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ANALYSIS OF THE INFLUENCE OF FIRM AGE, MARKETING
ACTIVITY, AND FIRM SIZE ON THE PROFITABILITY OF
CONSUMER GOODS SECTOR COMPANIES
Introduction:
Marketing is a company's effort to create value for its customers (customer value) and
build good relationships with customers through a series of activities (Kotler and Armstrong
2012). All forms of activities in marketing are called marketing activities or marketing
activities. Companies get value from customers as a form of return on the company's
investment in marketing activity (Kotler and Armstrong 2012). Technological developments
are bringing changes in the concept of product marketing. The growth of digital media such
as the internet, websites, e-commerce, email, and interactive TV provides alternative new
marketing channels for marketers to distribute the value of their products to a wide range of
consumers in a short time. Marketing activities that use digital media as above are known as
Digital Marketing (Tapp et al. 2013). More than just a business function, marketing
activities aim to attract new consumers by promising superior value and retaining and
developing existing consumers through the distribution of satisfaction.
Until now, the company's investment in marketing activity has been recorded as an
expense in the company's financial statements. Where the return on marketing investment
cannot be measured accurately using the traditional accounting system because of its similar
characteristics as intangible assets. Marketing activity is included in the intangible asset
category of operational assets where the return on investment cannot be obtained
immediately when marketing costs are incurred but can only be obtained over a period of
time. For example, if a company incurs advertising costs to build a brand, these expenses
cannot drive economic benefits in the short term, therefore when the advertising costs are
incurred in accounting, these costs are considered expenses (Dyhdalewiz and Widelska
2017).
That is, the valuation of intangible assets (mostly related to marketing decisions)
within the accounting framework raises several issues related to their identification,
measurement, and control (Sydney- Hilton and Vila-Lopez 2019). So marketing-oriented
new economy companies cannot be fully evaluated by traditional accounting systems, which
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are based on tangible assets, historical costs, and accounting conservatism (Dyhdalewicz and
Widelska 2017). Whereas in the current digital era, companies in Indonesia are more
oriented towards digital marketing, especially after the pandemic. This is shown by the
increase in corporate marketing costs by 7.2% in digital advertising and 14.4% in social
media advertising from the beginning of January 2020 to the end of January 2021
(Datareportal 2021).
The inability of traditional accounting systems t o accurately evaluate the return on
marketing investment and the recording of the cost of investment in marketing activity as an
expense in the company's financial statements makes shareholders perceive that marketing
activity has no impact on the company's profitability but instead can be reducing returns for
shareholders (lim and lusch 2011). In addition, CEOs and boards of directors still doubt the
value of marketing activities that have been carried out (CMO survey 2019). Whereas
previous studies from Sydney-Hilton and Vila-Lopez (2019), Arslanagic-Kalajdzic, Žabkar
and Diamantopoulos (2018) and various studies in The marketing-finance interface (Edeling
et al. 2020; Eklof et al. 2018; Porto and Robert Foxall 2019) found that marketing activities
have a positive impact on the company's financial performance, one of which is profitability.
The marketing-finance value chain model from Edeling and Fischer (2016) states that
marketing activities will result in an increase in the number of social media followers of the
product, generate customer satisfaction, and increase customer purchase intention as a form
of marketing assets. These marketing assets will simultaneously improve product market
performance through the formation of sales growth and market share and improve
accounting performance through increased revenue and company profitability. As the
company's profitability increases, stock returns also increase. Based on this theory, this
study wants to know the effect of marketing activity on the profitability of companies in
Indonesia.
Advertising and promotion are marketing activities that are most often encountered by
people in their daily lives, both through TV broadcasts and other digital media. It is no
wonder that advertising and promotion spending is the biggest marketing expense for
companies. The Consumer Goods sector is one of the sectors with the largest annual
advertising expenditure in Indonesia. Based on the findings of Nielsen Advertising
Intelligence (Ad Intel), national advertising spending in 2019 was dominated by the
Consumer Goods sector in the categories of hair care products, facial care, and cigarettes as
shown in Figure 1.
Consumer Goods compared to other sectors. This is due to the increasingly intense
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level of competition in the consumer goods industry (swa.co.id 2018). The consumer goods
sector consists of businesses whose main activity is to process basic or semi-finished
materials into finished goods that can generally be consumed by individuals and households.
Coverage
The consumer goods market not only covers national consumers but also international
consumers. This is evident from some brands such as Indomie, Dunhill, Pond's, Kopiko
which have become global brands. Seeing the wide market share of consumer goods
products, in order to maintain its existence, companies in this sector always promote their
products through advertising even though the costs are relatively expensive. This is due to
the ability of advertising to reach a wide market in a relatively short time. Based on these
advantages, in addition to product promotion carried out by the company, advertising is also
able to provide a significant boost to sales growth which has an impact on company
profitability.
According to Kim and Joo (2013) marketing activity is closely related to firm age and
firm size. Therefore, in order to enrich research in the field of marketing-finance, the focus
of this study is to analyze the effect of firm age, marketing activity, and firm size on the
profitability of companies in the Consumer Goods sector in Indonesia.
Problem Formulation:
The cost of investing in marketing activities (marketing activity) until now is only
considered as a burden for the company (firm expenses), in fact marketing activities are part
of the company's decision-making framework that acts as the spearhead in creating sales.
Therefore, marketing activities must be integrated with other business activities. The
problem is that investment in marketing activities until now cannot be accurately measured
using traditional accounting systems because of its l on g-t e r m returns. So that investors
argue that marketing activities are only a burden on the company that can reduce the
company's profitability, this opinion turns out to be contrary to the findings of previous
studies in the marketing-finance interface so that the following problem formulation is
obtained:
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Marketing Activity:
Marketing Activity is an effort to create product value as well as an effort to build
close relationships with customers that are deliberately carried out by companies in order to
achieve goals. Companies aim to generate financial returns through marketing activities,
while for consumers marketing activities are one way to obtain products (Porto and Robert
Foxall 2019). Marketing activities start from targeting consumers, designing marketing
strategies, to encouraging consumers to purchase products through offering superior values.
