Impact Of Advertising On Consumer Decision Making And Sales: A Case Study Of ALDI

Background

The research studies the impact of advertising on consumer decision making and sales of the company.

Advertisement of any form is made to target consumers so that a positive relationship can be established with them which would in turn result into sales for the company. Marketing theories have identified relationship between the trust that consumer develops for a company or a brand and the purchase decision making. An advertisement should aim to build this trust to be able to convert the consumers into paying customers and thus, make sales for a retail organization. This research would explore how advertising has helped retail organization ALDI in bringing sales.

Advertising: It is paid form of presentation of a product, service or idea by an identifiable sponsor

Consumer: Consumer is the person towards whom ad advertise is directed and intended to get a purchase from

Consumer Behavior: It is the study of individuals or groups as well as organizations that are involved in the activities related to purchase, usage, and disposal of any products or service

Consumer Decision Making: Consumers take decision after going through a process which involves identification of needs, collection of related data, evaluation of alternatives and then the purchase (Familmaleki, Aghighi, & Hamidi, 2015).

Sales: it is a process of selling a product, service or idea as well as it can be the term for the total money that is received against the purchases made by consumers by the selling organization (Si, Advertising Effectiveness on Consumer Decision Making & Decision Making : Study of Insurance Industry, 2014)

Advertising can create an impact on consumer which can push consumers closer to the purchase of a product. However, this is only a general understanding which makes companies keep advertising. To understand how advertising actually impacts consumer and if increasing advertising would bring results through increase in sales, a deeper investigation may be needed (Murthy & Bhojanna, 2007). Thus, in this research, the impact of advertisement on consumer behavior would be studied as well as the patterns of investments in advertisement and sales would be evaluated over a few years for a retail company which would help the researcher get a clearer picture of how and to what extent does advertising help in building revenues for a retail organization (Thu Ha & Gizaw, 2015).

Aim of this research is to explore the impact of advertising on consumers and understand if increasing advertisement would also increase the sales for a retail organization.

Definitions

Research Objectives.

The above-mentioned research questions can be converted into research objectives as below:

• Understand the role of advertising in consumer decision making
• Explore relationship between advertising expenses and retail sales
• Study the impact of advertising on consumers 

This section explores the literature on advertising and consumer decision making to understand how advertising affects a consumer and what role does it play in the consumer decision making and how the

Advertising can have predatory or expansionary effect. Predatory effect is the capture of the market share resulting from advertisements. Expansionary effect is the increase in demand that results from the way of advertising. There can be different mediums and modes of advertising and ALDI uses most of them. They include above the line promotions like TV advertising, leaflet distribution, newspaper ads, and store posters and below the line advertisements such as direct emails, website promotion, endorsement and media relationship (ALDI, 2016).

Consumer decision making process involves certain stages of decision making and these include identification of needs, research on information, evaluation of alternatives, purchase intension and actual purchase. Advertisement can play a significant role in each of these stages such that advertisements are made accordingly to the stage in which the consumer has to be targeted. Most advertisements appeal customers at the information gathering stage as it is the critical stage that leads to evaluation which helps in making decision. Thus, availability of information at this stage is of prime importance (Alharthey, 2015). Consumers go through a number of different information sources before they evaluate a brand. These sources can be personal like friends, family, colleagues, and neighbors, public sources like consumer rating and media, commercial such as internet, packaging and sales personnel, and experientialsources like actual use of product (Hussain, 2017).

 (ALARABI & GRÖNBLAD, 2012)

The decision-making process is also affected by the type of product which can be low involvement or high involvement. As the level of involvement increases, the consumer goes through a more extended process of decision making that involves many more attributes for evaluation than use in a low involvement product (Fletcher, 2010).

Problem recognition: Problems can be routine, emergency, planning related or evolving need based. Routine problems need immediate resolution such as in the case of convenience goods that are purchased fast such as fast food items or food items sold a grocery or retail shop (Fassnacht, Schmidt, & Pannek, 2015). Most retailers like ALDI carry products that satisfy this need of consumers. The concept behind problem recognition is that a consumer wants to go to a desired state from the current state for which a need is required to be fulfilled (Danubio & Hassen, 2015).

Justification

Research: In this stage, a consumer looks for information from multiple sources on need fulfilment. The search can be done before purchase and even while consuming the product in case the consumer is not satisfied (Sarstedt, Schwaiger’, & Taylor, 2011). Consumer experiences can also play a role in this search as the consumer would be looking internally to understand a product or experience. External sources can be through families, friends, colleagues, and advertisements (Milner & Rosenstreich, 2013).

