Advertising in business markets – The obscured bottom-line effect and need for appropriate analytics

In business markets, advertising is believed to be increasingly important to achieve performance goals. Accordingly, business-to-business (B2B) marketers are frequently held accountable for the direct returns on their advertising expenses. Yet relying on a direct advertising-profitability association can be misleading and eventually harm firm performance. This research integrates conceptual advancements in the marketing profitability chain and the ability-motivation-opportunity frameworks, as well as the distinct characteristics of the B2B context, to explain why consideration of (a) lead-lag structure, (b) idiosyncratic factors, and (c) nonlinear effects is especially critical in business markets to properly determine the relationship. Using a large dataset of 1348 B2B firms observed over a decade (2010 to 2020), the results show that advertising erroneously appears to hurt profitability when common analytical techniques are used. Consideration of lagged effects, nonlinear effects, and effects from idiosyncratic factors such as competitive intensity and firms' advertising capability, but not their offering type (goods versus services), turns the relationship more positive, which this study shows is the true relationship between advertising spending and profitability in business markets. The conceptual discussion, methodologies, and findings presented here offer valuable insights for business marketing researchers and managers. • Argues and shows that B2B advertising can mistakenly seem to be a negative profitability driver. • Integrates marketing profitability chain and ability-motivation-opportunity theories. • Identifies intricacies in the effects on compound performance measures and how to assess them. • Demonstrates that B2B advertising effects are lagged and over- and underspending occurs. • Shows that advertising capability and market competition increase advertising profitability.