Essay: To what extent does advertising and sales promotion affect the domestic sales of Nestle India Ltd?

Abstract
This essay aims to answer the question ‘To what extent does advertising and sales promotion affect the domestic sales of Nestle India Ltd.’?
From the company’s annual report since 2003 to 2013, the annual domestic sales and advertising and sales promotion expense was taken into study. The essay analyses the effects of advertising and sales promotion expenses on the domestic sales of Nestle India Ltd.
After analysing the annual reports of Nestle India Ltd, we can conclude that the relationship between the advertising and sales promotion expenses and domestic sales is a positive relationship. On comparing the data of 2012 & 2013 it has been found that the domestic sales increased by 7.33% while advertising and sales promotion expenses increased by a whopping 11.13%.
The potential market’s changing needs and demands are assessed by the M.R. (Market Research) team and relevant information is communicated to the RND (Research and Development). The finance cost department determines the cost factor and the products are manufactured. Advertisements are developed on themes based on the findings of the marketing research team. By targeting the potential and latent needs of the targeted audience, advertisements nit only informs and persuades but also gives birth to demands which had been identified as latest needs by the marketing team.
This essay concludes that advertising and sales promotion expenses has helped Nestle India Ltd. spread awareness of its products, helped in differentiation of its product, increased domestic sales, market share and net income, improved its services to customers and boosted the morale of customers. Nestle India Ltd. advertises products KitKat, Maggi, Milky bar, Polo, Nescafe gold coffee and many more.
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Introduction
‘Advertising is the paid, impersonal, one-way marketing of persuasive information from an identified sponsor disseminated through channels of mass communication to promote the adoption of goods, services or ideas.’
HISTORY OF ADVERTISEMENT
In different periods advertisement has assumed different forms and ways. The initial objective of advertisement was to inform about the product and services. Gradually it became a part of marketing and the objective became persuasion and temptations to capture a bigger market share. The enormous technological changes in different periods have catapulted advertising into an enviable position in marketing.
Egyptians utilized papyrus to make courses of action messages and divider blurbs. Business messages and political battle presentations have been found in the leftovers of Pompeii and old Arabia. Lost and discovered progressing on papyrus was standard in Ancient Greece and Ancient Rome. Divider or rock painting for business propelling is a substitute proof of a dated publicizing structure, which is open up ’til today in different parts of Asia, Africa, and South America. The custom of divider painting can be taken after again to Indian rock craftsmanship centrepieces that make a beeline for 4000 BC.[10]
In antiquated China, the most opportune progressing known was oral, as recorded in the Classic of Poetry (eleventh to seventh numerous years BC) of bamboo woodwinds played to offer sweet. Headway generally takes as calligraphic signboards and inked papers. A copper printing plate dated again to the Song specially used to print circulations as a square sheet of paper with a rabbit logo with “Jinan Liu’s Fine Needle Shop” and “We purchase fantastic steel bars and make fine quality needles, to be masterminded use at home without a minute’s floundering” made above and below[11] is seen as the world’s soonest seen printed progressing medium.[12]
In Europe, as the towns and urban gatherings of the Middle Ages started to make, and the general masses was not prepared to examine, rather than signs that read “shoemaker”, “plant overseer”, “tailor”, or “metal falsifier” would utilize a picture joined with their exchange, for occurrence, a boot, a suit, a top, a clock, a pearl, a steed shoe, a light or even a pack of flour. Verdant sustenances were sold in the city square from the backs of trucks and wagons and their proprietors utilized road guests (town separations) to report their whereabouts for the accommodation of the clients.
In the eighteenth century ads began to show up in week by week step by step papers in England. These early print fittings were utilized mostly to push books and consistently papers, which got to be legitimately immediate with advances in the printing press; and pharmaceuticals, which were ceaselessly scanned for after as burden struck Europe. Notwithstanding, false publicizing thus called “quack” fittings changed into an issue, which exhibited the regulation of advertising content.
EVOLUTION OF ADVERTISING
Advertising was first done by merchants, they used to hang carved signs in front of their shops as most people could not read, so this was used as symbols. The invention of the printing press, radio, television and the internet (in that order), have continuously shaped the media and the advertising industry. Birth of advertising agencies took place-Volney B. Palmer, Philadelphia 1841, was the first advertising agency. Radio became commercially viable in the 1920’s and a much coveted medium for advertisers for all sorts of products. The late 1980s and early 1990s saw the presentation of cable TV and especially MTV. Spearheading the idea of the music feature, MTV introduced another kind of publicizing: the buyer tunes in for the promoting message, as opposed to it being a by-item or reconsideration. As link and satellite TV got to be progressively common, speciality channels rose, including channels totally dedicated to promoting, for example, QVC, Home Shopping Network, and ShopTV Canada.
