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Firms use advertising to ride out slowdown

Firms use advertising to ride out slowdown
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First Published: Mon, Aug 04 2008. 12 35 AM IST

Updated: Mon, Aug 04 2008. 12 35 AM IST
New Delhi: Consumer product makers, both local and multinational, generously boosted their spending on advertising in the last quarter, splurging on brand promotions to convince Indian consumers to open up their own wallets in the face of rising inflation.
The unexpected spending increases on advertising and promotions came during a quarter when spiralling food and fuel prices, slumping financial markets and rising interest rates cast gloom on Asia’s third largest economy, forcing companies to cut other costs. Spending was driven partly by the need to prevent customers from switching over to cheaper products.
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“In times of downturn, ad spends are the first to be axed. But, this time, because of increased competition, firms don’t want to lose their consumers to rivals,” said Anand Shah, analyst at Mumbai-based brokerage Angel Broking Ltd. “Also, with inflation and interest rates going up, firms were fearing consumers might trade their favourite brands with cheaper products. To prevent such eventuality, companies upped their spends to keep their connect with consumers intact.”
It remains unclear if the continued high inflation and actions taken by the central bank to force banks to hike their lending rates, coupled with sharp downswings in the stock markets, will result in consumer product firms continuing to boost spending to prop up demand. Data for the current quarter won’t be available for a while.
Meanwhile, as for the quarter ended 30 June, Godrej Consumer Products Ltd, or GCPL, which makes Cinthol soap, Godrej hair dye and dishwashing liquid, spent Rs34 crore on advertising in three months, 62% up from Rs21 crore a year earlier.
“In percentage terms, we spent 10% of our consolidated net sales on media this year against 6% last year,” said H.K. Press, executive director and president at the company.
Marico Ltd, which markets Parachute coconut hair oil, Saffola cooking oil and other consumer products, increased spending on advertising by 40% to Rs71.5 crore during the three months ended 30 June from a year earlier.
Hindustan Unilever Ltd, or HUL, India’s biggest consumer products maker by sales, and whose brands include Lux and Lifebuoy soaps, Surf and Rin detergents, Close-Up and Pepsodent toothpastes and Lakme cosmetics, spent Rs438 crore on advertising and promotions, a 30% increase.
Emami Ltd, the maker of Navratna hair oil, increased its advertising expenditure by 28% to Rs32 crore in the June quarter. Dabur India Ltd, which makes Hajmola candy and nutritional supplement Dabur Chyawanprash, among other products, hiked its brand promotion budget to 13.3% of sales, from 13% a year ago.
Largest TV advertisers
“We thought other companies would be going slow on advertising because of the current market challenges and, hence, it will be a good time for us to reach out to consumers,” said Aditya Agarwal, director, Emami, who, it turns out, had guessed wrong.
Consumer product makers were the largest advertisers on television in the June quarter. According to a study by TAM Adex, a division of Mumbai-based television audience measurement agency that tracks advertising spending, consumer products such as toilet soaps, shampoos and toothpastes were among the most advertised categories on television.
Eight of the top 10 advertisers were consumer product firms, including HUL, Reckitt Benckiser Plc., ITC Ltd, Colgate-Palmolive Co. and the Indian units of beverage makers Coca-Cola Co. and PepsiCo Inc.
Henkel India Ltd, the maker of Henko and Chek detergents, which will soon announce its results for the quarter ended 30 June, said it had spent more on advertising, without disclosing by how much. “Despite all the cost cutting, we have not cut down on advertising expenses. Instead, we increased our focus on out-of-home media this year,” said Satish Kumar, managing director.
Raw material prices
The increases in advertising spending came at a time when the prices of raw materials used in the manufacturing of most consumer products had risen. According to market estimates, prices of copra, palm oil, sunflower oil and crude oil have risen by 20-30% in the past six months.
Increasing competition for consumer rupees and the lau-nch of new products spurred promotional spending. GCPL, for instance, relaunched its flagship soap brand Cinthol, HUL expanded the range of its skin care product Ponds Age Miracle, Dabur rolled out its hard-surface cleaner Dazzl and mosquito repellent Odomos in a new spray format.
“The relaunch of Cinthol was followed with aggressive ad campaigns. Increase in spends was essential not only to catch consumer attention for new products but to retain our market share in the existing categories as well,” said Press.
The increased spending on advertising paid off. Despite the challenging market conditions, most consumer product makers posted impressive growth in the June quarter. HUL’s net profit rose 19.6% from a year earlier and sales were up 21%. Marico’s revenues and net profit grew 28% and 15%, respectively. GCPL’s revenue jumped 26%, although profit was up just 1%. At Dabur, revenue and net profit grew 12.2% and 25%, respectively.
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First Published: Mon, Aug 04 2008. 12 35 AM IST
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