Currently, marketers recognize the concept of digital marketing. Digital Marketing is any
form of marketing activity that uses digital channels, such as advertising, interactive TV, the
internet, websites, email, e-commerce, and other wireless media (Tapp et al. 2013). Digital
marketing analyzes digital data to determine customer characteristics and behavior in
targeting consumers. Both traditional marketing and digital marketing both have the goal of
shaping product images and encouraging purchases.
One of the benefits obtained by the company for its investment in marketing activities
in the form of advertising is the formation of brand awareness of the community towards
marketed products. Brand awareness is the ability of consumers to immediately recognize or
remember a product brand just by looking at a name, logo, image or other attributes attached
to the product. The more advertising intensity of a brand/brand in a media, the greater the
potential for the brand to be remembered by consumers so that it is possible to become the
top of mind product of choice for consumers. Products with high brand awareness are
relatively more trusted and chosen by consumers compared to products without other brands
so that the potential for sales growth is high. High net sales profit margins are one form of
return on investment in marketing (Sydney-Hilton and Vila-Lopez 2019). For example,
products from Unilever and Indofood companies, which have several well-known brands in
Indonesia, have proven to get a return on marketing investment in the form of sales growth
throughout the observation time. Thus, marketing activities become the main business
function that can attract customers and create profits for the company.
The company's investment in marketing activities in the company's financial
statements is recorded as marketing expense.Marketing Expense (ME) includes all expenses
or costs associated with selling, marketing, and managing marketing strategies aimed at
specific markets (Best 2008). Marketing activities that will be analyzed in this study are
represented by marketing expense. Companies need to consider the amount of marketing
expense and understand its management in order to create effective marketing so that it can
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generate profits for the company.
Product advertising and promotion is the biggest marketing expense incurred by
companies. Advertising is one of the product promotion tools most often used by companies
to convey product value through multiscreen channels. The function of advertising is to
inform customers (to inform), persuade (to persuade), and remind (to remind) customers
regarding product brand positioning (Kotler and Armstrong 2012). In addition to product
promotions carried out by companies such as sales discounts, cashback, direct marketing,
and others, advertising is a promotional tool that can stimulate sales in a relatively short time
and increase brand awareness.
According to Silveira et al. (2020) Advertising/advertisement is one of the value
appropriation activities. Value appropriation (VA) is an activity carried out by companies
to develop existing procedures by associating these procedures with the latest marketing
strategies to generate maximum profit from the market (segment development, positioning,
distribution, and other marketing mix strategies). Value Appropriation is also the
implementation stage of the exploitation strategy where through advertising the company
tries to promote and educate consumers regarding existing products or services in order to
encourage impulsive purchases.
Along with the development of technology, the use of advertising as a promotional
medium is increasing both through TV broadcasts, websites, and social media. In addition to
these digital media, companies now often advertise their products through festival events,
reality shows, or insert them in cinema scenes aired by television stations. Research from
Silveira et al. (2020) successfully showed a positive effect of advertising expenditure on
company profitability (ROA). Investors respond more positively to companies that invest in
advertising, especially advertising to promote the company's new products.
Firm Age:
Age is the length of time an individual or object exists (Ilaboya and Ohiokha 2016).
The age of the company is calculated since the company was first established, developed,
and can maintain its business operations to date (Kim and Joo 2013). The age of the
company can show the power
The company's competitiveness and creativity in utilizing business opportunities in
order to survive in an industry. Companies that have been operating in an industry for a long
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time are usually more experienced in managing their resources, and can estimate product
trends from previous periods.
Along with the age of the company, the more experience the company has gone
through as a learning process that will always increase the efficiency of the company's
productivity, this is in accordance with the learning by doing hypothesis (Ilaboya and
Ohiokha 2016). The more efficient the company's productivity becomes the company's
competitive advantage which will increase the company's profitability. According to Kim
and Joo (2013) the age of the company is related to the company's marketing activities.
Firm Size:
Marketing Activity is closely related to company size (Kim and Joo 2013). Company
size is one of the company characteristics that is widely studied as an independent variable
(Egbunike and Okerekeoti 2018). Other company characteristics are liquidity, sales growth,
ownership structure, company age, and others. Law No. 20 of 2008 categorizes company
size into four categories, namely micro businesses, small businesses, medium businesses,
and large businesses. This grouping is based on the number of employees, annual sales or
investment value, and net worth or total assets according to business sector criteria.
The nominal of each indicator is further regulated by Government Regulation (PP)
given the dynamic nature of the size of each indicator. Large companies are believed to have
more competitiveness compared to small companies, this happens because large companies
have a wide market share and are easy to access funding from external parties so that they
have more opportunities to get greater profits/profitability compared to small companies.
Profitability:
Financial Analysis and Planning is a tool/instrument for assessing, planning,
improving, and monitoring the key activities of a business with the aim of achieving
company goals. Apart from management, other parties who participate in analyzing the
company's financial condition are investors. An investor is a person or group of people or
institutions that invest their capital in a company through the purchase of a number of
securities issued by the company. Investors usually analyze the company's financial
performance before investing. The better the company's financial performance, the higher
the possible return that investors will get. Therefore, investors tend to invest in companies
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that have good financial performance.
Company performance can generally be measured using financial ratios. Financial
ratios are a tool to measure and evaluate the company's business performance in accordance
with the company's financial condition recorded in the company's financial statements.
Financial ratios can also be used to monitor trends throughout the year and compare
company performance with the performance of competing companies in one industry
(Alexander 2018). Financial ratios consist of profitability, liquidity, solvency, and activity
ratios. This study only uses profitability ratios as the dependent variable to analyze the
company's financial performance. Investors can assess how much return the company might
provide while knowing the potential growth of their investment by looking at the company's
profitability level. Realizing the needs of stakeholders, especially investors, regarding
company profitability information, the company always presents this information in the
company's performance report in the company's annual report.
The profitability ratio measures the total income or operating success of the company
in using the company's resources such as productive assets, capital, and sales for a certain
period of time (Sataloff et al. 2013). One of the company's operational activities is
marketing. Marketing can increase company profits/profitability through increased sales in
the short term and build brand equity in the long term. Based on Signaling Theory, the
higher the level of company profitability, the better the company's prospects in the future, so
that investors will respond positively. This positive response will later increase the
company's share price in the capital market so that it has an impact on increasing the
company's value.
