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Does Advertisement Expenditure in Toyota Influence its Sales and Profits (2)
Does Advertisement Expenditure in Toyota Influence its Sales and Profits?
Business Problem Analysis
Advertising increases the visibility of a company’s products and services. In 1937, Toyota was formed. (Nusran et al., 2018). Since then, it has grown from a little local firm to a worldwide automobile competitor. The company is present in all local markets. Toyota reaches its target market using the four Ps (Itsuki, 2021). When making selections, the prosperous corporation Toyota considers a range of customers and local and regional marketplaces. As a consequence, the marketing mix of the firm has been adjusted. Toyota’s international success is a result of its marketing mix (Madoh, Alenazi, Alkhamees, & Panwar, 2019). Numerous strategies have contributed to the organization’s development and success. The company’s success may be attributed to its solid internal structure, friendly HR staff, exceptional customer contacts, and favorable public image.
This study investigates if Toyota’s marketing expenditures impact sales and profitability. Due to Toyota’s worldwide success, Nusran et al. (2018) and Madoh et al. (2019) assert that the company’s advertising expenditures are of little long-term significance. Others assert that the corporation still uses advertising to penetrate new markets, acquire new clients, and retain old ones (Anand, Singhal, & Singh, 2020). Increases or decreases in advertising expenditures, as well as changes in sales and profits based on advertising expenditures, are required to examine a business problem.
The research questions are as follows:
Does an increase in advertisement expenditure influence annual profits for Toyota?
Will a decrease in advertisement expenditure influence the annual sales for Toyota?
How does an increase in advertisement expenditure influence annual sales for Toyota?
What impact does a decrease in advertisement have on annual profits for Toyota?
Literature Review
Role of Advertising
Advertising employs mass media to convey impersonal information about a company to its intended audience. It also provides details on a popular product or service (Nikbin et al., 2021). This is done through persuading and educating consumers about the benefits of the products, which impacts their decisions. Shah (2018) adds that doing so boosts brand or product exposure. Advertising educates and persuades customers to buy items and services. Advertising affects consumer finances in many ways. Advertising may boost a product’s sales. It’s been key to the growth of numerous firms in recent years (Karray, Martn-Herrán, & Sigué, 2021). When there are no concerns, a corporation may deploy more efficient and productive technology while educating workers on the new tools. Creating a culture of collaboration and open communication may help. This boosts a company’s growth and functioning.
Impact of Advertisements on Sales Volume
In today’s brutally competitive commercial business, customers are seen as the most important factor in a brand’s success. Customers have market power because they have so many alternatives (Karray, Martn-Herrán, & Sigué, 2021). They may make decisions, affecting product size, pricing, and quality (Joshi & Hanssens, 2018). Manufacturers must satisfy customer expectations to stay ahead of the competition. Advertising and sales promotion are two important commercial communication methods. Both sorts effect customers’ attention and a company’s reputation. Advertising and sales promotions are effective for selling a brand.
Depending on its marketing aims, a company’s income may vary immediately or over time. Long-term brand management advertising delivers higher sales and profits over time than short-term sales promotions (Dekimpe & Hanssens, 2018a) (Dekimpe & Hanssens, 2018b). Short-term sales efforts frequently enhance sales, despite common opinion (Katole, 2020). Money earned and things sold are used to measure a transaction’s success. If a company’s sales are rising, this typically means that it is becoming more lucrative or that demand and sales are rising (Anagnostopoulou et al., 2019). Increased money may be used to develop the company. Promotions and advertising may boost sales. Increasing sales has this benefit.
Advertising a product significantly affects its sales. Consumers generally choose items based on what they’ve seen, heard, or used (Al Badi, 2018). Advertising helps marketers and producers to reach a dispersed target audience. Research reveals that a product or service’s promotion must attract repeat business from customers to prevent giving competitors an advantage. This eliminates the competition’s edge (Hoekstra & Leeflang, 2020). Customers become more loyal to the brand, and the products get individuality. Advertisers create brands and moments to attract the audience’s attention and encourage them to buy their product or service.
Impact of Advertisements on Profitability
Researchers observed two functions in corporate advertising. First, a firm loses money every time it advertises (Joshi & Hanssens, 2018). If the marketing was effective, the firm will produce income (Ou et al., 2018). Both acts affect the accounting method, highlighting the necessity for proper categorization to sustain a company’s financial health. Advertising is frequently reduced into a few basic accounts, and remaining current is easy (Huang & Radighieri, 2021). Advertising will raise total revenue, which will reduce fixed expenses and enhance net profits (Madoh et al., 2019). Short-term profit margins won’t likely rise. Because a profit margin is calculated by subtracting the selling price from the cost of items sold, it’s difficult to change this amount via marketing. Since most companies spend money on advertising for this reason, it seems sense that it would affect sales. No one knows which corporations spend the most on advertising. A firm with larger sales income may spend more on advertising than one with lower sales revenue. 74% of advertising will result in lucrative sales if done effectively (Anand, Singhal, & Singh, 2020). Advertising a company’s products or services is risk-free. TV is considered “safe” owing to its short- and long-term advertising income possibilities (Anand, Singhal, & Singh, 2020). 72% of TV ad campaigns are profitable, according to a survey.
