The Effects of Advertising Media on Sales of Insurance Products: a Developing-Country Case

Abstract Purpose

Characterized by declining goodwill and exemplified sharp drop in gross premium, the Nigerian insurance industry, in recent times, has experienced turbulent economic challenges that necessitated re-engineering of its core activities.

However, advertising and sales are core activities, which are important predictors of stability and growth in the insurance industry. Consequently, the purpose of this paper is to examine the impact of advertising on sales of insurance products. Design/methodology/approach – An empirical investigation is carried out using a survey that utilizes questionnaires, interviews, and field observation as major research instruments. A total of 71 insurance companies in Nigeria, which represent the total operating insurance companies in Nigeria at the time of study, were surveyed.

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With 100 scientifically selected subjects sampled, descriptive analysis was employed to understand the relationship and the strength of such relationships. Findings – It was found that advertising had effects on sales volume and improved public image. However, the choice of advertising medium, the message, and the format are critical ingredients of a successful advertising program in the insurance industry. Research limitations/implications – The insurance industry in Nigeria was studied from a holistic viewpoint due to the need to present reliable and detailed information for decision makers.

However, limitation in achieving this relates to the reluctance of respondents to release information for the study. Practical implications – The implication of this research is that proper control of advertisement budget vis-a` -vis the expected sales volume could be made. Thus, organizations could spend budgets more effectively on growth enhancing projects instead of excessive wastage of funds on advertisement. Originality/value – This paper seems to be the first original work that concerns the impact of advertising on sales in the Nigerian insurance industry.

As such, it bridges a gap that is opened for investigations. It may be of great value to decision making seeking for control tools.

Keywords Insurance, Nigeria, Advertising media, Sales management r

Introduction

Over the years, there has been tremendous decline in the goodwill of the Nigerian insurance industry as a result of poor performance in the payment of insurance claims. The sharp drop in gross premium exemplifies this problem. Randle (2003) estimated a decline of more than 89. 4 percent in the 1999/2000 comparative periods.

This decline may have worsened as a result of the global economic crisis. There is therefore the need to advertise insurance products in order to increase sales. Unfortunately, no reliable records exist on the impact of advertising on sales of insurance products, thus suggesting its strong need. The need to examine the impacts of advertising on sales volume is further strengthened by the significant value of the total premiums generated in Africa, which originated in South Africa (84 percent) while only an insignificant value (16 percent) is partly contributed by Nigeria.

Thus, with the enormous advertising expenditures, it becomes necessary to know if such expenditures justify sales volume obtainable from the advertisement efforts. Luo and Donthu (2005) identified advertising media and spending inefficiencies in generating sales, and concluded that top 100 marketers’ advertising spending in print, broadcast, and outdoor media are not efficient and could bring in 20 percent more sales. Sadly, the case relating to insurance products was not treated. Also, there is a strong need for understanding the impacts of advertising on sales volume.

Furthermore, although empirical evidence in major markets of the world shares a significant relationship between advertisement and sales volume, there is no reliable data and information on the subject in developing countries such as Nigeria. The absence of this information provides a wide gap and poor understanding on the effectiveness of advertisement on sales. The purpose of the study is to investigate the impact of advertising on the sales of insurance products. Advertising ranks among the major tools of promotion in general and awareness in particular.

The study investigates if there are good advertising opportunities insurance industry can make use of, and examine the various advertising media commonly used by the insurers with particular reference to Nigeria. How would the customers know that a particular product will satisfy some needs unless such is communicated to them? As a pivot of economic development, insurance certainly has a major role to play. The issue now is that the sector performance is far below expectation. An important question is why?

Is there any inherent difficulty in growing and promoting this business in developing world? Very many factors have been put forward for this performance, and it should be mentioned that it is not the intention of this study to discuss them. It is important, however, to find out the effectiveness of the choice of advertising media on the sales volume of insurance organizations. A study of this nature may prove to be of immense benefit to industry managers on how to make positive impression about their business and product given the dynamic nature of our socio economic environment.

Past studies reveal a fairly strong relationship between advertising investments and sales. Twedt and Knitter (1964) observed some relationships between larger investments in print media and profits. Sturgess and Young (1981) identified the direct relationship between sales and advertising expenditures as more relevant to a company’s performance variables than any other test of communication effectiveness of advertising. Perreault and McCarthy (2000) admit that one of the methods of measuring advertising effects is to evaluate sales.

