C. Kim, Y. Xu, K.F. Hyde / Journal of Global Scholars of Marketing Science 21-4 (2011) 193-200 193 Advertising versus Sales Promotion: An Examination of the Japanese Food Industry, 1976-2008 讖 譖1976-2008 Changju Kim 1) *, Yingzi Xu 2) , Kenneth F. Hyde 3) Abstract The issue of increasing sales promotion at the expense of advertising has been examined with growing concern over the last two decades. This study provides an exploratory analysis of the issues of allocation of marketing communication budget in the Japanese food industry: advertising for the long-term versus sales promotion for the short-term. Based on data col- lected from Nikkei Need-FinancialQUEST (Nikkei Digital Media, 2011), an increase in marketing budget allocated to sales promotion relative to advertising was observed in a time series analysis study from 1976 to 2008. The use of sales pro- motion budget has a two-fold effect on financial performance: the sales promotion budget is positively related to sales vol- umes and negatively related to profitability. Managerial im- plications of these findings and areas for future research are discussed. Research shows the weakened power of traditional advertis- ing in a diversified media environment; the growth rate differ- ential of sales promotion relative to advertising has become noticeable in recent years (Kim, 2010; Li, Lee, Lee, and Griffin, 2011). However, in spite of qualitative and quantitative research in the last two decades, there is a gap concerning the outcomes of advertising and sales promotion budget allocation decisions in the industrial sector. The aim of this article is to give a better understanding of whether the paradigm shift in budget allocation from advertis- ing to sales promotion exists, and if this is the case, how marketing firms’ financial performance is affected in regards to sales volume and profitability. To address these issues, this study examines the budget allocation decisions for advertising and sales promotion from the perspective of short-term versus long-term objectives (Quelch, 1983; Achenbaum and Mitchel, 1987; Buzzell, Quelch, and Salmon, 1990; Jones, 1990; Low and Mohr, 1999, 2000; Rossiter and Percy, 1997). 1) * Corresponding author: Assistant Professor, Faculty of Business Administration, Ritsumeikan University, Japan, Tel. +81 90 3718 5731, E-mail: cjkim777@fc.ritsumei.ac.jp 2) Senior Lecturer in Marketing, Faculty of Business and Law, AUT University, New Zealand, Tel. +64 9 921 9999, E-mail: yingzi.xu@aut.ac.nz 3) Associate Professor of Marketing, Faculty of Business and Law, AUT University, New Zealand, Tel. +64 9 921 9999, E-mail: ken.hyde@aut.ac.nz Ⓒ 2011 KSMS. All rights reserved. The issue of increasing sales promotion at the expense of advertising has been viewed with growing concern by both practitioners and academics over the last two decades. In this context, considerable attention has been paid to the funda- mental changes in the advertising-to-sales promotion ratio (Quelch, 1983; Johnson, 1988; Buzzell, Quelch and Salmon, 1990; Messinger and Narasimhan, 1995; Ailawadi, 2001). Partly as a result of the growing buying power of retailers, manufacturers have been reducing their commitment to adver- tising activities and spending much more on trade promotion and consumer promotion. The rapid growth in the relative pro- portion of trade promotion compared to total sales promotion is remarkable. This study seeks to identify the changes in the relative em- phasis on communication strategy at the industry level in Japan over an extended period of time. Therefore, we propose: H1: The proportion of the marketing communications budget allocated to sales promotion, versus advertising, has increased in Japan. H2: The proportion of the marketing communications budget allocated to sales promotion increased sharply around the time of the collapse of the bubble economy in 1991. In regard to consumer package goods manufacturers, the growth rate of sales volume may be lower than of the growth rate for sales promotion (Teramoto, 2001). This is not surpris- ing due to the saturated market in Japan. A short-term per- spective is defined as the degree to which management empha- sizes short-term objectives and tasks, generally one year or less, and thus encourages short-term results (Burke, 1984; Rossiter and Percy, 1997). The short-term results of a sales promotion strategy are illustrated in an increase in sales volume. Yet the effect of sales promotions on sales volume does not last particularly long. This is because the carry-over effects of sales promotions are relatively low, compared with the level of purchase during the promotion period (Cotton and Babb, 1978). Often a company using sales promotion ag- gressively has a difficult time selling the products at full margins. Consumers would expect or demand lower prices all the time, so sales promotions may result in decreasing profit- ability for the firm (Rossiter and Percy, 1997; Jedidi, Mela and Gupta, 1999; Low and Mohr, 2000, Teramoto, 2001). Therefore, we propose: H3: Expenditure on sales promotion is positively related to sales volume. H4: Expenditure on sales promotion is negatively related to profitability. In order to test the hypotheses, time series analysis of finan- cial data in the period 1976-2008 was undertaken (Otsuki, 1998; Teramoto, 2001; Kim, 2010). This study focuses on the