Return On Assets (ROA) is a profitability measurement tool that is often used in
research. The ROA measurement results project the level of income generated by the
company from the total assets used by the company. The higher the ROA, the greater the
value of the company's profitability, this gives a positive signal to investors to invest in the
company invest in the company. The following is the calculation of return on assets used in
this study according to (Alexander 2018):
Consumer Goods Industry:
Consumer Goods Industry or fast moving consumer goods (FMCG) is a processing
business that converts basic or semi-finished materials into finished goods that can generally
be consumed by individuals or households. Therefore, this industry is also known as the
consumer goods industry. Consumer Goods companies that have been listed on the
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Indonesia Stock Exchange in 2019 amounted to 56 companies. These industry players are
divided into five subsectors, namely the food and beverage subsector (food & beverage),
pharmaceuticals (pharmaceuticals), cigarettes (tobacco), cosmetics & household, and
houseware subsectors. The FMCG industry itself is an industry that can maintain its
business operations amid the Covid-19 pandemic. This indicates that the FMCG industry
plays an important role in the growth and development of the national economy.
Companies engaged in the FMCG sector have two types of customers. The first is the
wholeseler or retail store. The second is the end consumer. Initially, FMCG players sold
their products to retail stores, and then the retailers resold the products to end consumers.
However, digitalization and the growth of e-commerce in Indonesia have provided an
alternative for FMCG players to market their products through e-commerce. The online
platform was increasingly used at the beginning of the Covid-19 pandemic, this was a form
of company adaptation strategy in order to survive during the pandemic. Most of the FMCG
players' revenue comes from retail stores (Trihatmoko, Mulyani and Q.A. 2019). Based on a
survey conducted by datareportal in 2020, the revenue of consumer goods companies
originating from e-commerce amounted to only 3 percent of the total revenue of consumer
goods retail stores from 2018 to 2019. Given that consumer goods products are people's
daily needs, the demand for products is very high. Seeing the large market share of products
and facing increasingly fierce business competition, FMCG sector companies are
aggressively promoting products through advertisements and promotions on television and
other digital media.
Previous Research:
This research has a different research object from previous studies. Previous research
was conducted in the property and real estate sector in Indonesia, while this research was
conducted in the consumer goods sector in Indonesia as a research novelty. This research is
important to do considering that previous research with the object of companies in Indonesia
was conducted.
In addition, this study can enrich the results of research that strengthen the influence of
marketing activity on the profitability of consumer goods sector companies in Indonesia
empirically, considering that even though throughout 2020 Indonesia is still experiencing
contraction due to the pandemic, several companies in the consumer goods sector have
continued to increase their advertising spending on conventional and digital media,
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especially in the categories of facial care products, hair care, and cigarettes (Nielsen 2020).
So it is necessary to analyze how the effect of marketing activities in the form of advertising
and promotion expenditures on the profitability of consumer goods sector companies in
Indonesia.
Research Framework:
Investment costs for marketing activities until now have been recorded as selling
expenses in the company's financial statements. This causes shareholders to have the
perception that marketing activities are only a company expense that can reduce the
company's profitability so that it has an impact on reducing the return value for
shareholders. Whereas if the company invests in marketing activities optimally, the level of
sales of the company's products will increase. The increase in sales levels can certainly
increase firm profitability and firm value. Along with the increase in company profitability,
the level of return that the company can distribute to shareholders will increase. So it can be
assumed that the company's investment in marketing activity not only has an impact on the
company's profitability but also has an impact on shareholders.
Advertising is a marketing activity that consumes the largest budget. The existence of
social media which is considered to provide advertising media at a relatively low cost still
seems ineffective, so until now companies still use television as a medium for advertising
even though they have to pay a lot. The increasingly fierce business competition in the
FMCG industry makes advertising and promotion an activity that many companies do in
order to win market share. Therefore, marketing managers need to calculate well the amount
of marketing costs that must be incurred by the company by considering the benefits that
will be obtained by the company from these marketing activities.
Marketing activities in this study a r e examined in the form of marketing expenses
recorded in the company's annual report. In addition, the influence of other variables related
to marketing expense such as firm age, and firm size as independent variables will be
investigated. Each independent variable will be tested for its effect on the company's
profitability proxied by Return On Asset. The test of the influence between the independent
variables on the dependent variable return on assets (Y) is conducted using multiple
regression of panel data on SPSS 24 software. Advertising expenditure is used to measure
the amount of marketing expense. The following is a description of the framework of this
research:
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Research Variables:
Variables or variables in research are divided into independent variables (independent
variables) and dependent variables (dependent variables). Both variables are used to test the
research hypothesis, the following is a further description of the research variables:
Dependent variable:
One form of return from marketing activities is sales growth every year. These
returns will certainly further increase the company's profitability. Return On Assets (ROA) is
a profit measurement tool or profitability that is most often examined in research. The ROA
measurement results project the level of ROA is the income generated by the company from
the total assets used by the company in carrying out its business operations. If the percentage
of ROA is getting bigger, it means that the company is getting more profitable. The higher
the level of company profitability can reflect the better the level of company performance
and provide a positive signal for investors to invest their funds in the company. Thus, this
study uses Return On Assets as the dependent variable.
Research Hypothesis
The Effect of Firm Age on Company Profitability:
One of the company characteristics related to marketing activities is the age of the
company. The output of the company's investment in marketing activities such as
advertising can be seen from the existence of the company's products in the community as
long as the company operates. The longer the company operates, the more experienced the
company is in its field so that it can become a winner in fierce market competition.
Therefore, this study suspects a significant influence between company age and profitability
in accordance with research from (Kim and Joo 2013) and (Ilaboya and Ohiokha 2016).