Television was invented in the 1920’s but from 1950’s it became affordable and a mass commercial medium with sight sound and motion. The next great innovation was the cable television. Advertisements could now narrowcast. The new channels like MTV, EPSN and so on helped advertisement target audience with specific interests.
With the coming of the notice server, showcasing through the Internet opened new wildernesses for sponsors and added to the “website” blast of the 1990s. Whole organizations worked singularly on publicizing income, offering everything from coupons to free Internet access. At the turn of the 21st century, various sites, including the internet searcher Google, began a change in web promoting by underscoring relevantly applicable advertisements in light of a singular’s searching hobbies. This has prompted a plenty of comparable endeavours and an expanding pattern of spontaneous advertising
IMPORTANCE OF ADVERTISING
Advertising helps businesses to:
(i) Differentiate its product.
(ii) Increase net sales, net income, market share
(iii) Develop awareness among customers about the product
(iv) Boost up morale of customers
(v) Take care of customers
(vi) Improve the image of the brand
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NESTLE INDIA LIMITED
In 1912, Nestle traded as the The Nestle Anglo Swiss Condensed Milk Company (Export) Limited, importing finished products in the Indian market.
In 1961, Nestle had set up its first factory at Moga in Punjab in 1961. Then Nestle had set up milk collection centres which would help build confidence in the community about dairy businesses.
Nestle has been a significant player for the growth of the Indian market. It gives direct and indirect employment to people and provides livelihood to about a million people.
The Company maintains a far sighted vision whereby it appreciates the changing lifestyles of Indians and the dynamic customer needs keeping in mind the core objective of giving Taste, Nutrition, Health and Wellness through its wide range of nutritional products. The general public of progression and update inside the Company and access to the Nestl?? Group’s elite development/Brands authority and the wide bound together Research and Development business locales accommodates it an extraordinary purpose of enthusiasm for these tries. It helps the Company to make regard that can be overseen over the whole deal by offering buyers a wide mixture of amazing, safe sustenance things at affordable prices.
In Nestle, international quality standard products are manufactured under international brands like Milky Bar, Nescafe, Maggi, KitKat, Nestea and recently it has also introduced daily consumable products like Nestle Dahi, Nestle Slim Milk and remains ever more alert towards the changing customers’ tastes and preferences and ever increasing health consciousness.
This essay aims to draw out the significance of advertisement and sales promotion on the domestic sales of Nestle India Ltd.
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Methodology
To assess the effectiveness of advertisement and sales promotion on the domestic sales and market share of Nestle India Ltd, the sales report and the advertising and promotion expenses were taken into consideration ranging from 2004 to 2013. These reports have helped to analyse critically in what way advertising and promotion expenses resulted in the increase or decrease of domestic sales of Nestle India Ltd., whether advertising and promotion expenses led to Nestle India Ltd.’s increase or decrease of market share. These two components can help us measure the effectiveness of advertising and promotion expenses in the different stages of a product’s life cycle.
By analysing the data of past 10 years of domestic sales and advertising and promotion expenses, this essay will conclude whether advertising and sales promotion affect the domestic sales or not. If the domestic sales increase at an increasing rate on the increase of advertising and promotion expenses then the domestic sales are affected positively. If domestic sales decrease or increase at a decreasing rate on the increase of sales and promotion expenses then it is affected negatively.
Also by analysing the data of number of units sold vis-??-vis the advertising and promotion expenses, this essay will help us to conclude whether advertising and promotion expenses affect the domestic sales of Nestle India Ltd. If the number of units sold increases on the increase of advertising and promotion expenses then domestic sales is affected positively. On the other hand if the number of units sold decreases on the increase of advertising and promotion expenses then it is negatively affected.
The use of data like domestic sales and the number of units sold can also help us to determine the growth of Nestle India Ltd. If the number of units sold of Nestle India Ltd increases then it is growing or vice versa. Also if the domestic sales of Nestle India Ltd increases then it is facing a positive growth. From the increase in both the components we can also say that Nestle India Ltd has a splendid marketing strategy.
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Advertising and Sales Promotion
‘Advertising is a means of communication with the users of a product or service. Advertisements are messages paid for by those who send them and are intended to inform or influence people who receive them’, as defined by the Advertising Association of the UK.
