Measuring the Impact of Advertising and Promotion Expenditure at National, Industry and Company Levels in South Africa

Sound record-keeping of advertising expenditure figures in South Africa allows for a relative accurate assessment of the impact of advertising expenditure at national, industry and company level. However, the overall composition of marketing communication expenditure is nowadays affected by the continuous increase of promotion expenditure at the cost of advertising. Unfortunately, record-keeping abilities on promotion expenditure figures trails that of advertising. Consequently, the study aims to collect data on advertising and promotion expenditure simultaneously. Such information is highly valued by marketing practitioners in planning annual advertising and promotional budgets. To add further value to the analysis, some international comparisons are made. JEL M37, L60, 70, 80


INTRODUCTION
Not all marketing communication expenses are formally measured in South Africa. At present a relatively accurate enumeration is available of expenditure on above-the-line advertising (television, radio, print, outdoor and cinema advertising) but there is no accurate measurement of expenditure on below-theline promotion (consumer and trade promotions, direct marketing, sponsorship and public relations). The reason for this is probably the traditional domination of the marketing communication industry mainly by above-the-line advertising (hereafter advertising) activities which resulted in the development of formal measurement structures geared to record expenditure figures on these activities.
Over time, various factors contributed to less of the marketing communication rand being spent on advertising relative to below-the-line promotion (hereafter promotion). From a macro-perspective the transformation from advertising to promotion was largely brought about by recessionary conditions facing the South African economy, increased competition among companies marketing brands, technological developments and greater exposure to international developments engendering additional marketing communication disciplines. More specific factors such as high media inflation (increase in the cost of reaching the same number of viewers, readers or listeners), media proliferation (increase in media categories such as, for example, more television stations) and media fragmentation (increased media categories resulting in more fragmented audiences) is regarded as the main reasons for the growing level of disenchantment with traditional advertising media (AdFocus, 1997: 99-101). Further factors which exacerbated the shift include the channel captaincy of retailers, the growth in own brands, brand parity (imitation of rival products) and short term profit demands on brand managers (Sinclair, 1997: 3).
Notwithstanding the notable change from advertising to promotion spending, the actual size of promotion spending in particular remains based on speculation.

Above-the-line advertising (advertising for short)
Includes advertising in conventional media such as television, radio, cinema, outdoors and print media (Sinclair, 1997: 2). It includes marketing in all main (commissionable) advertising media (Wilmshurst, 1993: 6).

Below-the-line promotion (promotion for short)
Includes all other forms of sponsored communication apart from activities traditionally associated with personal selling. Below-the-line promotions thus include trade-shows and exhibits, couponing (manufacturer and retailer-based), sampling, premiums, trade allowances, contents, price-off packs, free goods, rebates, bonus packs, point-of-purchase material and different types of direct mail (Sinclair, 1997: 64 andStrang, 1975: 3).

OBJECTIVES
The objective of the study is to investigate the actual size of the marketing communication industry in terms of advertising and promotion expenditure in South Africa. This investigation represents one of the first in South Africa where advertising and promotion expenditure is studied simultaneously. The study further aims to measure the impact of the total marketing communication expenditure (advertising and promotion) at national, industry and company levels. To allow for international comparisons, the study continuously compares the size of marketing communication expenditure in South Africa with the USA and UK.

RESEARCH METHODOLOGY
The study was conducted in two parts. The first part of the study aimed to access the impact of advertising expenditure at national, industry and company level. This step involved the collection of secondary data from various secondary sources. Data was collected on advertising expenditure, gross domestic product (GDP) and company sales figures. The clustering of available advertising expenditure figures according to industry, also allowed for a further assessment of the impact of advertising expenditure at industry level. International comparisons on the impact of advertising expenditure further substantiated the findings of the first part of the study.
The second part of the study involved the collection of data from a sample of 250 brand owned companies in South Africa. Data was collected via an e-mail questionnaire sent to brand managers of top brand spending companies in South Africa. The main aim of this quantitative survey was to collect data on advertising and promotion simultaneously. Further grounds for collecting new data was based on accessing the impact of the total marketing communication industry in terms of advertising and promotion simultaneously. The fist part of the study, which accessed the impact of advertising alone, was used as basis for accessing the overall impact of advertising and promotion at national level. In addition, the survey results provide usable information to access the impact of advertising and promotion at industry and company level.

