At long last our arduous obligation as students are temporarily over! Following up from the previous article, I will introduce some empirical findings in the literature that help us better understand ‘advertising’. I am going to split the summary of empirical findings into two articles and here we will look at advertising’s effect on a firm’s sales. The next article will look at empirical findings of advertising’s effect on market share stability.
It is important to recognize the different effects that advertising could have on sales. Firstly, is there a positive relationship between present period advertising and present and future period sales? If the answer to this question was ‘yes’ then it would support some sort of goodwill building mechanism of advertising. Secondly, we need to look at whether advertising impacts the market’s demand or if it is simply a form of competition between firms within the market.