Management of multinational enterprises (MNEs) is quite complex because subsidiaries are serving a large market with complex dynamics and consumer preferences. The products offered by a firm in various subsidiaries can differ from those in the parent country. For this reason, many MNC management systems use the decentralised board to manage the sales and operational activities (Porto & De Abreu 2018). In addressing the unique needs of the consumer in different localities for the subsidiaries of a MNE, the management board studies the consumer preferences as well as needs in the market.
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The management always tries to adjust with multiple needs and the dynamics in a bid to increase returns on investment. Nowadays, the advertisement has been perceived to be a quintessential factor towards the growth in sales (Tomczak, Reinecke & Kuss 2018). It is assumed that promotional activities on advertisements increase purchases. However, different studies assert contradicting outcomes with some reporting that it is weak or no (non-existent) correlation between sales and advertisements, and others show a strong correlation between sales and advertisement (Swani et al. 2017). Thus, there are gaps in research on this topic.
Some speculations on the issue identify that too large or very small samples used by the researchers might have significantly contributed to the conclusions they made on the analysed data. Strategists and management wizards, however, provide a different perspective on the issue and place the objectives of shareholders at the core. The management experts state that consumers determine the impact of the advertisement level on sales. Population demographics and consumption patterns, as well as the customer experience for the company’s product, are factors to discover the effects of the advertisements on sales (Gołębiowski 2013; Lim, Hemmert & Kim 2017). Therefore, existing gaps in research are associated with the impossibility to state how different advertisements can influence sales in MNEs directly.
The current trends in Amazon, H&M, Coca-Cola, PepsiCo, Gillette and Unilever, among other MNEs, such as online advertisement, brand-oriented promotions and longitudinal targeting of the audience, might shape the decisions that analysts make on global investment issues (Lim, Hemmert & Kim 2017). Noteworthy, the advertisement has been one of the common trends in MNEs with some of firms having fruitful effects of the advertisement on sales (Kopalle et al. 2017). Coca-Cola is an explicit example of this case.
The recent statistics assert that most MNEs earn most from advertisements when they introduce new products rather than the regular one which has been on the market (Rao 2018). Despite these statistics, there is a stiff opposition regarding the effect of advertisements on the sales of the firm. The supporters of this claim state that advertisements affect only the level of knowledge of consumers regarding products but do not trigger buyers to buy the product. In most cases, the holders of this opinion claim that advertisements only serve to provide the information on the company’s product (Pope 2018). This rationality is based on the idea that sales might increase for some periods later, posterior to an advertisement event, and therefore, no inherent reason to trace this to the effect of advertisement.
Yet, other factors, such as experience, loyalty, high dominance, and venture expansion, exist. This leaves managers with a dilemma in making business policies (Deng & Mela 2018; Friedman 2017). There is a growing need to critically address the shareholders needs while taking into account the market factors. The main goal of shareholders is higher returns on the investment, which are facilitated by the increase in sales. A case study of the Coca-Cola subsidiary in the United Kingdom is used to investigate the correlation between sales and consumer satisfaction between two different nationalities. An understanding of the trends in sales and advertisements by MNCs as one of the common issues in the global business will serve a pivotal point for analysis and strategies, as well as provide a recipe to making wise decisions in managing the MNEs and their subsidiaries in the overseas markets.
The review of conceptual literature and empirical literature is provided in this section, as well as the conceptual framework.
The advertisement’s main aim is to introduce the existing product to consumers when a firm focuses on a new brand ambassadorial activity and the public’s relations. A typical model of the advertisement is associated with Lavidge and Steiner’s model. At the cognitive stage, the advertisement brings awareness to the customer who learns the new knowledge. At the affection stage the consumer gets some liking towards the advertised product (Assaf et al. 2017). At the behavioural stage the advertisement stimulates the consumer to purchase the product. Other models are also presented in the literature on the topic, and they need to be discussed in detail.
