An Empirical Investigation on the Impact of Marketing Communication Expenditure on Firms’ Profitability: Evidence from India

Abstract

This study attempts to put forth the causal relationship between integrated marketing communications (IMC) and profit before depreciation interest and tax (PBDIT) of firms operating in the personal care industry, in India, as categorized by the Capitaline database, while also trying to study their long-term and short-term relationships so as to understand the impact of one variable on another. The choice of the industry is due to the fact that this is an industry where a substantial amount of money is spent on advertising and sales promotion. The results reveal there is unidirectional causality running from IMC to PBDIT and there is a long-term co-integrating relationship between the two. The vector error correction, impulse response function and forecast error variance decomposition results reinforce that marketing communications take time in building the image of a brand in the mind of the prospects and hence the impact of IMC on profits comes with a time lag. This study will help brand managers to strategize budget allocation decisions by informing them the duration of the return on such investments.