Evaluation: In this stage, the consumer is already aware of alternatives and then he starts to evaluate it to find out the best fit for a purchase. The evaluation is done to reduce the range of alternatives so that decision can be taken on one (Emadi, 2013). The first way they try to reduce alternatives is by exploring through their awareness that can come from evoked set that includes positive brands, inert set that contains brands with no value, and inept set which is rejected. The first set passes their first evaluation and the alternatives are few (Ronald, 2008). The chosen alternatives are then evaluated based on non-compensatory decision rules that can be disjunctive with minimum expectation of performance, conjunctive with minimum level of acceptability, sequential with minimal level of acceptable performance, and compensatory decision rules that involve giving of rating based on comparisons between prices and brand strengths for alternatives (Michael Richarme, 2005).

Purchase: once, evaluation is complete, a purchase is likely to happen which can happen immediately or at later point of time based on the situation. A purchase situation can be planned or unplanned. There can also be a substitution situation where a consumer dissatisfied with one brand would like to switch to another (Niazi, Siddiqui, Shah, & Hunjra, 2011).

There are several factors that can affect a consumer that include cultural, social, personal, and psychological needs. When advertisement targets any of these needs such that the consumer is communicated about the ways they can fulfil their needs, the advertisement can have influence on the consumer (Kannan, 2017). With exposure to advertisement, consumer form a brand personality in their minds which can be anything from sincere, exciting, competent, sophisticated and rugged (Arens & Bovée, 2005). Although, there are other factors like post purchase experience, responsiveness, review, and mope that can also add influence, advertisement can play a role in shaping their opinions about a brand (Abiodun, 2011).

Consumers are attracted by brands and advertisements which influences them by shaping their perceptions, attitudes, and behavior. Consumers start to develop recognition for some brands and have strong perceptions about them over the time of their exposure to different kinds of communication by and about the brand (Si & Kapoor, 2014). Advertisement plays the role of a motivator for the consumer as it pushes a positive perception towards a brand and intends to influence the purchase decision of the consumer in favor of the sponsor of the advertisement. Repetitive ads are shown to consumers through different media as they help consumers remember the brand and thus, have them in their process of evaluation (Sorina-Raula, Liviu, & Madalina, 2008). When strong perceptions are formed about the brand, a greater influence is crated on the consumermind which can affect their purchase decisions. The brand perception is not just shaped by advertisement but also other factors and thus, companies risk having a negative perception from other sources (Fatima & Lodhi, 2015). 

This section explains the methods that are used for the current study to explore its objectives.

The data was collected from the past studies done on advertisement and from the company websites and government reports on ALDI. The data included the figures of sales and advertising expenditures done by ALDI in Australia for past few years from 2012 to 2016. The data is also collected from secondary sources like past literature and researches conducted on advertising and consumer decision making to understand how the patterns and relationships are formed between advertisement and sales of an organization (DellaVigna, 2009).

The data collected on sales and advertisement expenses done by ALDI in Australia was tabulated and growth was calculated for each variable. The two variables were then statistically analyzed using correlation and regression methods. The results obtained from this analysis has been compared with the findings obtained from the literature study for deeper evaluation of the subject and development of relevant insights on the impact of advertising on consumer decision making (Chioveanu & Zhou, 2009).

This section explores the findings and analysis the same to achieve the objectives of the research.

The table below shows the figures of advertising expenses and the sales made by ALDI over past 10 years that is from 2012 to 2016 (Roy Morgan Research,, 2014).

Year	Advertisement Expenditure	Growth	Sales	Growth
2012	$2468 million		$4.16 billion
2013	$2498 million	1%	$4.998 billion	20%
2014	$2572 million	3%	$6 billion	20%
2015	$2670 million	4%	$7 billion	17%
2016	$2890 million (Tableau, 2018)	8% (Economist, 2015)	$8.4 billion (Nielsen , 2018)	20% (Butler, 2017)
	(Mitchel, ALDI Australia’s ad spend soars as Coles and Woolworths cut back, 2016)		(Mitchel, Aldi Australia gets fresh as sales exceed billion, 2016)

The expenses done by the company have increased over the years only marginally but the sales have followed an upward trend at a comparatively higher growth rate of 20% in 3 years except in 2015 when the sales growth declined a little from 20% to 17%. However, with increasing expenditure on advertising, the company got back its growth rate of 20% in Australia (B&A, 2016).

When the two data sets were correlated, a positive moderately strong relationship was found between the two variables, sales and expenditure, as the correlation coefficient was found to be 0.4743.