Schultz and Wittink (1976) revealed that although some studies have reported a positive influence of primary advertising on primary demand, no conclusive empirical evidence has been brought to bear on the major premise. It is therefore the goal of the current work to bridge this important gap. The effects of advertising media JRF 10,3 The paper is sectioned into the following: introduction, methodology, data analysis, and conclusion. The introduction provides an insight into the significance of the problem and the need to bridge the knowledge gap.

Section 2 presents the methodology, which provides the framework for the presented study. In Section 3, data analysis is presented based on the results of the survey instruments. Section 4, the final section, provides concluding remarks.

Methodology

The aim of this research is to carry out an empirical investigation of the extent to which advertising affects sales. This is a survey research whose objectives are to find answers to the following research questions, and test the relevant hypotheses. This section presents the methodological approach adopted to gather relevant data necessary for this study. . 1 Study population, sampling design, and research instrument The Nigerian Insurance Digest, 2006 indicates that there were 96 insurance companies operating in Nigeria as at December 31, 2006. No available records confirm that new companies have been formed since, except for the issues of mergers and acquisitions that characterized the recapitalization/consolidation exercise. A total of 71 companies have since emerged from this exercise. The study population embraced all the staff engaging in marketing, public relations, and advertising in these 71 insurance companies.

Most of these companies are direct insurers since they deal directly with the members of the public. Reinsurance companies, though, also engage in advertising activities, were excluded from this study because their impact or contact with the members of the public is indirect. Since it would not be feasible to contact all the staff that represents the population for the study, sampling method was used, and the study was limited to Lagos state, the commercial center of Nigeria. A sample of 100 subjects selected from some insurance companies in Lagos was used.

The sampling method was used to avoid bias in the selection procedure, and to achieve maximum precision for a given outlay of resources. Essentially, two research instruments were used: questionnaire and interview. For the questionnaire, 100 copies were distributed to respondents selected from various insurance companies in Lagos, Nigeria. In order to ensure high response ratio, the questionnaires were administered personally. To achieve this a number of contacts have been made to the management of those companies soliciting for their cooperation.

Also, diligent care was exercised to avoid ambiguity in drafting the questionnaire. Personal interview was conducted with selected executives in the insurance companies (Dillion et al. , 1994). The face-to-face contact with respondents assisted in obtaining high quality data since more information is communicated between human beings communicating directly with each other than using other means.

Method of data analysis

The research proposed to use such descriptive statistics as simple percentages to compute the data obtained.

For hypothesis testing, coefficient of correlation would be employed. Lucey (2002) highlights the benefits of using correlation coefficient when trying to analyze independent and dependent variables in order to understand the relationship between them. The correlation coefficient reveals the strength of such The effects of relationships. advertising media

Restatement of research questions

The research questions are as follows:

• Is a company’s failure to use advertising a result of lack of good advertising opportunities?
• RQ2. Do the results of other promotional tools affect the use of advertising?
• Is the use of advertising dependent on the measurability of its results?
• Is there any relationship between advertising expenditure and sales figure?

Research hypotheses

The hypotheses stated will be used to test the relationship between sales figures and advertising figures (Asika, 2006). The statistical procedure is to state the null hypothesis (H0), which is to be followed by the alternative hypothesis (H1).

While a H0 is a statement that no change has occurred from the condition specified, the H1 is a reversal of a H0. Thus, if in hypothesis testing, a H0 is rejected, then, the H1 will be accepted: H0. There is no relationship between advertising expenditure and sales figure. H1. There is a relationship between advertising expenditure and sales figure.

Research design

The research uses explorative research design in order to gain insights into the subject studied. The research design is that of descriptive survey.

It is meant to assess the importance attached to advertisement by insurance organizations. Specifically, the research design would reveal availability of good advertising opportunities for insurance firms, factors affecting a firm’s decision to use advertising, relationship between advertising and company’s performance in terms of sales volume, and justification of advertising expenditure, using profit as the bottom line.

Data Analysis

In Section 2, it was mentioned that empirical investigation would be carried out on the extent to which the choice of advertising medium affects sales.

The summaries of the results of the survey questions, and how these answer the stated research questions are presented in this Section 3. In fact, we will like to find out whether a company’s failure to use advertising is a result of lack of advertising opportunities, whether the use of advertising is dependent on the measurability of its results, and whether there is any relationship between advertising expenditure and sales figure. These results also attempt to seek support for the hypothesis stated.

