marketing expenditure effects on sales. It turns out that the major effect of sales of GT during the period under study was marketing expenditure. Effect of external factors was minor
A thesis submitted to the KNUST School of Business, in partial fulfilment of the requirements for the degree of MBA, 2008