Marketing Expenditure and Financial Performance: Evidence from Indian FMCG Companies

Abstract

The study focuses on the effect of marketing expenditures in the form of expenditures for advertising, sales promotions, and brand building on financial performance in the case of the major companies in the Indian FMCG industry. These types of marketing expenditures account for one of the biggest discretionary expenditures incurred by companies in the FMCG industry; however, their effect on the financial performance is quite controversial in the literature as some researchers find a positive relationship while others find either diminishing or even negative relationship when the intensity of expenditures is quite high. With the help of a dataset comprising ten majors Indian FMCG companies during the last ten years from FY2015 to FY2024 (N = 100 firms), marketing expenditure is analyzed along with four financial performance measures (return on assets (ROA), return on equity (ROE), net profit margin (NPM), and year-on-year sales growth).

Results reveal that there is a statistically significant positive correlation between intensity of marketing expenditure and return on assets (r = 0.23, p < .05); a positive but statistically insignificant correlation between intensity of marketing expenditure and return on equity; a weak negative correlation between marketing expenditure intensity and net profit margin; and a statistically significant negative correlation between intensity of marketing expenditure and current growth in sales. These results point out that the payback from marketing expenditure in the Indian FMCG industry is asset efficiency driven and can have some lag in its occurrence. Concluding remarks are provided at the end of the paper with theoretical and practical implications, recognizing limitations involved with a study involving ten firms only in a panel format and identifying avenues for future research.