‘Sales promotions are the set of marketing activities undertaken to boost sales of the product or service.’
Advantages
‘ Attracting customer with price: – customers can become loyal by providing them with lower prices compared to the competitors on popular products.
‘ Creating goodwill among public: – By promoting for a social cause the business can increase its goodwill among people. This may also help to get more business and corporate social responsibility can be done.
‘ Boost re purchase: – customers can be encouraged to do repeat purchase by providing them with reward points, attractive prices and after sales service.
‘ Attract competitor’s customers: – competitor’s customers can be attracted by providing them with free samples, prices better than the competitor or an add-on with a product.
‘ Delivering information: – potential customers can be informed about the product through sales promotion. Qualities of complicated products and services can easily explained to consumers.
‘ Product differentiation: – advertising helps to differentiate products by highlighting the benefits, effectiveness and uniqueness of the product.
‘ Sales: advertisements help the business to increase its sales in the market.
‘ Market share: – advertisements help the business to increase its market share.
‘ Growth: – advertisements help in the growth of the business as it increases its sales and market share and create a brand name I the industry in which it is operating.
‘ Morale of consumers: – if a company advertises excessively the product is alive in the eyes of the consumers and it keeps the morale boosted to buy that product again and again.
‘ Net income: – advertising helps to increase the sales in return which increases the net income of the business.
Disadvantages
‘ Guarantee: – advertisement does not give guarantee or it is a panacea for the growth of the business.
‘ Introduction of inferior products: – a business may advertise and introduce an inferior product in the market which would make the consumers try it and fool them
‘ Inherits costs: – advertising is a costly affair and involves varying degrees of wastage. Consumers with little or no interest would receive the advertisement.
‘ Bad taste of advertisement: -some advertisements are involved in showing vulgar images or usage of foul language. these advertisements hurt the sentiments of the society and spoil the community.
‘ Advertising unmatchable: – It is basic to recall that interchange tools of marketing communication offer alternative technique for communication with both existing and potential buyers. Each of these instruments has remarkable central focuses which advertising will be not able to match.
‘ Product image: – when there is too much sales promotion of a product, its image in the market decreases. People start wondering if the product is good as it seems in the promotion.
‘ Product price: – businesses try to boost their sales through promotion with lower prices of their product which may make it difficult for the business to increase the prices.
‘ Excessive demand: – when there is too much promotion of a product, it creates excessive demand of a particular product in the market which the business might not be able to supply.
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Types of advertisement techniques used by Nestle India Limited
Internet: – nestle uses internet platform to show its advertisement as now people are becoming more internet savvy. Nestle adds come on YouTube and various other websites. This is one of the most common way to get to people.
Television: – Nestle also advertises about its product through television. A product’s qualities benefits, price are put into a video and broadcasted in television. This is most easiest way to get to public.
Radio: – radio is the method through which rural consumers or who don’t see television or print media are attracted. In this advertisements of Nestle are broadcasted on hourly basis which tells about the feature of the products.
Print media: – Nestle uses print media for advertising its product. It is one of the most common method to advertise. In this advertisements of Nestle are posted on newspapers, pamphlet, posters and many more.
Transport vehicle: – Nestle also uses transport vehicle to advertise its products. Posters and pamphlets of the product will put on the skin of buses taxis autos and many more to increase it reach to other customers and increase its brand image.
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SWOT analysis of Nestle India Limited
Strengths
‘ Sales, financial and marketing strategies are formed according to the market trend.
‘ It has an attractive and innovative market strategy
‘ Loyal consumers
‘ It has a strong brand image
Weaknesses
‘ Nestle targets the upper market rather than lower middle or lower class and the Indian market has more of lower middle and low class.
‘ Low advertising on milk products compared to other players.
‘ Lack of awareness amongst the target market.
Opportunities
‘ Nestle can increase its dairy product market by investing on superior quality milk.
‘ It can also expand its coffee market by attracting the masses to coffee through aggressive advertising.
‘ Better credit policies can be framed to increase sales.
‘ To introduce products for the lower middle and lower classes.
Threats
‘ Intense competition prevails in the Fast Moving Consumer Goods (FMCG)
‘ Political environment in some states of India acts as a threat to Nestle as most of its products are sold through retail shops of foreign direct investment.
‘ Devaluation of rupee takes place frequently.
‘ Sales of Nestle is affected due to the seasonal demand of most of its products.
‘ Major global players can enter the target market of Nestle.
