The impact of promotional mix on profit in the B2B sector

Abstract

Purpose – The purpose this paper is to analyze the causal relationship between promotional mix (PROMOMIX) which includes advertising, sales promotion, personal selling, direct marketing and gross profit (GRPROFIT) in the cement industry in India, while also trying to study their long-term and short-term relationship so as to understand the impact of one variable on another. Design/methodology/approach – Both the variables PROMOMIX and GRPROFIT were subjected to log transformations and then to stationarity testing and subsequently tested for the presence of cointegration after which the vector autoregressive (VAR) model was constructed to explain after how many time periods, the changes in one variable impact the other. The impulse response function (IRF) and forecast error variance decomposition (FEVD) were also studied to see the time path and proportion of variation in a variable, respectively, to shocks in the other. Findings – The results reveal the absence of cointegration but presence of unidirectional Granger causality running from GRPROFIT to PROMOMIX and highlight that current marketing communications budget is influenced by one-and-a-half year back profits. The VAR results are also supported by the IRF and FEVD results which show the response of PROMOMIX variables over time to a change in GRPROFIT. Research limitations/implications – The results imply that cement firms in India follow a top-down approach to budget allocation and increase their promotional budget when profit falls. Originality/value – This paper will help brand managers in the Indian Cement industry to be aware of the causal relation between marketing communication and profit when they take budget allocation decisions.