Descriptive Analysis of Relevant Existing Data
Revenue versus Advertising Budget
A corporation should prioritize revenue and client growth. A firm must sell enough of its own items to pay its overhead expenses and then make a profit. Developing a financial strategy and bringing in money for companies and organizations starts with estimating future sales. It must be specified before manufacturing units may be created, and production units select what materials to buy (Shah, 2018). Many company owners and managers find it difficult to evaluate sales. Toyota can’t influence the choices of consumers beyond its area of influence. Dekimpe and Hanssens (2018b) found it difficult to forecast expectations in such a setting. Because sales are vital to a company’s capacity to continue in business and there is a link between customers and sales, it makes sense for Toyota to engage in activities that may induce consumers to purchase their goods. Branding and advertising are important because they raise awareness about a brand, new items, or the business (Hoekstra & Leeflang, 2020). Advertising is one of four components of the marketing mix’s promotion mix. The item’s price, location, and value are the others. Advertising, a subcategory of marketing strategy, improves customers’ product awareness and impacts how they assess a product before buying.
Advertising as Value Adding
Advertising allows company owners to employ public relations, sales promotion, and advertising. Information presented in communication must be as simple as possible for recipients to understand it. Advertising is a compensated, impersonal engagement that for-profit firms, non-profit organizations, and people employ to convey a business pitch to target audiences (Karray, Martn-Herrán, & Sigué, 2021). Huang and Radighieri say advertising targets identified organizations that wish to educate or persuade a certain audience (2021). The creators of this definition examined advertising’s objective, utilization of resources (financial and non-financial), and other marketing-related characteristics. Advertising raises consumers’ awareness of a product or service and encourages them to buy it, according to Nusran et al. (2018). Advertising is non-personal communication via paid media with obvious sponsorship, according to Karray, Martn-Herrán, and Sigué (2022). Advertising is one of four primary channels organizations use to sell their goods and services. Advertising aims to change prospective consumers’ impressions of a firm and its products or services, according to Dekimpe and Hanssens (2018a). Advertising gives information, directs desire, and offers reasons to pick one organization’s offer over another.
Toyota’s Advertising Budget Compared to Returns
Toyota Motor Corporation spent 470 billion Japanese yen on advertising and sales promotion in fiscal year 2019, which started in April 2019 and ends in March 2020. As seen in figures 1 and 2, the statistics have been declining.
Figure 1: Toyota Global Advertising Expenditure 2017-2020 (Source: Statista.com, 2022)
Toyota spent about $1.4 billion on U.S. advertising in 2020. The company spent second-most on advertising among the top five automakers that year, behind GM but ahead of Ford. Toyota Group spent almost $100 million on national TV, print, and online advertising in the preceding year. They spend in upmarket ad units and marketed on 200 media outlets last year. Toyota Motor released 20 new products last year. Figure 2 compares firm performance from 2007-2020.
Figure 2: Toyota US Market Advertising Expenditure 2007-2020
Source: statista.com (2022)
Comparatively, with the reduction in advertising spending from 2017, Toyota Motors saw a sharp decline in net margins since the same period.
Figure 3: Fluctuating net income margins at Toyota due to reduced ad spending
Source: Nasdaq.com
The proportion of revenue kept as profit climbed from 6.6% in 2017 to 8.5% in 2018, but then dropped to 6.2% in 2019 due to lower advertising expenditures (Nasdaq.com, 2022). Toyota expects its operating profit to drop by 20% to 2.5 trillion yen for the current fiscal year due to their reduced advertising spend (Nasdaq.com, 2022).
In October 2021, TV ad impressions dropped from 28 billion to 26 billion (statista.com, 2022). Toyota spent $40 million in the U.S., more than any other automaker (statista.com, 2022). Over 82% of Toyota’s national TV ad expenditure went to the NFL, followed by MLB and NBA events (statista.com, 2022). Toyota’s October 2021 spending rose 65% from October 2020, the largest of any major automaker. Toyota’s social media budget is 62% Facebook (statista.com, 2022).