‘ Legal and ethical issues by environmental and political groups of various hues.
Effects of advertising and sales promotion expense on domestic sales
Sales is the lifeline of every business. The main motive of a business is to maximise its sales and also to increase its income, reduce risk, operate in healthier economies of scale and to have a larger market share. A business can grow its sales both internally and externally. Internally it can grow its sales by using to own resources. Externally it can grow its sales by acquiring firms or integrating with them.
India is a developing economy and there is huge scope of development of industry. This part of the essay talks about how advertising and promotion expenses affects the domestic sales of Nestle India Ltd.
Domestic sales can be effected due to many factors but this essay will focus on how advertising and sales promotion expenses effect the domestic sales.
year Advertisement and promotion exp.(in million) domestic sales( in million)
2004 1212.6 21292.8
2005 1359.4 23847.1
2006 1388.4 26646.1
2007 1722.1 33174.1
2008 1943.5 41326.7
2009 2675.1 48938.2
2010 3026.2 60228.5
2011 3226.2 72777.9
2012 3558.8 81561.8
2013 3954.8 87537.4
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The table and scatter plot describe the annual domestic sales and the annual advertising and sales promotion expenses from 2004-2013.
From the table,
We can see in 2005 the sales and promotion expense was Rs 1359.4 million and domestic sales were Rs 23847.1 million
In 2006, the advertising and promotion expenses were Rs 1388.4 million and domestic sales were Rs 26646.1 million.
From comparing the data of domestic sales and advertising and promotion expenses of 2005 and 2006 we can conclude that as advertising and sales promotion expense increased, also the domestic sales increased.
Let’s analyse one more instance the data of years 2010 and 2011.
In 2010, the domestic sales was Rs 60228.5 million and the advertising and promotion expenses were Rs 3026.2 million.
In 2011, the domestic sales were Rs 72777.9 million and the advertising and promotion expenses were Rs 3226.2million.
After seeing the data of 2010 and 2011, again we can conclude that as advertising and promotion expenses increased, the domestic sales also increased.
Now lets look at the scatter plot, we can observe that advertising and promotion expenses affect the domestic sales of Nestle India Ltd. After analysing the scatter plot, we come to a conclusion that advertising and promotion expense and domestic sales share a positive relation. We can say that if advertising and promotion expenses increases then the domestic sales will increase.
The correlation coefficient of both is .9898 referring that both domestic sales and advertising and sales promotion expenses have a very strong positive relationship.
date % change in domestic sales % change in advertisement and promotion
2005 11.99607379 12.10621804
2006 11.73727623 2.1332941
2007 24.49889477 24.03486027
2008 24.57519571 12.85639626
2009 18.41787513 37.64342681
2010 23.07052568 13.124743
2011 20.83631503 6.608948516
2012 12.06946065 10.30934226
2013 7.326469009 11.1273463
The second column of the above table represents the percentage change in domestic sales from 2004 to 2013.
The third column of the above table represents the percentage change in advertising and sales promotion expenses from 2004 to 2013.
From the above table we can analyse that the percentage change in advertising and sales promotion expenses have led to a vast positive percentage change in domestic sales.
But in some cases it is opposite that the percentage change in advertising and sales promotion expenses have led to a lower positive percentage change in domestic sales.
Like in 2005 the advertising and sales promotion expenses increased by 12.1 % and domestic sales increased by 11.9 % as compared to previous year.
In 2006 the advertising and sales promotion expenses increased by 2.13 % and domestic sales increased by 11.73 % as compared to previous year.
By comparing the data of 2005 and 2006 we can see in 2006 the increase in domestic sales was far better than 2005 with a just a little increase in the advertising and sales promotion expenses. This same follows for 2008, 2010 and 2011.
And for the rest of the year in the above table the percentage growth of domestic sales was less compared to the percentage increase in the advertising and sales promotion expenses as compared to previous year.
Conclusion
From the findings of this study, it could be concluded that there is positive and significant relationship between advertising and the domestic sales of nestle. Advertising is a system of communicating a sponsored message to a potential audience about the existence of a particular product, good or service.
Advertising plays a major role in informing the masses, in persuading the masses and achieving the sales figures that should justify the need for advertising. However as the product reaches the potentially targeted market segment, product advertising managers cut down on advertising costs, the mass having being achieved. After this stage the purpose of advertisement serves more as a status symbol for the buyers who take pride purchasing it. At this stage it is the quality of the product and its worthiness which will keep the market share of the product intact.