Thus, the next hypothesis is:
H1: Firm age (AGE) has a positive and significant effect on company profitability (ROA)
The Effect of Marketing Activity on Profitability
Marketing activities are a series of activities that companies deliberately carry out to
offer their products to consumers in the hope that consumers will purchase products. Every
year the company invests a certain amount of funds for marketing activities. Even though it
is the biggest burden that must be incurred by the company, companies always invest in
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marketing activities because it provides benefits for the company in the short term through
increased sales and the formation of brand equity in the long term. Brand equity is when a
product has a brand that is known by the wider community (familiar brands), so that
consumers will prefer products with these brands over unbranded products because their
quality is guaranteed.
Brand equity is formed in the long term as an output of advertising spending,
promotion, market research, and product development. Advertising can form brand equity
through the formation of brand awareness and brand knowledge. Brand awareness will
encourage consumers to buy products so as to increase company profitability (Crass et al. 2019).
Research from (Serenia and Hatane 2015) has proven the positive effect of marketing
activity on company profitability in the form of the logarithm of marketing expenses.
Various studies in marketing, accounting, finance, and meta-analysis show that marketing
expenses have a positive effect on the company's financial performance in the form of
profitability (Porto and Robert Foxall, 2019; Silveira et al., 2020). However, the benefits of
both are difficult to calculate because there is still information asymmetry between
shareholders and management (Widnyana et al. 2020). Thus the hypothesis of this study is:
H2: There is a significant and positive influence of Marketing activity
to company profitability (ROA)
The Effect of Firm Size on Profitability
Firm size is one of the company characteristics that is often studied as an independent
variable in research. However, there are varied research findings regarding the effect of firm
size. Along with the increase in firm size, the company should benefit more from easy access
to sources of funds and the size of the company's market share. However, research from
Azhar and Ahmed (2019) and Sari and Budiasih (2014) found that firm size is negatively
correlated with profitability. The negative impact of firm size on company profitability is
because company profitability also depends on external factors such as the country's
economic system, purchasing power, and the level of competition in the industry.
While research from Serenia and Hatane (2015) found that firm size has no significant
effect on profitability, the same results were also found by Limbong and Chabachib (2016),
and Assenga and Hussainey (2018) These findings are due to the greater the firm size, the
more expenses to operate the company so that if the company's asset management is not
good, these assets have no impact on the company's profitability. The research was both
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conducted in developing countries and produced different findings, because this research
was conducted on companies in Indonesia which are in fact developing countries, the
researchers did not suspect how the direction of the influence of firm size on profitability but
only wanted to prove that firm size could affect the profitability of consumer goods
companies in Indonesia.
Data Analysis
Multiple Regression Analysis
The hypothesis in this study was tested using multiple linear regression analysis
method. Gujarati (2004) explains that multiple linear regression is an analysis of the
relationship between several regressors / independent variables (X) with one dependent
variable (Y). The research data includes panel data because each research variable is taken
from the data of each company (cross section) which is observed from time to time (time
series data). The use of panel data in research can enrich empirical analysis that cannot be
done if the research is limited to the use of cross-section data or pure time series data.
According to Gujarati (2004) panel data is appropriate to use in research because:
a. Able to clearly account for heterogeneity of individual-specific variables such as firms,
countries, and micro units.
b. Panel data is more informative and efficient because it combines a series of unit
observations.
c. Can learn the dynamics of change
d. Can estimate effects better than time series data
or cross-section.
e. It can be applied to study phenomena such as technological change, or economies of scale
better than cross-section data or pure time series data.
f. Can minimize the bias that may arise when combining company data into aggregate data.
Gujarati (2004) explains that panel data analysis is widely used in economic research.
Researchers can technically use time series & cross-sectional data in examining problems
that cannot be studied separately through one of the cross sectional or time series techniques
alone. The study used a multiple linear regression model to test the hypothesis.
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Testing classical assumptions:
In order to obtain optimal and valid research results, several requirements must be met
in order to get a good regression model. So before regressing the model there are
assumptions that must be met by the model, these assumptions are called classical
assumptions. Normality, multicollinearity, autocorrelation, and heteroscedasticity tests are a
series of classic assumption test stages. However, researchers only tested normality,
multicollinearity, and heteroscedasticity, because the study used panel data, so it did not
require an autocorrelation test. The following is an explanation of classical assumption
testing in research:
1. Normality Test
Normality testing needs to be done to see whether in the regression model, the
residual value of the data is spread normally or not (Ghozali 2018). If the normality
assumption is not met, the statistical test results will be invalid, especially for small sample
sizes. According to Ghozali (2018) graph analysis and statistical tests can show whether the
data distribution is normally distributed or not.
In order to avoid bias, testing the normality assumption using statistical tests, because
some cases show graphs that visually look normal, when statistically tested show different
results. The statistical test used in testing data normality is the Kolmogorov-Smirnov (K-S)
test with the criteria as below:
a. If the probability of Montecarlo significance ≥ 0.05 (α) then it is confirmed that the
residuals are normally distributed; and
b. If the Montecarlo significance probability <0.05 (α) then the residuals are not normally
distributed.
2. Multicollinearity Test
This test will see if there is a correlation between independent variables. For example,
an increase in company revenue will definitely increase the company's expenses. It can be
said that revenue is positively correlated with company expenses so that multicollinearity
will have an impact on regression results that become biased. Symptoms of Multicollinearity
can be detected by looking at the value of
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tolerance and variance inflation factor (VIF). The following are the multicollinearity test
criteria:
a. If the tolerance value ≥ 0.10 and the VIF value ≤ 10, the variable is declared free of
multicollinearity, otherwise;
b. If the tolerance value <0.10 and the VIF value> 10, the variable is declared infected
with symptoms of multicollinearity.
3. Heteroscedasticity Test:
Heteroscedasticity test needs to be done to determine whether in the regression model
there is an inequality of residual variance between one observation to another which will
result in bias or inaccuracy of the regression model. According to Ghozali (2018) if the
model does not experience symptoms of heteroscedasticity, the regression model is said to
be good. Symptoms of heteroscedasticity can be detected through the Glejser test with
criteria such as:
a. If the t value of the Glejser test ≤ t table and the significance probability ≥ 0.05 (α) then
the variable is declared free of heteroscedasticity, otherwise;
b. If the t value of the Glejser test> t table and the probability of significance <0.05 (α), it
is stated that the variable experiences symptoms of heteroscedasticity.