RESEARCH RESULTS
The two phases of the study, as explained above, are discussed in the sections below.

Phase one: Accessing the impact of advertising expenditure
Following a chronological approach, phase one of the study starts off with an assessment of the impact of advertising expenditure at national level. Hereafter the impact of advertising expenditure is examined at industry and company level. It should be noted that international comparisons of the impact of advertising expenditure are provided at all three levels.

The impact of advertising expenditure at national level
This step involved the collection of secondary data from AdIndex (AdEx) and the South African Reserve Bank (SARB). AdEx, a division of ACNielsen South Africa, records annual advertising expenditure figures while the SARB maintains Gross Domestic Product (GDP) figures. GDP figures measure the size of the all goods and products produced in South Africa over a given time period.
The following simple ratio formula was used to access the impact of advertising in terms of GDP from 1990 to 2001.

Advertising expenditure Gross Domestic Product
Based on the above-mentioned ratio formula, the impact of advertising expenditure on the national economy from 1990 to 2001 is reflected in Figure 1. It is clear from Figure 1 that advertising expenditure has increased relative to the national economy since 1990 and now stands at approximately 1,0 per cent of the total economy.
In relation to more developed countries such as the United States of America (USA) and European countries, the size of advertising expenditure in South African compares rather poorly. This is particularly evident from Table 1, which shows the share of advertising in the national economy of the USA from 1995 to 2000. When considering the 1,0 per cent share which advertising represents of the total economy, it is clear from Table 1 that the impact of advertising in the USA economy outstrips that of South Africa. Even in the UK it is estimated that the advertising accounts for 2,0 per cent of GDP (World Advertising Research Centre, 2001). The substantially larger share of the marketing communication industry in the economies of the USA and UK, compared to South Africa, can be ascribed partly to more favourable economic conditions in the USA and UK which, in turn, reflect high corporate profits enabling advertisers to continue spending. Higher literacy rates in the USA and UK also probably explains the higher advertising expenditure abroad. In view of the latter, the fact that the share of advertising expenditure in the USA and UK economies is larger compared to that in South Africa is actually besides the point. What is more important to note is that, despite the sluggish domestic production in South Africa, advertising expenditure remained high and has a notable share in the local economy.

Impact of advertising expenditure at industry level
From the most recent secondary data extracted from AdFocus (2000: 44, 2001: 44 & 2002: 40) it is clear that the share in advertising expenditure differs across economic sectors. The most logical explanation for this is the fact that products and services are marketed more vigorously in some economic sectors than in others. To identify industries where brand building is healthiest, the top 100 South African advertising spenders in 1999, 2000 and 2001 were clustered by economic sector according to the Standard Industrial Classification (SIC) System in Table 2 below. This international numerical system is used to classify economic activities of industries and is better known as the 'Standard Industrial Classification of all Economic Activities'. The SIC was adopted in the United Nations for the first time in 1948 and was revised several time, the last being in 1990 (Potgieter, Nänny & Van Zyl, 1997: 2). This classification system is nowadays used internationally. To further elaborate on the methodology used by SIC, Potgieter et al. (1997: 2) clearly states that SIC is a classification of economic activity and not by ownership, type of enterprise, organizational structure, degrees of mechanization, size of production unit in respect of turnover, capital or labour. The products produced or services rendered determine the economic activity. To allow for cross-industry comparisons, the top 100 brand owned companies were classified according to the SIC system in Table 2.  Table 2 shows that the manufacturing and retail trade industries are the market leaders in terms of advertising expenditure in South Africa. Sub-sectors dominating advertising spend in the manufacturing industry include the food, beverage, chemical (beauty products, detergents, soaps and toiletries) and automotive sectors. In turn, non-specialised and specialised retail stores trading mainly in food, clothing and furniture are the biggest advertising spenders in the retail industry. Furthermore, the banking, insurance and assurance sectors top the advertising expenditure list in the financial and business services sector. In the transport and communication industry, air and land transport and the post and telecommunication sectors are the largest advertising spenders. The government, parastatals and the education sector are the biggest advertising spenders in the community, social and personal services sectors.
The advertising expenditure of the top three industries listed in Table 2 . It may reasonably be assumed that the status of advertising expenditure by economic sector reflected in Table 2 provides a relatively accurate picture for South Africa as a whole.

