Marketers and advertising agencies are coming up with different strategies to cope with double-digit inflation and the economic slowdown. Players in the top spending categories—such as fast moving consumer goods (FMCG), telecom, insurance, consumer durables and financial services—are on a communication overdrive to combat rising prices. In most other categories, firms are cutting down and reallocating spends from mainstream media to other platforms, such as outdoor and digital media, to get more value for money.
That spells trouble for the advertising industry. In the past few years, it has made for a phenomenal success story, growing at 22% year-on-year and bringing in business of Rs19,600 crore, as of last year. But advertising professionals estimate next year’s growth rate may fall to 18%. “It looks like a bleak 2009 as many of our clients are already looking at advertising as an expense rather than an investment,” says Gullu Sen, vice-chairman and chief creative officer of Dentsu India, the Indian arm of Japanese advertising agency Dentsu Inc.
Rajesh Aggarwal, president, Dentsu India
Before the slowdown, a study by Zenith Optimedia Pvt. Ltd, the media agency of Publicis Groupe, had ranked India’s advertising industry among the Top 10 markets in terms of global advertising revenue between 2007 and 2010. “It has been a dream run for the advertising industry these past two years, but now it is going to get a lot more real for both clients and agencies,” says Rajesh Aggarwal, president, Dentsu India.
This, then, is the time when the strength of a brand is tested and consumer loyalty becomes extremely?important. And the big spenders are wasting little time in launching products, promotions and campaigns to woo consumers.
“Several companies, big and small, are cutting back on advertising because their budgets are limited or their service is not in demand but, unless it is a complete economic collapse, top advertisers will continue to spend because they want to be present at a time when the competition is at bay—and they can afford it,” says Prathap Suthan, national creative director at Cheil Communications.
Korean consumer durables giant Samsung India Electronics Ltd has strengthened advertising initiatives across product segments. “When the consumer sentiment is down, we have to find ways to connect with them better and advertising rights let you do that,” says Ravinder Zutshi, deputy managing director, Samsung India. To address inflation, the company has rolled out special schemes on select models of air conditioners that can be purchased on a down payment of Re1 and an interest-free instalment plan.
Ravinder Zutshi, deputy managing director, Samsung India (Photo by: Harikrishna Katragadda/ Mint)
LG Electronics India Pvt. Ltd and Mirc Electronics Ltd, which owns the Onida brand, are also tweaking consumer finance schemes to offer better value to consumers.
Change in strategy
If advertisements on initial public offerings and investment opportunities are the staple during boom time, communications on prudent investments gain prominence during a slowdown. The financial services sector has begun to divert communication from its product offerings to awareness campaigns that educate consumers on how the economic downturn could affect them personally, and the benefits of investing at such a time.
Companies such as UTI Asset Management Co. Pvt. Ltd, DBS Cholamandalam Asset Management Ltd and ING Vysya Life Insurance Co. Ltd have rolled out promotions on systematic investment plans and awareness campaigns through direct mailers and on-ground activities such as investor and distributor meetings.
“We are selling our service by highlighting the fact that insurance is a long-term investment, but the economic downturn is immediate,” says Amit Gupta, director of marketing and communications at ING Vysya. The company claims to have increased its ad spend by 50% this year.
“Advertisers are facing what I call a ‘squirrel syndrome’, where they know winter is coming so they start taking steps to be prepared,” says Aggarwal.
In sectors such as telecom, beverages and FMCG, where the competition is cut-throat, rising production and operating costs only provoke further spends. “Leading brands such as Unilever, Godrej, Colgate and GlaxoSmithKline are increasing their spends by close to Rs1 crore to address the slowdown in the economy,” says Anand Shah, research analyst, FMCG and media, Angel Broking, a Mumbai-based brokerage firm. “When a slowdown occurs, FMCG companies get more aggressive about growing leadership.”
Prathap Suthan national creative director, Cheil Communications (Photo by: Hindustan Times Archive)
Says Harit Nagpal, marketing director, Vodafone Group Plc., “The telecom sector is highly competitive and prices have been going down anyway, so advertising continues to grow.”
Similarly, handset maker Nokia India Pvt. Ltd, one of the leading advertisers in India, is also increasing spends to coincide with a slew of product launches planned for this year. “We have news to communicate, and our advertising campaigns will continue to get stronger,” says Devinder Kishore, director, marketing, Nokia. The firm is also stepping up ad spends in the online space to target youth, Kishore adds.