Significance Test
The significance test is a procedure that tests the correctness of the null hypothesis
based on the research data on the sample (Gujarati 2004). The significance test in this study
uses the following three statistical tests:
1. F Statistical Test/Simultaneous Test
To test the level of significance of the effect of independent variables together or
simultaneously on the dependent variable, it can be done through the F statistical test
(Ghozali 2018). The simultaneous effect can be measured by comparing the value between
the F count with the F table value or by comparing the significance value of F with the
specified α significance level. Below is shown the criteria used for simultaneous testing:
a. If the probability of significance of the F test ≤ 0.05 (α), it is confirmed that the independent
variables jointly affect the dependent variable; and
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b. If the probability of significance of the F test> 0.05 (α), it is confirmed that the independent
variables together have no effect on the dependent variable.
2. Statistical Test t
The t statistical test is carried out to see the extent of the influence of each independent
variable on the dependent variable individually or partially. The partial test criteria for all
hypotheses in this study are as follows:
a. If the probability of significance of the t test ≤ 0.05 (α) and the constant beta ≥ 0, it can
be stated that the independent variables firm age, marketing expense, and firm size
partially have a significant and positive effect on profitability, so H1, H2 are accepted
while H3 is rejected.
b. If the probability of significance of the t test > 0.05 (α) and the constant beta < 0, it can
be stated that the independent variable partially has a negative or insignificant effect on
the profitability variable, so H1, H2 is rejected while H3 is accepted.
3. Test Coefficient of Determination (R )2
The coefficient of determination or R square (R2 ) can show the extent to which the
independent variables in the model can explain the variation in the dependent variable. The
value of R2 is between zero and one, where the value is closer to one, the better the
independent variables studied in predicting the variation in the dependent variable.
Meanwhile, the difference from the R value2 shows the amount of influence of other
variables outside the research model on the dependent variable. According to Ghozali (2018)
cross section data usually results in a relatively low R2 value due to the large variation in
each observation. This study looks at the value of R2 to see the extent to which variations in
profitability can be explained by the independent variables firm age, marketing activity, and
firm size.
Overview of Research Objects
Companies in the consumer goods industry sector or fast moving consumer goods
(FMCG) were selected as objects in the study. The sample companies consist of State-
Owned Enterprises and private companies that are consistently listed on the IDX during the
2015-2019 period. The number of consumer goods companies listed on the IDX every year
tends to increase, if in 2014 there were only 37 companies listed on the IDX, now i n 2019
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the number has increased to 56 companies. Based on the IDX annual statistical report,
FMCG sector companies are divided into subsector details as follows (BEI 2019):
The growth prospects of the FMCG sector in Indonesia are very favorable, as
evidenced by several companies in this sector always being included as the 50 companies
with the largest market capitalization every year. T h e r e f or e , the level of competition in
the FMCG sector is getting tighter so that in addition to promoting and advertising, some
companies carry out additional activities such as research and development (RND) to
increase the company's competitive advantage. The research was conducted in order to see
the effect of marketing activities, company age, and company size on profitability.
Marketing activities consist of advertising and promotion costs whose impact can be felt in
the future, so there is a time lag from cost expenditure to the impact obtained by the
company. The research sample was selected through purposive sampling method with
certain criteria. Below are the sample selection stages:
Descriptive Analysis
From table 5 above, it is known that 30 FMCG companies have met the criteria as
samples in the study. Observations were made for a period of 5 years (2015-2019) so that a
total of observations were obtained 150 samples. The next step, the sample was processed
with the help of Statistical Package Social Science (SPSS) version 24 software and obtained
descriptive results for each variable as shown in table 6 below:
Profitability (ROA)
The average profitability of sample companies is 7.4667 while in table 6 it is known
that the standard deviation value of profitability is 9.56273. It can be seen that the average
value of company profitability is less than the standard deviation value. This illustrates that
the company's profitability data for 2015-2019 varies. The highest profitability value was
recorded by PT Unilever Indonesia tbk (UNVR) in 2018 with a percentage of 46.3%. Of
course, this achievement was obtained from the hard work of management to remain
focused on driving the company's main objectives, namely socializing sustainable living
(suistainable living comon place) and expanding the product brand portfolio. Unilever
managed to increase the growth of social purpose product brands such as Pepsodent, Rinso,
Superpell, Bango, and Royco so as to increase the company's profitability.
The company's profitability is also shown by the increase in sales from 2015 to 2019.
Net sales growth increased by 2.7% from 2018 to 2019. The company also has superior
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brands in each product category, especially products in the home and personal care category
with sales growth reaching 4% and food and refreshment which grew by -0.1%. Therefore, it
is natural that in 2018 Unilever managed to book a net profit of Rp 9.1 trillion. While the
lowest profitability value of -17.6% was recorded by PT Martina Berto Tbk (MBTO) in
2018. This happened because throughout 2015 to 2018 the company suffered losses.
Firm age:
Referring to table 6 above, the average logarithmic age of the sample companies is
1.6228. The average value is greater than the standard deviation value, which is 0.16582.
Thus it can be concluded that the data from the firm age variable in 2015-2019 are clustered.
In addition, the maximum and minimum firm age values are 1.95 and 1.20, respectively,
where the maximum value is owned by PT Bentoel Internasional Investama Tbk. While the
minimum age is owned by PT Inti Agri Resources Tbk.
PT Bentoel Internasional Investama Tbk (RMBA) was officially established in 1930,
during its journey until 2019 PT Bentoel managed to export to 20 countries and joined the
British American Tobacco (BAT) Group. This achievement is inseparable from the hard
work of management for 89 years to successfully add the Dunhill and Lucky Strike global
brands to its portfolio so that it has the potential to book greater profitability compared to
start-up companies that have only joined the industry for one year. Meanwhile, the youngest
sample company age is owned by PT Inti Agri Resources Tbk (IIKP) in 2015, which is 16
years old since it was first established in 1999.
Marketing Expense (ME):
The average marketing expense of the sample companies in table 6 is 10.7727, the
average is greater than the standard deviation of 1.30183. This shows that the data from the
marketing expense variable in 2015-2019 is clustered. The minimum value of 7.10 is owned
by PT Inti Agri Resources Tbk (IIKP) in 2018 with a total marketing expense of 12.6
million rupiah.