Share of South African marketing communication expenditure at company level
If disaggregated to company level the sectoral analysis provided in the previous section could be used to determine the share of advertising expenditure in company turnover. The retail sector will be used as framework to ascertain the share of advertising expenditure in company turnover. To avoid any misunderstanding of the meaning of the term 'company turnover' it is narrowly defined as equivalent to sales or revenue (The Guardian, 1995: 454), including invoiced value goods sold, excluding sales taxes (such as Value Added Tax -VAT) and other duties (Extel, 1997: 11).
The share of advertising expenditure in the company turnover of selected retailers from 1996 to 2000 is shown in  It is clear from Table 3 that the percentage of advertising expenditure by company remained relatively constant over the four-year period. This probably implies that company turnover figures are used as a guideline when compiling annual advertising budgets. Furthermore, the information reflected in the table clearly shows that, on average, approximately one out of every hundred rand of company turnover is allocated to advertising.
When compared to companies abroad, South African companies tend to spend less on advertising in relation to company turnover. This is particularly evident from the information reflected in Table 4. Table 4 shows the size of advertising expenditure in terms of company revenue for a selection of leading USA advertisers operating in the retail industry. Given the fact that the international figures provided above represent the smaller portion (advertising expenditure) of the total marketing communication budget (which includes both advertising and promotion) they provide additional grounds for the conjecture that South Africa trails the USA and UK insofar as marketing communication expenditure is concerned.
However, from the information depicted in Table 3, local advertising expenditure as a percentage of company turnover seems relatively significant when we take into account, among others, the number of years that South African companies were economically isolated from foreign business and deprived of foreign markets.

The impact of advertising and promotion expenditure on the national economy
As been explained previously, only crude calculations and speculations currently exist on the amount of money being spend on advertising in comparison with what is devoted to promotion. To address this shortcoming, information on advertising and promotion expenditure was collected via e-mail from 250 brand owned companies operating across five different economic sectors in South Africa. Because the provision of expenditure data was difficult to obtain due to confidentiality, data was collected in ratio format. The outcome of the survey results is shown in Figure 2.

Above-the-line Below-the-line
Important to notice is that the outcome of the survey findings show slightly higher expenditure figures on advertising relative to promotion than speculated. Most secondary sources speculate a 50/50 split in the composition of advertising and promotion expenditure (AdFocus, 2000: 30). Based on the outcome of the survey findings reflected in figure 2, speculations of marketing communication money being equally divided between advertising and promotion activities are slightly misplaced.
If a ratio of 59:41 for advertising to promotion expenditure is regarded as more correct (see Figure 2), this could mean that the total marketing communication industry accounts for approximately 2,0 per cent of GDP. Based on the latter, a crude calculation shows that the total marketing communication industry generates as much as R17 billion.

Impact of advertising and promotional expenditure at industry and company level
Tables 5 and 6 show the size of advertising and promotion expenditure as percentage of company turnover. The information was collected via the quantitative survey. It should be noted that the difference between the results reflected in tables 5 and 6 is due to the recording of responses in percentage terms rather than monetary terms.  Tables 5 and 6 show that the impact of advertising expenditure on company turnover is the highest for the brand owned companies who market products and services in the retail industry (2,91 per cent). Overall, advertising expenditure represents just below 2,0 per cent of company turnover. This percentage is slightly higher than the 1,5 per cent that promotion expenditure denotes of company turnover.

CONCLUSIONS AND RECOMMENDATIONS
Firstly, the study is valued in terms of the measurement of the economic impact of advertising and promotion expenditure simultaneously at nation, industry and company levels. In today's competitive business environment, information of this nature could guide marketing practitioners across different economic sectors when planning annual marketing communication budgets. Taking note of the impact of advertising and promotion simultaneously, further encourages integrated marketing communication budget planning for the future. Finally, the study encourages sound record-keeping of advertising and promotion expenditure figures. Ultimately, updated information on advertising and promotion expenditure improves prospects for further research in this area.