Sales drive advertising expenditures: Evidence for consumer packaged and durable goods in Germany

Abstract

The relation between sales and advertising is both complex and diverse. Whether advertising activities drive or follow sales is still unclear. We uncover this relation distinguishing between consumer packaged goods (CPG) and durable consumer goods (DCG) industries. We fit vector autoregressive models to sales and advertising expenditures of four CPG and three DCG industries in Germany from 1991 q1 to 2009 q4. Findings reveal that advertising expenditures do not increase total sales of industries according to the distribution hypothesis. According to the deterministic view, advertising budgeting is often influenced by previous sales and partly by future sales expectations. We conclude that past sales and partly sales expectations may change company and marketing goals that eventually affect the use of strategic communication instruments such as advertising.