The largest marketing expense was owned by PT Mayora Indah Tbk (MYOR) in 2019.
PT Mayora in 2019 spent advertising costs of 3.4 billion rupiah after spending 2.4 billion
rupiah in the 2018 quarter. The increase in advertising costs occurred because in 2019 the
company was launching new products so that the management was increasingly aggressively
promoting through advertisements on TV stations and other digital media. The new products
launched by Mayora in 2019 came from the biscuit division with the trademarks Roma
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Malkist Tiramisu and Roma Arden. The Company diversified concentrically on the Roma
trademark in the form of the addition of tiramisu flavor variants in the roma malkist sub
brand and the addition of the "Arden" sub brand. The addition of tiramisu flavor variants in
the roma malkist brand was carried out by the company as an effort to meet different
consumer tastes and see the growing trend of fans of processed coffee products in Indonesia.
In addition to new product launches, advertising costs in 2019 also increased because
the company was strengthening the brand image of "Le Mineral" products through the "Ayo
Minum Untuk Sehat" campaign which was socialized through the big event "Le Minerale
Water Run 2019" held in major cities in Indonesia. Advertising of Mayora products requires
a large amount of money because it uses famous celebrities as advertising stars who are
relevant to the value of the product. Thus, it is expected to increase brand awareness and
consumer confidence in the product.
Firm Size
The average (mean) sample company size in table 6 is 12.4639, the mean value is
greater than the standard deviation value of 0.69720. This shows that the data from firm size
in 2015-2019 is clustered. The maximum value of firm size is owned by PT Indofood Sukses
Makmur Tbk (INDF) with total assets reaching 96.5 M in 2018. While the minimum value
of firm size is owned by PT Pyridam Farma Tbk (PYFA) in 2017 which has assets of 159.6
million.
Classical Assumption Test
Normality Test
According to Ghozali (2018) to see whether the residual value of a data is normally
distributed or not can be seen using the Kolmogorof-Smirnof test on SPSS software. The test
statistic value and monte carlo significance in the Kolmogorof-Smirnof table in appendix 2
are used to see the distribution of residual values. The data normality test results show a
Kolmogorov-Smirnov test statistic value of 0.109 and a Monte Carlo significance value of
0.051. Because the Monte Carlo significance probability is greater than 0.05 as the specified
significance level, it is known that the residuals are normally distributed and the model has
met the assumption of data normality.
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Multicollinearity Test:
The results of the multicollinearity test of the independent variables in this study are
shown in the multicollinearity test results table in appendix 2. The multicollinearity test
shows that all independent variables, namely company age (AGE), marketing expenses
(ME), and company size (SIZE) have a VIF value < 10 and a tollerance value > 0.1. Thus it
can be concluded that there is no multicollinearity of data.
Heteroscedasticity Test:
In order to detect symptoms of heteroscedasticity, the Glejser test will be carried out.
The Glejser test results show that with N = 150 and α = 0.05, the t table value is 1.65508.
The results of the Glejser test show that there are two independent variables, namely
marketing expenses (ME) and company size (SIZE), which have a t value < t table and a
significance probability> 0.05 so that it can be stated that there is no heteroscedasticity
problem. While the company age variable (AGE) has a t value> t table and a significance
probability <0.05 so that it is declared to have heteroscedasticity problems.
According to Ghozali (2018), cross section data is often affected by
heteroscedasticity problems. This is because cross section data collects data in various sizes
(small, medium, and large), giving rise to heteroscedastic error variances.
Hypothesis Test
Multiple Linear Regression Analysis:
Multiple linear regression analysis is used to measure the strength of the influence
between two or more variables, as well as to show the direction of the relationship between
the independent variables of company age (AGE), marketing expenses (ME), and company
size (SIZE) with the dependent variable of profitability (ROA). The multiple regression
output in this study is contained in Table 8 below:
The following is the interpretation of the regression model in this study:
1. The constant of -59.420 indicates that if the value of the independent variables of
company age (AGE), marketing expenses (ME), and company size (SIZE) is considered
fixed or unchanged, then the company's profitability (Y) will decrease by 59.420 caused
by other variables outside this study.
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2. The AGE coefficient of 19.179 indicates that every time the company's age increases by
1 unit, profitability (ROA) will increase by 19.179 units with the assumption that
marketing expenses (ME), and company size (SIZE) are constant.
3. The ME coefficient of 1.533 indicates that if the company's investment in marketing
expenses increases by 1 percent, the company's profitability will increase by 1.533
percent with the assumption that the value of firm age and firm size is fixed.
4. The SIZE coefficient of 1.544 indicates that each additional 1 unit of company size will
increase profitability (ROA) by 1.544 units with the assumption that the value of
company age (AGE), and marketing expenses (ME) is fixed.
Simultaneous Test (F)
Simultaneous Test is conducted in order to see whether there is an influence of the
independent variables of company age (AGE), marketing expenses (ME), and company size
(SIZE) simultaneously (together) on the dependent variable profitability (ROA) or used to
predict the value of Return On Assets. The significance level used in this test is 0.05 (α =
5%). The following criteria can be used to determine the results of the F test on the
regression model:
1. The variables of company age, marketing expenses, and company size are said to have a
simultaneous effect on company profitability if the significance probability value of the F
test is ≤ 0.05, while the probability value of the F test is ≤ 0.05.
2. The variables of company age, marketing expenses, and company size are said to have no
simultaneous effect on company profitability if the significance probability value of the F
test ≥ 0.05.
The calculated F value of the dependent variable profitability is 19.966 and the
significance probability is 0.000. The probability of significance of the F test is much
smaller than 0.05. Thus it can be stated that together (simultaneously) the independent
variables firm age, marketing expense and firm size affect profitability (ROA).