“Business is down but needs are not, and big players will capitalize on these needs,” says Hemant Mishra, president and chief operating officer, Publicis India Communications Pvt. Ltd.
Coca-Cola India and PepsiCo India Holdings Pvt. Ltd have just rounded up their summer campaigns, and are already planning for the festive season that begins in three months. “The cola category is not constrained by budgets. In fact, ad spends will increase because operational costs and advertising rates on television and print will rise further,” says an industry expert who did not want to be identified. The two companies declined comment on specific advertising spends, but claimed innovation in marketing will be apparent.
“While we have recently launched a slew of imaginative and differentiated advertising campaigns, we have simultaneously been leveraging the power of new media such as the Internet and mobiles for developing a closer connect with our consumers,” says Punita Lal, executive director marketing, PepsiCo India.
Like PepsiCo and Nokia, several companies are strengthening their focus on the digital space, a platform that industry experts feel is likely to benefit significantly because of the slowdown.
“Digital is seen as an innovative as well as a highly accountable medium, it stands to rise in prominence in the overall communication mix. It will also gain because the absolute investments required in digital are significantly lower than in other media,” says Ravi Kiran, chief executive, South Asia, Starcom MediaVest Group. He says the online media is worth around Rs600 crore and has been growing at more than 40% year-on-year for the last seven years, while the mobile advertising segment, estimated to be no more than Rs50 crore, is showing a rapid growth of 25-30% each year.
Kiran adds: “Digital, when used in conjunction with other media, can deliver higher productivity since, more often than not, digital helps deliver consumer intent in some categories with a sharpness that is difficult to find elsewhere.” Kiran claims that Starcom’s digital arm, Starcom IP, has shown robust growth in operations across Asia over the last year, doubling its talent strength.
Even online gaming portal Zapak Digital Entertainment Ltd, part of the Reliance Anil Dhirubhai Ambani Group, is seeing a surge in advertising on its website. “It is boom time for us as advertisers shift from traditional media such as TV and print to more cost-effective options such as digital platforms,” says Arun Mehra, chief marketing officer, Zapak. “In the past few months, our list of advertisers has increased by 50%.”
Real estate developer Unitech Ltd is also shifting spends to on-ground, rather than traditional, media. “We have had major campaigns running on TV and in print, but now our focus is on events and activities as they are cost-effective and have mass appeal,” says Bhaskar Basu, vice-president, sales and marketing, Unitech.
For companies on the other side of the fence, where budgets are tighter and operational costs are going up, advertising has taken a back seat for the moment.
After taking a hit in business due to spiralling fuel prices, travel portal MakeMyTrip India Pvt. Ltd, which had begun to advertise regularly on television and in print, has cut back on advertising spends in this space by nearly 90%. “We have cut down spends by 80-90% in the offline space and reallocated resources to select websites that in the past has enabled traffic,” says Keyur Joshi, chief operating officer, MakeMyTrip.com. To woo customers, it is offering special baggage allowances to students and tying up with hotels to offer discounted travel packages.
Software firms Hewlett-Packard India Pvt. Ltd and Microsoft India Pvt. Ltd have already reduced ad spends by one-third of their 2007 budgets, according to a senior executive involved with the advertising campaigns of the two firms, who declined to be named. “There have been severe delays in allocation of budgets from multinational companies because, at a regional level, they are undecided,” he says.
Salaries will take a hit
Those within the industry may have to brace for a hit, too. According to Aggarwal, the unprecedented growth of the advertising industry had led to salary hikes, heavy churn, and a competitive client base—all this is likely to decelerate now. “There is this huge optimism in the industry and, on the other hand, there is an economic slowdown—ad agencies have a lot of getting used to (do) now as salary hikes will come down and so will opportunities.”
Emmanuel Upputuru, national creative director, Publicis India (Photo by: Madhu Kapparath/Mint )
“As salaries drop, the search of talent in this field is likely to get harder,” says Mishra.
On the positive side, Emmanuel Upputuru, national creative director, Publicis India, says the quality of advertising may actually look up. “Budgets have been getting fatter, but the creativity level has remained more or less the same. With tighter budgets, it may result in greater creativity and innovation in communication for the industry,” he says.
This, in turn, could spur more result-oriented communication and niche advertising.
The next issue of Campaign will focus on what the economic slowdown means for the media industry, the consumer goods sector and private equity players.