When a firm like Toyota spends millions on marketing and advertising, it’s sensible to investigate how these expenditures effect its bottom line. As markets gain strength, academics and businesspeople are becoming more aware of how communication tactics like advertising affect corporate value (Miller et al., 2021). Real-world research shows that advertising affect customers’ purchasing decisions (Shah, 2018). A customer considers “value” while making a purchasing choice. This might be savings or other advantages. Customers expect to make a profit (price-to-value) (Nusran et al., 2018). Customers want every kobo to be worth it. Marketers that believe advertising will boost their bottom line invest. Businesses must spend a lot of money on advertising, therefore this is anticipated. The corporation may gain improved earnings or sales (Dekimpe & Hanssens, 2018a). Toyota spends millions annually on PR and advertising to market its goods and services. This money will likely be used for advertising. Nikbin et al. (2021) note that marketers should expect a return on their investment. Their confidence originates from the belief that marketing techniques will affect market performance and corporate income. This drives them. Katole (2020) says advertising effectiveness might imply various things in different places. These people may be scattered.
Measures have been established to examine and quantify brand awareness and consumer loyalty in the market (Dekimpe & Hanssens, 2018b). The AIDA or one of its versions has been utilized in study since the early 1900s. Joshi and Hanssens (2018) say few studies have examined sales and profitability volatility. At first view, it seems Toyota mistreated consumers and marketplaces in various areas of the globe to test these elements. It’s crucial to investigate the relationship between Toyota’s marketing spending and its revenue.
Research Design
Survey Method
This research study includes secondary data and is organised by causality. This research aims to determine whether there is a link between Toyota Motor’s advertising spending, sales, and after-tax profits from its products. This study’s secondary data will come from the companies’ annual reports. Primary and secondary data vary beyond the source utilized and whether the material has been seen before. When choosing an analysis, it’s vital to examine how these two forms of data might vary. “Raw data” refers to original research material that may be structured in many ways dependent on the study’s aims. Secondary data is typically supplied in a manner not designed for study. Secondary data has likely been sorted or processed before.
Secondary data collection is quicker and simpler than primary data collection. By avoiding the preparation process, researchers save time. Since they don’t have to find and use original resources, researchers may concentrate on the study’s aims. Secondary research frequently has the lowest costs. Building and maintaining a large number of sensors that can capture a lot of data, as well as putting up focus groups and paying individuals to interview persons of interest, may be expensive. Secondary data is typically free. All relevant information has been accumulated and is available in public locations like libraries. Even if these data are insufficient and you need to pay data providers or obtain secondary data, this strategy is cheaper than acquiring first-hand knowledge. Clean up secondary data before utilizing it for critical purposes. This means certain data quality standards have been satisfied. All requirements may be met. Primary data gathering alone won’t solve all data quality issues. Researchers must spend additional time and energy cleaning. Secondary data is typically arranged in a manner that doesn’t satisfy the demands of the current secondary study. It’s easy to read and comprehend, which saves time. Researchers might gather a little amount of primary data before starting the study. Secondary data aren’t limited. Secondary sources have more information than one person can analyze in a lifetime. Secondary data researchers have several venues to go for information.
Sampling Design
Secondary sampling designs are used to acquire data or other information following initial sampling methods. Secondary sample designs aim to improve model or selection quality in ways not achievable before. Secondary designs are model- or point-based (sample or spatial model). “Judgmental sampling” will be used. This primary or secondary layout gives the user total flexibility over sample placement. Some goals are hard to automate, thus it’s occasionally vital to follow an expert’s advice. Using this sampling strategy is easy since the researcher’s skills are crucial and there are no extra hassles. Thanks to the design, researchers may speak directly with their targets. Only the researcher’s choices are considered when choosing a sample. Because of this, the research can target the right people and acquire the desired results.
References
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Anagnostopoulou, S. C., Buhalis, D., Kountouri, I. L., Manousakis, E. G., & Tsekrekos, A. E. (2019). The impact of online reputation on hotel profitability. International Journal of Contemporary Hospitality Management.
Anand, A., Singhal, S., & Singh, O. (2020). Optimal advertising duration for profit maximization. Journal of Management Analytics, 7(3), 458-480.
Dekimpe, M. G., & Hanssens, D. M. (2018a). Sustained spending and persistent response: A new look at long-term marketing profitability. In LONG-TERM IMPACT OF MARKETING: A Compendium (pp. 143-186).
Dekimpe, M. G., & Hanssens, D. M. (2018b). The persistence of marketing effects on sales. In LONG-TERM IMPACT OF MARKETING: A Compendium (pp. 107-142).
Hoekstra, J. C., & Leeflang, P. S. (2020). Marketing in the era of COVID-19. Italian Journal of Marketing, 2020(4), 249-260.
Huang, J. C., & Radighieri, J. P. (2021). Post-Recall Stock Market Signals: The Impact of Ad Spending on Sales Performance. Journal of Promotion Management, 27(6), 765-787.
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Joshi, A., & Hanssens, D. M. (2018). The direct and indirect effects of advertising spending on firm value. In Long-term Impact of Marketing: A Compendium (pp. 521-556).
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