Response rate and respondents’ characteristics

A total of 100 copies of the questionnaire were distributed to respondents. The challenges of recapitalization in the insurance industry, and subsequent rearrangements including the necessary formalities made the task of getting JRF 10,3 audience difficult. A total of 84 questionnaires were collected out of which two were found unusable for the purpose of analysis. The response rate of 48 percent was thus achieved. The results were analyzed with the use of the following statistical procedures:

•  the frequency distribution of some parameters;
• the percentages of the parameters studied; and
• bar charts were also used for further illustration of some of the results obtained.

The first five questions of the questionnaire deal with the characteristics of the respondents, specifically their bio data. Out of the 82 respondents analyzed, 50 are males while 32 are females. The sample members were conveniently selected at random, rather than based on quota. Since 61 percent of the respondents are males and 39 percent are females, should one conclude that 61 percent of the workforce in the insurance industry is male and 39 percent female?

This is an interesting possibility due to the fact that a good number of females prefer to be self-employed in order to care for their home responsibilities. From Table II, majority of the respondents are 40 years and below, an overwhelming 89 percent (i. e. 44 percent for below 30 years, and 45 percent for age bracket 31-40). About 11 percent of the respondents are above the age 41, while none of the respondents is over 60 years. This analysis suggests that productive and dynamic personnel marketing and public relations functions of these insurance companies.

The analysis shows 43 single and 39 married persons indicating 52 and 48 percent respondents, respectively. This is a fair distribution. From Table IV, 46 of the 82 respondents possess higher national diploma and degrees, 14 respondents possess higher degrees in form of MSc/MBA, and 16 respondents possess professional qualifications.

Conclusions

This study investigates how advertising could be used by the insurers to disseminate information on the vital role they play.

The image problem and the poor sales of insurance products are not necessarily the result of the bad economy but the failure to engage in marketing communications. Emphasizing other roles of insurance as financial intermediation and supplement to government’s efforts in providing social security will make it more attractive. . Greater benefits accrue when advertising is fully integrated into the whole mass of marketing communications. There are good opportunities for the insurers to advertise their products, advertising practitioners have not measured up to international standards. .

For good advertising output, the message and format are the joint responsibility of the insurance staff and advertising agencies. . The major advertising media used by the insurers are the newspapers and the radio. The use of the internet in Nigeria should be given due attention. The choice of advertising medium is a critical success factor in any advertising activity. . The major effects of advertising on companies were found to include sales volume and improved public image. A number of obstacles militate against attainment of growth in the insurance subsector, notably, hostile economic environment.

Relentless advertising campaign can take a company to the next level of growth. The research has also shown that advertising expenditure is justified going by the positive effects such expenditure has on a company’s performance. Furthermore, the message and the format have also been found to be critical ingredients of a successful advertising program. It is recommended that: . The insurance executives should realize that their activities do not end with producing good services. Passing information to the public about their services and benefits thereof must be vigorously pursued through advertising. For sustainable competitive advantage there is a need for integration of all marketing communications, as this will reduce conflicts in organizations. A careful blend of print and electronic media is very essential in order to properly serve each market segment. . Sales persons are the ones on ground since they are always in the field. Their inputs must always be sought while designing advertising message and format. . The lack of records regarding advertising budget and actual expenses is a problem in many insurance organizations.

There is a need to keep adequate records of advertising expenditure, as this is necessary for proper evaluation. . The practitioners must promote other important roles of insurance such as savings, financial intermediation and provision of social security. . In the area of image laundry there can still be mutually beneficial cooperation in the midst of competition among the insurers. In this regard, the insurance industry as a whole should embark on an industry’s advertising in order to promote subjects of common interest.

This will also reduce the overall cost of advertising. In this work, a convenience sampling method is used. While the size of the sample is fairly large (100), a major limitation is that the sample is taken in Lagos: one state out of 36. The fact that some major towns in the country (i. e. Abuja, Port Harcourt, Kano, and Ibadan) were left out could limit the degree of representativeness of the sample. However, the fact that Lagos is home to almost 90 percent of the headquarters of insurance companies in Nigeria makes the findings of this study representative of the population.

Consequently, these findings would form a platform on which companies can base some of their marketing decisions. Future research could focus on the effects of publicity and public relations on sales, and on the better methods of separating advertising effects from the total marketing effects.

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