AIDA advertisement model
The Awareness, Interest, Desire, and Action (AIDA) model of advertisement is oriented to the rational behaviour of consumers. The AIDA Model assets that effective adverts of the firm must possess the following characteristics: commanding attention, an attached interest which stimulates a desire for the product, and finally the action. Many of the opponents of this model argue that most purchases are spontaneous, not rational, and linear (Morales, Amir & Lee 2017). Therefore, they find the application of this model quite ineffective. In most cases, scholars find this model to be difficult to implement, yet efficient (Budiawan, Satria & Simanjuntak 2017).
DAGMAR model of advertisement
The DAGMAR (Defining Advertisement Goals for Measured Advertising Results) model is based on the response theory for consumers. It asserts that any advertisement by a firm on its product goes through the understanding pattern of Awareness, Comprehension, Conviction, and Action. This model is oriented to the goals for an advertisement to be effective and does not purely deal with the message of the advert. Simply, this model emphasises the effective communication between the firm and the consumer (Teichert et al. 2017). The specific and measurable communication character renders this model hierarchically through the ‘Awareness-Comprehension-Conviction-Action’ process, which ends with the purchase of the product.
The DAGMAR model is concerned with the quantitative properties of advertisements’ effect that comes along when many companies are dealing with large data. Still, most purchases are said to be spontaneous and not linear and rational, as the model assumes. Many of the propositions on consumerism argue that consumer behaviour is not usually rational, and thus this model is criticized. Instead of the quantitative character, companies are looking at the unique character in the huge data that make it effective to provide a correlation between consumer purchases and advertisements (Teichert et al. 2017).
Lavidge and Steiner’s Hierarchy Effects Model
This model is formed by seven steps: Unaware-Awareness-Knowledge-Liking-Preference-Conviction-Purchase. On agreeing that the purchase may be both upward or downward, including the linear trend of the consumer behaviour, the founders of the model assert that they are aware of the buying impulse by consumers and, therefore, the model is appropriate for large economical goods adverts (Kumar 2018). This model has some insights that the advertisement may bring about immediate purchases and, consequently, there are several effects that must take a process with time for the purchase to occur. However, there is no evidence that awareness by consumers triggers the purchase as fronted by Lavidge and Steiner’s Hierarchy Effects Model.
Thornhill, Xie, and Lee (2017) in their study on the effectiveness of online advertisement in a competitive market found that the brand purchase correlates strongly with online advertisement. Batsaikhan (2017) found that business trustworthiness and trust led to increased business success regardless of the brand promotional activities a firm undertakes. The researcher found that promotional activities were ineffective to some business depending on the level of trust and trustworthiness. Velychko and Velychko (2017) found that the logistic modeling for the advertisement expenses and the sales was statistically significant, in which advertisement expenses were part of the independent variable to predict the outcome of the sales volumes. Angell and Kraemer’s (2017) study on the optimal cross sales for upscale items stated that, at a certain point, the advertisements were not effective for the machine values.
Pope (2018) conducted a study on the effect of advertisements on CSR, but found that there was a weak existing correlation between the two variables. Further, he found that the management should relaunch its focus on other factors which are instrumental in economic and social benefits to the shareholders of the business. The study by Assaf et al. (2017) obtained similar findings. Martín-Herrán and Sigué (2017) found that the manufacturers should not always support retail advertisements because sometimes advertisements are not effective in stimulating sales for a firm. Murry (2018) asserted the type of investment affects the effectiveness of advertisements on consumer purchases. Using car retail markets, Murry (2018) found that luxury and most secondary goods, which are often prestigious, were highly affected by sales.
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The empirical studies done on advertisements and their effects on consumer purchases provide contradicting results since some studies state that there is a strong correlation between advertisement and sales. Other researchers have asserted that this correlation is insignigifcant. Notably, studies on the correlation between the advertisement and corporate social responsibility provided a contrast to what the theoretical models predict – a strong positive relationship between advertisements and corporate social responsibility (Lee, Sridhar & Palmatier 2017).
