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

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  • Koen Tackx
  • Sandra Rothenberger
  • Paul Verdin

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.

Suggested Citation

  • Koen Tackx & Sandra Rothenberger & Paul Verdin, 2015. "Is Advertising for Losers? An Empirical Study from a Value Creation– Value Capturing Perspective," Working Papers CEB 15-034, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:2013/208406
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    References listed on IDEAS

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    More about this item

    Keywords

    advertising effectiveness; brand value; effectiveness of research and development; profitability drivers; innovation; value creation; value capturing;
    All these keywords.

    JEL classification:

    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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