*Assistant Professor, SCMS-Cochin, SCMS Campus, Muttom, Cochin – 683106. India. E-mail: abeypp@yahoo.co.uk The Relationship between Advertising and Consumption in India: An Analysis of Causality Dr. Abey P. Philip ∗ Abstract This article extends cointegration methodology to validate the evidence of soundness of advertising and consumption pattern of India during the period of 1980-2006. Augmented Dickey-Fuller test, Philips- Peron Test, Cointegration technique and Error Correction Models were employed to examine association between advertising and consumption. The analysis reveals that there is strong bi-directional relationship between advertising and consumption pattern in India. Introduction India is going through extraordinary alteration. It is one of the aggressive large economies in the world, with a population of more than one billion people, with huge human and natural resources, and with costs that are at the very low end of the global average. India has its dominance in the IT industry with this being a base for almost all the leading IT companies in the world. India’s large English-speaking population for certain boosts it as a magnetic business destination. India comprises an economic prospect on an immense scale, both as a global base and as a domestic market. This article tries to find out the answer for the question of does advertising affect the consumption pattern of India? Indian consumers are seemly more and more doctored and enlightened about products; media channels that provide companies to convey with consumers are adopting in diversity and reach. Consumers are getting richer, leading to competition in the market place for consumer products. The result is that consumer companies are increasingly pertained with marketing issues, as they seek to tell apart their products and communicate their appraises to potential customers. Various consumer companies are mad about Indian sheer market size. The companies say the growth in media channels brought about by economic liberalization has made people increasingly aware of brand values. A smaller number of companies believe that India offers significant opportunities on selective brands, which provide higher margins. Companies also say that groundbreaking marketing can be the solution to tackling the fragmentation and relative poverty of much of the Indian market. A senior manager at a consumer goods company points to the recent success of very small packages or sachets of personal care products, “The sachet phenomenon is an case of accomplishing to the bottom of the pyramid. It was identification that a lot of people in India are just not willing to buy a whole bottle of shampoo. That doesn’t mean they won’t buy shampoo.”(KPMG Research, May 2005) Advertising is of changing apprehension to companies, as channels burgeon and product offerings become more advanced and bigger and bigger part of the marketing mix. Companies do not have any other option except advertise. The biggest challenges in the front of companies are recognize consumer insights and hit the target. Measurement of advertising and promotional activities is the biggest challenge of companies with in limited time and money. Years ago you could run an ad on TV and know 80 percent of TV owners would see it. Now we have so many channels that you don’t know how to focus. Some companies express concern that advertising messages can only travel limited distances in the Indian market. “A lot of companies are not able to reach further down, towards the bottom of the ‘consumer pyramid’”. “Price is one issue. But there is also communication. How do you talk to someone who is illiterate, who doesn’t have access to a TV or a radio?” And another important