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.474372
R Square	0.225029
Adjusted R Square	0.031287
Standard Error	169.8429
Observations	6
ANOVA
	df	SS	MS	F	Significance F
Regression	1	33504.9	33504.9	1.161485	0.341815
Residual	4	115386.4	28846.61
Total	5	148891.3
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	2283.978	288.9914	7.903276	0.001387	1481.61	3086.347	1481.61	3086.347
X Variable 1	46.56628	43.20806	1.077722	0.341815	-73.3985	166.5311	-73.3985	166.5311

A regression test was run between the two variables and it was found that the relationship between them was not significant and only 2.2% of the variation in sales could be attributed to the advertising expenses.

The data shows consecutive increase in sales as well as expenditure and a patternwere found where combatively higher increase in advertisement was observed and in the same year, sales also shows a similar rise. When a correlation test was run, a positive moderate level relationship was found between the two suggesting some relationships between them but with the regression test, it was confirmed that the relationship was not causal. Thus, it can be said that the rise in sales was not due to rise in the advertising expenses made by ALDI (Zarantonello & Schmitt, 2013). 

Literature Review

This section explores each research question and justifies how they are answered by the current research.

The advertising can influence a consumer at different stages of decision making by providing the right information and experience when it is needed. A consumer at the informationgathering stage can get the informationabout the company throughadvertisementwhich would help consumer take decisions on alternatives to choose (Rao & Rao, 2007). An advertisement stating the achievement and describing goods experiences could eb targeting a consumer at the evaluation stage such that consumers have a favorable view. Even at the first stage, the advertisement can help by creating awareness such that the consumer chooses the brand in the preferred set for further evaluation (Borisova & Martynova, 2017).

From the data analysis, it was discovered that advertisements are related to sales and there is a common positive pattern that appears in both such that both grow together but the regression analysis showed that the relationship is not causal. Thus, there is a need to identify the relationship that exists between the advertising and sales as there is no direct causal relationship found (OCW, 1017). Because of the lack of casual relationship found in the results of analysis, it can still not be assumed that advertisement would not have any impact on the consumer decision making. There is a still a relationship between them which suggests that an indirect relationship may be discovered that may involve other factor that may be influenced by advertising and can be direct determinants of consumer decision making (Chopra, 2017).

Advertisements can have direct and indirect impact on consumers by shaping their perceptions or helping them in making decisions through intervention in different stages of purchase. The impact of advertising may not be direct on the purchase intension of the consumer but it can have many indirect impacts such as formation of a perception of the brand on the evaluation criteria is like trust, reliability, reputation, and more (Zia, 2016). The advertisement was found to create a positive impact on consumers as it is targeted to them with efforts to create a positive perception. However, perception creation also has to fight with other sources that can also caret negative perception about the product or a service in consumers mind. A strategy is to keep showing consumers the ads repeatedly so that they form a positive perception about the brand (Si & Kapoor, 2014). 

Conclusions

The aim of the research was to explore the role advertising plays in consuming decision making in retail. The research used the data of the sales and advertisement expenses of ALDI for five years and run correlation and regression tests. It was found that the advertisement expenses have a positive relationship with the sales but the relationship is not causal such that advertisement does not cause increase in sales directly. In order tounderstand the indirect relationship that exist between the two the consumer decision making model was explored along with the role advertisement would play in each of the decision-making stages. It was found that advertisements can shape the perceptions of consumers by making the brand appear trustworthy to get into the alternatives for elation and the information that is provided by the brand through advertisements can help them in evaluating the brands for decision making. Even after a purchase has been made, the consumers keep on evaluating products and can switch any time if they are unhappy with the product or service purchased. Based on the findings from the research certain recommendations can be made for ALDI as a retail brand for effective advertising and these include:

• The company should use multiple modes and formats for advertisement to reach out to a wide number of consumers
• The advertisements must be created and planned considering the buying stage of consumers. For instance, if the consumer is looking for making a purchase for which he is collecting information, a brand may give away the leaflet or brochure to help consumer decision. In the case of ALDI, a leaflet distribution would help consumer take decision on the routine purchase if the leaflet would contain the details of the available product that come in the list of the consumer needs.
• Consumers can form negative perceptions about the product and thus, companies have to continuously keep advertising to exposure them to positive views of the brand and prevent them from getting influenced by messages from other sources. If there is any negative communication received by the consumer, a company may respond with an ad that gives away an information that clarifies their doubt and re-builds the trust in them
• Advertisements would not directly push customer into buying and thus the retailer must only use it as a supportive and aiding tool and rely on other parts of the marketing mmix to get mire buyers
• ALDI can plan its advertisements to target different segments of customers identified based on their type of need, the level of the involvement for the product, and the needs they have that can influence them including psychological, social, and physical needs. Segment of consumers can help the company crate targeted ads that would have greater influence on them and push them more towards developing a purchase intention. 

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