Abstract:
The lack of understanding on the impact of marketing activities on financial
performance had made the validity of and the effectiveness of marketing, a
questionable one. When a particular promotional tool is used, the impact of that
particular promotional activity is not restricted to the current period, but the effect
permeates across future periods as well. The study identifies this impact as ‘fadeaway-
impact’ of promotional activities on the financial performance. Currently
promotional activities are considered as costs which are deducted from revenues of
the same month. This idea restricts the impact of promotional activities only to short
term results and completely ignores the medium and long term impact of promotional
activities on the revenue. The purpose of this study is to develop a model to identify
whether there is a fade-away-effect of promotional activities over the financial
performance and identify how the impact behaves over the time.
Promotional activities brings tangible and intangible benefits. Most of the marketing
literature is focused on understanding the immediate/short term impact of
promotional activities on the financial performance. This motivates the use of longterm
or persistence models instead of event windows to study the impact of tangible
and intangible effects. In order to reach the above mentioned objectives, the
researchers use the Lagging Effects of regression model and Markov Chain related
theories. Steady state vectors of the Markov process understand how the impact of
promotional activities varies over time when a customer repeatedly purchase a given
brand/ product or switch to a different brand. Data related to Markovian analysis
have been collected from a questionnaire and tested. Apart from this, the lagging
effect of linear regression models were used to assess which degree of lagging period
of promotional cost is significant to the financial performance. The monthly
promotions expenditures and the related revenue figures were collected from
different firms to study the lagging effect.
The findings reveal that the impact of promotional activities have a lagging-effect on
the firm’s revenue/financial performance by proving the significant existence of 2nd
and 3rd order lags in the simple linear regression model. Further, it proves through
the Markov process that the impact of promotional activities will never go to zero,
but it will become steady creating brand equity for the firm after a certain period and
that period could be measured in which the researchers identifies as the period of
fade-away-impact. The outcomes of the research enables the Marketing managers to
make informed decisions on the selection of promotions mix tools and thereby to
manage the promotional expenditures effectively without reducing their profitability.