There are several concepts that relate advertisements with sales. Many theories have been developed on how possible advertisements trigger purchases in different models and patterns (Assaf et al. 2017). The most common theories in the modern approach to advertisement have been cornered on the idea of the new frameworks of the communication theory. This involves the cognitive process which influenced purchase impulses of consumers. One of the most common trends in contemporary advertisement can be explained in three phases: cognitive, affection, and behavioral processes.
From the literature review and the basis of research objectives, the study will use the annual sales of the firm as the outcome variable and advertisement expenses as the predictor in the model of the form:
Sales(S) (t) = Constant (β¿+β1 Advertisement Expenses (AE)(t )+ Error Term(t)
S(t)=β0 +β1 AE(t) +(t) , estimate for the sales for a particular time, t.
Sales (S) are the firm’s annual gross amount of goods sold to the clients measured in million dollars while Advertisement Expenses (AE) are the annual gross expenditure on the promotional activities (Cameron & Poot 2018). The research also provides a comparison of customer satisfaction levels measured through qualitative attitude scales provided as the average values (Aktepe, Ersöz & Toklu 2015; Blut et al. 2015). The satisfaction level scales are used to determine differences pertaining to nationalities purchasing the Coca-Cola products.
To discover whether there exist differences in the customer’s’ satisfaction according to their origin of the nationalities, the business research team conducted the analysis to test the following research hypotheses.
- there is no positive significant relationship between advertisement expenses and the sales volumes of the product in the Coca-Cola subsidiary in the UK; or the advertisement programs of the Coca-Cola company in the UK have no impact on the sales volume of their product;
- the there are no differences in the customers’ average satisfaction or consumption levels for Coca-Cola products in the UK with reference to their nationalities;.
Design and Data Sources
To investigate the effect of advertisements on sales and establish the correlation between these two economic variables (Advertisement Expenses, Sales, Customer Satisfaction), this paper employs an experimental design approach (Hayes 2013). With the data obtained from both primary and secondary sources (the website’s data and survey questionnaires), an appropriate small sample was chosen for the annual expenditures on advertisements and the aggregate yearly for the last 10 years. Also, there are randomly selected 40 responses of customers of the UK and French nationalities used for comparing the satisfaction levels.
Data Collection and Sample Size
The data was obtained from the on sales and advertisements for the years of 2009 to 2018. The data for financial years were obtained from the company’s reports while the customers’ level of satisfaction was obtained from survey questionnaires. After the questionnaires’ responses were obtained by the Research Management team, twenty units for two countries were sampled for the test analysis. Therefore, the research is centred on the following variables: Customer Satisfaction, Sales, and Advertisement Expenses.
The results were analysed, summarised, and presented for simple business visualisation and easy interpretation in the business environment using the SPSS software. The data analysis involved regression analysis, descriptive statistics, and testing of linear regression assumptions, such as homoscedasticity and autocorrelation to ensure that the conclusions from the results of the study are not spurious (Hox, Moerbeek & Van de Schoot 2017).
Data Analysis and Findings
The main objective of this chapter is to present data analysis and interpretation obtained from the findings of the sample test results
The table below represents summary statistics for advertisements and sales for the period between 2009 and 2018 for the Coca-Cola subsidiary in the UK.
Table 4.1a: Descriptive Statistics for Sales and Advertisement Expenses.
|Statistic||Advertisement (in million dollars)||Sales (in million dollars)|
|SE of Mean||1.073||20.853|
The summary statistics for the customer satisfaction between French and the UK nationalities shown that the average satisfaction for the Britons was slight, 79.9 (11.97) above the French citizens 75.6(15.20) though deviation was high for the Frenchians compared to Britons. For both nationalities, it was noted that there was a negative skewness of 1.70 and 1.51 for UK and France respectively (Table 4.1b).
Table 4.1b: Descriptive Statistics for Customer Satisfaction.
|SE of the Mean||2.547||3.233|
The correlation coefficient between sales and advertisement (0.979) was found to be significant at 0.01 level, 2-tailed. For the customer satisfaction levels, the correlation between the two nationalities was recorded as 0.969 (Table 4.2a; Table 4.2b).
Table 4.2a: Correlation Matrix for Sales and Advertisement Expenses.