Statistical Test t
The t statistical test is basically used to see whether there is an influence of each
explanatory/independent variable on the dependent variable. Based on the t test results
attached in table 8 above, it can be seen that partially the firm age and marketing activity
variables have a positive and significant effect on profitability, while the firm size variable
has no effect on profitability. Furthermore, these results will be discussed in the description
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The Effect of Firm Age (X1) on Profitability:
The independent variable firm age (AGE) in this study is tested in the form of the
logarithm of the company's age so that it is normally distributed. The AGE variable T test
result is 4.224 and the significance value is 0.000. The significance value of the T test of this
variable is smaller than the significance level α 0.05 so it can be concluded that firm age
(AGE) has a significant and positive effect on profitability. The magnitude of the influence
of the independent variable firm age on profitability can be seen from the coefficient value ß1
in multiple regression output. The multiple regression output shows the coefficient value ß1
of 19.197, this value indicates that as one unit of fi r m age increases, the company's
profitability can increase by 19.197 units. So that Hypothesis H1 is accepted. The results of
this study support the findings of previous research from Ilaboya and Ohiokha (2016), and
Serenia and Hatane (2015) who found that Company Age (AGE) has a positive and
significant impact on profitability.
The age of the company is calculated since the company was first established,
developed, and can maintain its business operations to date. The age of the company can
also show the company's competitiveness and creativity in utilizing business opportunities in
order to survive in an industry. Companies that have been operating in an industry for a long
time are usually more experienced in managing their resources, and can estimate product
trends from previous periods. This experience can be a learning process for companies so
that they can find out effective production techniques in increasing company productivity so
that companies can make products or services that are superior to competitors' products so
that they will earn greater profits than newcomer companies in the industry. Companies that
are new to operating in an industry usually still have to explore to find the right business
model or production techniques for the company to be able to compete in the industry. Thus,
the age of the company has a positive effect on profitability as a result of the learning
process during the company's operation in the industry (learning by doing).
Companies that have been operating for a long time usually also conduct an Initial
Public Offering (IPO) in order to obtain funding sources from external parties to develop
their business. Investors can also minimize costs to find out information related to
companies that have conducted IPOs because the company's information is usually
widespread. Thus, both The company and investors both benefit from the company
conducting an IPO. The company's chances of obtaining financing from external parties are
greater, and investors can easily find information related to the company. The greater
opportunity for companies that have conducted IPOs to obtain financing from external
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parties makes companies that have been operating for a long time usually invest in large
amounts of advertising compared to newcomer companies which in fact have limited capital.
Given that the company's products are well known to the public, the advertising costs
incurred are proportional to the level of sales and profits obtained by the company.
As well as PT Tunas Baru Lampung Tbk, which has been operating for more than 40
years in the FMCG sector, investing in advertising averaged 6.7 billion during 2015-2019,
this amount is greater than the advertising costs incurred by PT Inti Agri Resource Tbk,
which has only been operating for 20 years in the FMCG sector with an average advertising
cost of around 15.3 million. The amount of investment in advertising of PT Tunas Baru
Lampung is much greater than PT Inti Agri, even though both operate in the same subsector,
namely the food & beverage subsector, especially offering agricultural products. It is proven
that PT Tunas Baru Lampung Tbk in 2019 scored a net profit of 661 billion, which is much
greater than PT Inti Agri with a net profit of 85 billion while in previous years it continued
to experience losses. So it can be concluded that the longer the company operates in the
market, the greater the company's investment in advertising and booked a larger net profit so
that the level of profitability is higher. But it does not rule out the possibility for new
entrants to book a large profit level. Because in addition to revenue, the company's profit
level is also influenced by the amount of the company's cost of production.
Effect of Marketing Activity (X2) on Profitability:
The independent variable marketing activity in this study is examined in the form of
marketing expense (ME). The T test value of the marketing activity variable studied in the
form of marketing expense is 2.076, while the significance value is 0.04. The significance
level of this variable is smaller than the significance level (α) of 0.05 or 5%. Therefore, it
can be stated that Marketing Expense (ME) has a significant effect on profitability (ROA)
and the direction of influence is positive. The magnitude of the influence of the independent
variable marketing activity on profitability can be seen from the coefficient value ß2 in
multiple regression output. The multiple regression output shows the ß2 coefficient value of
1.533, this value indicates that every one percent increase in the company's investment funds
in marketing activity will increase the company's profitability by 1.533 units. So Hypothesis
H2 is accepted because it is proven that there is a positive and significant effect of marketing
activity on ROA. This finding is in accordance with the research findings of Serenia and
Hatane (2015), Sydney-Hilton and Vila-Lopez (2019) and Silveira et al. (2020).
In addition to sales growth, another benefit of marketing activities that can be obtained
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by the company is the formation of brand awareness which is characterized by the
popularity of a brand in certain product categories. These benefits have been obtained by
companies such as Mayora with the "Roma" brand, Ultrajaya with the "Ultramilk" brand,
Indofood CBP with the "Indomie" brand, Unilever with the "Molto" brand, Sido Muncul
Herb Industry with the "Tolak Angin" brand, where each company has well-known brands
and is the market leader in each product category. Therefore, it is not surprising that every
year companies such as Mayora, Unilever and others always consistently invest considerable
funds for marketing activities.
In addition to promoting their products, some companies also promote brand
campaign programs through advertisements on TV channels and digital channels
(multiscreen). A brand campaign is an activity to increase the use of a product category.
Brand campaigns are carried out to improve the performance of a brand. The following
table. 9 shows some of the brand campaigns carried out by the sample companies with
increasing advertising costs during 2015-2019:
Effect of Company Size/Firm Size (X3) on Profitability
The independent variable company size or firm size (SIZE) produces a significance
probability of 0.245. The probability of significance of firm size is much greater than 0.05,
so the third hypothesis is rejected because partially the firm size variable has no significant
effect on profitability (ROA). Although the SIZE coefficient value (ß3) of 1.544 can indicate
that every additional unit of firm size, profitability will increase by 1.544 units, assuming
other independent variables remain constant. However, the positive SIZE coefficient only
shows a unidirectional relationship between firm size and profitability. This finding is the
same as the research findings from Limbong and Chabachib (2016), Ratnasari and
Budiyanto (2016), and Assenga et al. (2018), namely firm size has no significant effect on
profitability.
