Is Advertising for Losers? An Empirical Study from a Value Creation– Value Capturing Perspective

Koen Tackx, Sandra Rothenberger and Paul Verdin

No 15-034, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: Does advertising lead to higher profits? This question has occupied both academic researchers and company executives for many decades. Arguments have gone in both directions, and evidence is mixed at best. Re-examining the question from a value creation and value capturing perspective as introduced in the strategic management and marketing literature, this article attempts to re-interpret and reconcile the different views and empirically validate the resulting hypotheses. Using a database of the top 500 brands of established companies during the period 2008–2012, we find that advertising spending has no significant impact on profitability, in contrast with brand value and innovation(the latter also positively affects brand value creation). In addition, advertising spending actually weakens the positive effect of innovation on profitability. These findings provide support for the view that advertising in and of itself does not improve profitability. Rather, its effect is positive only when it acts to support customer value creation, based on brand value and/or innovation activities.

Keywords: advertising effectiveness; brand value; effectiveness of research and development; profitability drivers; innovation; value creation; value capturing (search for similar items in EconPapers)
JEL-codes: M10 M20 M30 (search for similar items in EconPapers)
Pages: 24 p.
Date: 2015-08-28
New Economics Papers: this item is included in nep-ino, nep-ipr, nep-pr~ and nep-mkt
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