February 21, 2020
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Ad Infinitum? No More

The industry is hit hard as consumer good prices actually fall and consumers delay purchases

Ad Infinitum? No More
outlookindia.com
-0001-11-30T00:00:00+0553

HAS the advertising slump bottomed out? Or is it going to get even worse? Advertising agencies of all sizes and shapes will certainly be hoping that things will get better now. For times are hard indeed.

The slowdown began a couple of years ago, when marketers, after four years of heady activity—brand launches, ad blitzes, concept selling, brand building—suddenly faced up to the fact that the Indian consumer was not responding enough to the enticements. Miscalculations of potential market size, inability to convert imagined potential to real numbers and the pall of political uncertainty that has been hanging over India for the last two years have forced marketers to cut back on advertising and concentrate on other means to get the customer to bite the bait.

"The main problem in the economy," says S. Dharmarajan, associate media director, Euro RSCG. "There is no stable government, as a result there is no stable fiscal policy. So no one can undertake any planned expenditure." So no advertising, which is usually the first budget that gets slashed when a marketer faces bad times. "The advertising industry was growing at 35-40 per cent two years ago," says Clifford Misquith, media controller, McCann Erickson. "Now they are about 12-15 per cent."

"This April has been the worst month in many years for agencies," notes Sandeep Goyal, president, Rediffusion DY&R. "Two reasons for that. One, people are waiting for the Union budget which will have a significant impact on the sentiments in consumer makrets. Two, customers are for the first time in Independent India experiencing a downslide in prices. A lot of unthinkable things are happening: gold prices are falling, real estate is sliding, cars and television prices are crashing. As a result, the customer, for the first time, is realising that he has the powerful weapon of 'postponement' in his hands. So he's delaying purchases, sending marketers into a further tizzy to cut prices."

 The roles have got neatly reversed. Earlier, consumers were panicky of missing out on goods in short supply. Today marketers worry of inventory pile-ups and hence go out of their way with the help of promotions, schemes and freebies to woo customers. The balance of power has shifted to the customer's favour, and the customer knows it very well.

A quick look at the kind of advertising that is happening currently also confirms this. "There is a short-term approach evident everywhere," says Gopinath Menon, media director, Chaitra Leo Burnett. "There is no theme-based or brand-focused advertising happening. The only exception being BPL or maybe Philips but even that is a year old. Nobody is looking at the long term. There are only promotions and contests and schemes happening. People are looking at small tactical activity that will immediately drive up sales."

 "When did you last see a telecom ad?" asks Goyal. "The Ericssons, Motorolas and Nokias are limiting their advertising to tactical activity. There is no thematic advertising taking place. No advertisements happening for Complan, Boost, Bournvita or Maltova. No financial or corporate campaign for the last two or three years. No ads for banks except the 'we-are-open-seven-days' types. Or 'we-are-opening-anew-ATM'. Titan is not visible nor is MRF except for some cricket advertising. The only place where there's activity is Pepsi and Coke. But that's a competition-led category. If one advertises, the other is forced to spend."

Entire categories of advertising have dried up owing to different factors:

  •  Cellular service providers are not advertising because the concept-building stage is over. Everybody now knows how the cellphone can change their lives. There is no generic advertising needed. This has reduced the intensity of advertising.

  •  White goods are spending less because the market is down. Except for exchange schemes, nobody will spend a penny on anything, the only exceptions being BPL and Videocon.
  •  Tyres, lubricants and batteries are also spending less than before. Says Menon: "The Elf, Gulf, Mobil advertisements are today conspicuous by their absence. Exide has taken over Standard Batteries. In that sense, there's no competition left and hence no advertising. MRF would usually have a marketing spend of Rs 28-30 crore. Last year it was down to half."
  •  The ban on outdoor advertising in some metros has taken its toll. For instance, in Delhi, cellular service provider AirTel was spending Rs 2-2.5 crore on outdoor hoardings, and rival Essar another Rs 3 crore. Now these monies have got diverted elsewhere. This could add up to a loss of nearly Rs 50 crore per annum to the advertising community.

    But, says L.V. Krishnan, joint media director, Chaitra Leo Burnett, part of the slowdown is also psychological, rather than based on ground realities. "There is actually potential for growth. Figures clearly show that people's lifestyles have been upgrading. So someone is buying something or at least is interested. So it is for the marketer to tap that demand. Most people think that if the consumer is spending, then one should advertise. Actually, it is the other way round. One should advertise and induce consumer spending. And companies should give more value to the customer."

     Krishnan looks at the slump from a different angle and emphasises the need to make a key distinction between recession and lower growth rates. "People should not be talking about countering recession, but about getting higher growths," he says.

    To illustrate his contention, Krishnan cites the highly popular annual Sahara Cup cricket tournament between India and Pakistan in Toronto. In 1996, ESPN, which had the telecast rights for the one-day series, offered a 10-second spot during the match for Rs 15,000-20,000.The next year, in September 1997, the cost of 10-second spot had risen to Rs 45,000. But advertisers still flocked to them. "Banks and mutual funds are flush with funds and in general money is available in plenty," says Krishnan. "However, the mindset is such that since everybody is talking of recession, no one is ready to take a step forward."

    Rising media costs, in fact, have made the situation more complex. Earlier, points out Menon, one could launch a brand on television with a budget of Rs 1 crore. Not any more, by a long shot. And the failure rate for consumer product brands is 70 per cent to 80 per cent. The marketer is thus concentrating his advertising on a few high-viewership programmes. So, while on the one hand, advertising rates for most television programmes can be negotiated down to peanuts, at the other end, even Rs 50-60 lakh is not enough for an advertiser to get a good deal for an Indo-Pak cricket series on ESPN or on Star Sports.

    "Theoretically, there seems to be no dearth of advertisements on television," says Goyal. "Channels seem to be more full than before, but the question to ask is how many of them are paid and how many are bonus spots. On television, there is just no rate card. There is cut-throat discounting taking place. Moreover, since air time is perishable, there is a lot of free time being given as bonus."

    WITHIN the advertising industry, the slowdown has translated into squeezes on jobs and increments."In 1996-97, average increments in the industry were 35-40 per cent; in 1997-98, that is, March 1997, increments were about 25-30 per cent. But in 1998-99 it has been about 10-15 per cent," says Dharmarajan. "Recruitment plans have been curbed and the increments for existing employees have not been too fancy," adds Misquith. "In fact, a 35-40 per cent hike at senior levels would be glory, unlike a couple of years ago."

    "Earlier people in agencies could count on 25-30 per cent increment every year, because that's the rate at which business was growing. And the increment would be across the board," says Goyal. "Now with single-digit growth, only 10 per cent of those in functions critical to the agency would get big hikes; for the rest, increments may be stagnant. Agencies are also saying goodbye to a lot of staff."

     Currently, all eyes are on the Union budget on June 1. "Growth is now a function of the government," says Misquith. "If the government does something about the economy, advertising expenditure will also increase." In the coming months, the advertising industry could be treated as a barometer of how the government's economic policies are working. Advertising, after all, is the first expense to be cut when times turn bad.It is also the first expense to be added on when an upturn seems round the corner. Because in the final analysis, advertising is all about hope.

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