Large company size does not provide a guarantee for investors that the company can
generate large profitability, it does not rule out the possibility that companies with small size
actually have a large level of profitability. This indicates that profitability
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The company is not only influenced by the size of the company (assets / corporate wealth),
there are other factors that must be considered. Such as the way the company's assets /
wealth are managed, large companies are synonymous with a large amount of assets / wealth
both assets but according to Asenga et al. (2018) large-sized companies are usually less able
to manage the ability of external experts as company assets because of the large number and
variety, so that the number of experts actually makes the company more ineffective and has
no impact on the company's profitability.
In addition, the larger the firm size, the larger the company will be and increase the
company's operational expenses, so that if the company is not successful in managing its
assets effectively and efficiently, then a large firm size cannot increase the company's
profitability, and it is possible that the company's profitability may decrease (Sari and
Budiasih 2014). Meanwhile, according to Azhar and Ahmed (2019), apart from being
influenced by internal factors in the form of asset management, the effect of firm size on
company profitability is also influenced by external factors such as government policies and
political conditions of a country. For example, since March 2020 until now the government
has been implementing a lockdown policy to Micro-scale PPKM which essentially limits
community activities to reduce the impact of covid- virus infection.
19. The implementation of this policy had an impact on the decline in household
consumption throughout 2020, which is the consumer of consumer goods products. Thus,
throughout 2020 companies that are not included in the food and pharmaceutical subsector
posted low profit growth and there were companies posting negative profits.
According to Limbong and Chabachib (2016) profitability is not influenced by firm
size but is influenced by company growth. Thus it can be concluded that a large-sized
company does not necessarily always book positive profits, it depends on the management's
skills in managing the assets owned and the company's external conditions. Evidently from a
total of 30 sample companies which are large companies, there are still 8 companies that
have posted negative profits (losses) for more than one period.
Test Coefficient of Determination (R )2
The coefficient of determination test results are obtained from the R value2 model. The R-
squared value is between zero and one, where the closer the value is to one, the better a
model is for predicting variations in the dependent variable. The value of R2 model is 0.291
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or 29.10 percent. This figure shows that variations in profitability can be explained by the
independent variables firm age, marketing expense, and firm size by 29.10 percent, and the
remaining 70.90 percent is explained by other factors.
Managerial Implications:
Product advertising and promotion is a product promotion tool that functions to
disseminate information, persuade, and remind customers regarding product brand
positioning (Kotler and Armstrong 2012). The company's investment in intensive product
advertising and promotion is able to have a positive impact on the company's profitability,
so it is recommended for companies that have not included the cost of advertising and
promotion of their products to immediately include it in the company's annual report. The
disclosure is actually a company strategy to show the company's serious efforts in
maintaining the company's sales growth from year to year. These findings also succeeded in
breaking the shareholder's perception that marketing expenses have no impact on the
company's profitability.
In order to show product differentiation, maintain product existence and encourage
sales, companies in the consumer goods sector always spend on advertising and promotion
to win market share. Company investment in product advertising and promotion has proven
to have a positive effect on company profitability, especially in the consumer goods sector
with intense business competition. Companies in the consumer goods sector have more than
20 years of experience in the industry so they understand the importance of investing in
product advertising and promotion to maintain the existence of their products in the market.
The average age of the sample companies is 45 years, the sample companies with
above average age, spend 5 percent of their annual sales revenue to finance advertising and
product promotion activities. This figure is lower than the average marketing costs of the 30
sample companies. This is because the company's brand has been widely recognized by the
public so that some companies reduce their advertising costs to be allocated to other
marketing activities such as brand campaigns, SEO optimization, or research and
development activities for long-term product development. Despite allocating lower
marketing costs than the average marketing costs of sample companies, companies with an
age above 45 years can still book positive profits.
Although marketing activity is proven to have a significant positive effect on the
profitability of the company, but it does not mean that management should invest as much
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company funds in marketing activity. The company must be able to estimate how much
marketing expense is optimal in order to produce effective marketing. The ratio of marketing
expense to annual sales of sample companies averaged 6.02 percent. This shows that the
average sample company spends 6.02 percent of total sales on marketing costs. The sample
companies include large businesses (large firm size) with total assets of more than 10
billion. Of the total 30 sample companies, 20 companies issued marketing expenses below
the average and the remaining 10 companies issued marketing expenses exceeding 6.02
percent.
This figure can be used as the maximum limit of the company's marketing expenses so
that it can affect the company's profitability, so there is a possibility that if the company's
marketing expenses have exceeded 6.02 percent, then the marketing expenses have no effect
or can be used as a maximum limit.decrease the company's profitability. Therefore, the ratio
can be used as a reference for the company's entrants to determine the amount of investment
funds in marketing actvity in order to produce effective marketing so as to increase
profitability. Thus, companies must remain careful in allocating funds for marketing
activities to increase sales and profitability of the company.
Understanding the company's limited marketing costs, which are only around 6.02
percent of total sales, the company is recommended to carry out marketing activities at the
lowest possible cost. The author recommends companies to utilize digital media (website,
Instagram, YouTube, Facebook, podcasts and others) as a platform to promote their products
through content marketing. Based on a survey conducted by Datareportal in 2021, apart
from search engines, ads on social media are the second source used by Indonesians in
finding new brands, while product websites are ranked fourth. So content marketing is a
marketing strategy that companies can use to excel next year.
Content Marketing is a company strategy to promote products implicitly through
brand-related content that the company creates on its digital media pages with the aim of
increasing audience knowledge of a brand and encouraging audiences to make purchases
and promote the content. Usually interesting content will make the audience share the
content with other social media users so that the content containing the marketing message
will go viral so that the product or service can reach more audiences (Tapp, Whitten and
Housden 2013). Companies should produce more video content because it is easier for
audiences to understand and has a greater chance of going viral.
Companies do marketing through content marketing with the aim of converting
audiences into consumers. The Content Marketing Institute (2020) found that content
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marketing can boost sales of B2B companies in North America by 53 percent. In addition,
experts argue that the cost of content marketing is three times cheaper than the cost of
conventional advertising. Content marketing can also be used as an alternative product
promotion for consumers who are irritated by conventional advertising. Therefore, the
author recommends companies to integrate marketing activities in the form of content
marketing with existing advertisements in order to reduce marketing costs.
