Juliane Lischka, Stephanie Kienzler, Gabrielle Siegert
Business expectations, consumer spending and advertising expenditures
The relationship between advertising expenditures and national accounts such as GDP or private consumption has been widely discussed in literature. This research project's goal is to understand the dependency of advertising expenditures on the economic situation using national account numbers and business expectations of corporate decision makers. We look at these relations from a media economic point of view: Advertising is one of the most important financing sources for media organizations and a key factor for the existence of mass media systems. Therefore it is important to analyse the development of and influencing factors on advertising expenditures in order to learn about the development of media financing. Advertising expenditures are closely related to the economic cycle (Deleersnyder, Dekimpe, Steenkamp, & Leeflang, 2009; Picard, 2001; Tellis & Tellis, 2009; van der Wurff, Bakker, & Picard, 2008) as companies tend to cut down their expenses in a recession. It has not been clarified yet whether private consumption as one component of national accounts can be used to forecast advertising expenditures. In a first step, we therefore assess the causal relation between advertising expenditures and private consumption applying a vector autoregressive (VAR) model to aggregate German quarterly data from 1991 to 2009. Our results indicate a break between the advertising-consumption-relation in 2000. Contrary to the Galbraithian argument (1958; 1967), we find that consumption has been Grangercausing advertising expenditures since the dot-com crisis in 2000. Further, we find evidence that consumer spending on durable consumer goods (DCG) (especially automobile goods and services) as well as advertising expenditures of DCG providers are more closely related to the economic cycle than consumer spending on selected fast moving consumer goods (FMCG) and advertising expenditures of FMCG providers, respectively. Hence, it seems worthwhile for media organizations to observe private consumption in order to assess future advertising income--especially when their clients come from DCG industries.
Assuming that sales expectations shape the marketing budget decision (Krueger & Kohlmeier, 1982), the role of these expectations on advertising expenditure budgeting should be assessed. Empirical studies showing feedback effects between advertising and sales (Zanias, 1994) or aggregate consumption (Jung & Seldon, 1995; Philip, 2007; Taylor & Weiserbs, 1972) can be interpreted as a sign of circular relations determined through past or future oriented budgeting. Using rolling regressions, vector autoregressive modelling and Granger causality tests, we find no evidence that sales expectations impact advertising budgeting decisions in Germany. Instead, sales expectations are subject to changes in advertising expenditures. Before 2000, advertising expenditures were partly determined by previous revenues referring to a "share of wallet" budgeting. From 2001 onwards, advertising expenditures can be predicted from previous revenues, consumption as well as from their own history. We conclude that the advertising budgeting process has become more complex as well as more path-dependent within the last decade. Further studies assessing these relations for other countries with similar political, social, and economic conditions would clarify the generalizability of these results.