Table 4.2b: The Correlation for Customer Satisfaction.
Chi-Square Test Results
Chi-square linear test resulted into 8.620 whose significance was 0.003 to 1 degrees of freedom. Using the p-value approach 0.003<0.05, it was concluded that there was there is a statistically significant relationship between Sales and Advertisement Expenses.
Regression Analysis Results
The regression results for the data are presented in this subchapter in the subtitles: regression summary, Analysis of Variance (ANOVA) and Model coefficients.
Regression results for sales and advertisement data ran in SPSS software were presented as follows. Upon the increase of independent variables 95.3% of Sales would be explained by the changes in the Advertisement Expenses of MNCs (Table 4.4).
Table 4.4: Regression Results.
|model||R||R2||Adjusted R2||SE||R2 change||F||Df1||Df2||Sig. F|
The Unit root test for the data using the Durbin Watson statistic produced 2.742. Using the Rule of Thumb that DW value should be around 2 (Wasserstein & Lazar 2016), it was concluded that there was no autocorrelation in the outcome variable for the data tested (Table 4.5).
Table 4.5: Unit Root Test Results.
Analysis of Variance (ANOVA)
Analysis of the Variance approach was used to understand the significance of the regression model as the best modeling method for understanding the variances among and between variables in the linear models (Darlington & Hayes 2016; Hayes 2013). It was recorded that there was a statistically significant association between the predictor and the outcome variable since the F(1,8)-statistic, 181.478 (0.000) obtained had 0.000 significance (Table 4.6).
Table 4.6: Analysis of Variance.
The standardised coefficients for the regression model showed that only 0.979 units change in Sales would occur as a result of a unit increase in Advertisement Expenses (Table 4.7; Cameron & Poot 2018).
Table 4.7: Model Coefficients.
|Model||Unstandardized B||SE||Standardised B||T||Sig.||VIF||Tolerance|
Discussion and Findings
Findings and Conclusions
The statistical test from the data shown that there is a positive linear causal effect association between Advertisement Expenses (AE) and Sales(S) for the Multinational Enterprises (MNEs) with a high correlation coefficient. The regression results showed that almost most changes in sales (95.8%) can be explained by changes in the Advertisement Expenses, with only a little percentage explained by factors outside the model (Hayes 2013; Murry 2018). The comparison statistics for the average consumer satisfaction levels between Britons and Francians showed that there is a statistically significant difference, -4.351 (0.000), in average satisfaction levels among customers of different nationalities (Wasserstein & Lazar 2016). The difference in the average satisfaction levels for the UK (79.9) and France (75.6) shown that there are existing differences among the satisfaction levels by the Coca-Cola products. There is an increase in the sales of the company since 2009 (Figure 5.1a), showing a positive growth for the firm’s products. A Trend for the sales and Advertisement Expenses (AE) shown that there has been a proportional upward trend for the recent past (Figure 5.1b).
The establishment of a statistically significant positive linear association between Sales and Advertisement Expenses of the Multinational Enterprises (MNEs) confirms the theoretical assumption that advertisement induces spending (Hayes 2013; Hira & Deshpande 2018). The research results in accentuating significant differences in consumer satisfaction levels with reference to cultural perspectives of consumerism and preferences in buying goods and utilities. However, this is an assumption that the same products may have different consumer satisfaction depending on the nationalities (Hayes 2013). Owing to this, managers have a duty to consider the customers’ satisfaction priority in their production decisions. The upward trend in the sales and advertisement expenses is an indicator that the management should have policies in place to maintain the growth level of the firm (Morales, Amir & Lee 2017).
With the above research results, the following actions are possible for the policy formulations:
- The management should increase spending on the advertisements to spur the sales;
- The management should devise ways in which it should address the differences in satisfaction across different nationalities to maximise profits and maintain the customers’ loyalty;
- The management should maintain the upward pattern trend of sales and the increased expenditures on advertisements;
- With differences in average consumer satisfaction among different nationalities, the management of MNCs should re-invent their policies to make priorities which aim at manufacturing products based on the cultural values of the nation.
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