Bivariate Analysis of the Relationship between Advertising and Sales

Abstract

This article builds on the existing literature by studying the inter-linkage between sales and advertising expenditure in India. The article takes a sample of 100 Fast-Moving Consumer Goods (FMCG) companies in India and studies their advertising and sales for the period ranging from 2001–2002 to 2010–2011. The study uses various tools including mean, standard deviation, coefficient of variation, kurtosis, skewness, correlation, regression for getting insights into the data. Econometric analyses including auto-correlation, partial auto-correlation, augmented Dickey–Fuller test, vector auto regression, variance decomposition analysis, Johansen’s co-integration and vector error correction model have been employed to find out the bivariate relationship between the variables under reference. The article finds that the dependency of the current period’s advertising expenses on previous years’ sales is far more significant than the dependency of sales revenue over advertising expenses. The article provides significant inputs for the further studies that may focus on adding more variables such as profits and firm value, and study the multivariate relationship among them.