Jul 4, 2008

Marketing-Will marketers remain buoyant?

The test is round the corner.Inflation has touched double digits for the first time after over a decade — actually after 1995. It has climbed steeply from under 5 per cent in November 2006, to now over 11 per cent in June this year, and its effects are being seen all around. Rice that cost Rs 20 per kg a year ago is today priced at Rs 27. A weekly vegetable basket that cost Rs 100 last year this time costs Rs 160 today . The government and the RBI are doing their bit to try and combat inflation at the economy level — managing CCR, controlling credit by increasing lending rates, etc. However, the sagacious Indian housewife has her own way of managing the household budget in this age of rising prices. She is unlikely to reduce her savings and indulge in the short term, hoping to make it up later in the long term — despite the general belief that Indians are getting instant-gratification oriented. She will use one of three distinct tactics: 1. Abstinence for products that she can do without for some time 2. Postponing purchase of products that she can do without immediately, waiting for a ‘better' day — like consumer durables and automobiles. The former is already seeing a slow down 3. Trading down in categories that are daily necessities, where she can compromise a bit on quality or imagery for a better price. This could take the form of moving to lower-priced brands in the same category or moving down to unbranded stuff in others, or just reducing the amount consumed. Consumer markets are bound to feel the heat. Life will not be business as usual in the future. How will marketers react in such an environment? An Institute of Practitioners in Advertising (IPA) paper released in March this year analysed data across developed markets and established the following: 1. Cutting down on budgets will only help defend profits in the very short term 2. Ultimately the brand will emerge from the downturn weaker and much less profitable 3. It is better to maintain share of voice (SOV) at or above share of market (SOM) during a downturn; the longer-term improvement in profitability is likely to greatly outweigh the short-term reduction 4. If other brands are cutting budgets, the long-term benefits of maintaining SOV at or above SOM will be much greater. In fact, the paper went ahead to say that categories that are more price-driven and where brands carry less importance to consumer choice (motor fuel, mineral water, apparel), are more susceptible than branded categories (luxury cars, financial services and fragrances). Finally, the buzz (and in India, perhaps, retail push) depends on advertising. So depending on buzz as a low-cost method to keep the brand going is not possible. Are these principles applicable to India — a developing market where categories and brands are developing and where the market structure is less homogeneous? That's an interesting question. India's market structure has changed dramatically since the mid-90s, the last time we saw such a high inflation. There are more price segments in each category today and there is a combination of multinational, national and local players in the market, giving consumers a choice to recaliberate the products they buy and bringing a different marketing perspective in to play. The optimism and buoyancy of 2007 continued in the first half of 2008, but this may not be the same as we move forward in the second half and beyond. Today, an optimism remains that a good monsoon will make this rising inflation seem like a passing phase; interestingly it is timed in a generally low ‘marketing activity' period — the monsoons. However multinationals who are historically bottomline-minded will wait and watch to see how the second half pans out. If toplines don't come in, they are likely to reduce spends. Marketers who have a portfolio of offerings are likely to re-jig their spends either at the top end targetted at the upper-income segments that are less likely to be price sensitive or support their lower-end products to make the most of downgradation. The middle market is most likely to see a squeeze. Much as marketers see advertising as a brand building investment, the reality is that investments are made only when immediate returns are looking good — advertising is measured by both short-term and long-term metrics. The joker in the pack is the Indian entrepreneur. Unlike the 1990s, when their presence and hence impact was limited, today the advertising market is driven by many such advertisers whose outlook in spending is different. Indian entrepreneurs have driven the advertising market in many emerging sectors like retail, telecom and real estate. Some are top-line driven and could see this as an opportunity to gain market share by aggressively promoting their products and brands. Some large Indian conglomerates have fairly diversified portfolios that can provide them cushions from divisions that are under direct pressure due to slowing consumer markets. There are others who advertise and brand-build not so much for immediate or long term consumer sales, but for building market-capitalisation value. If these marketers continue to look at the market aggressively, the disturbance could be much less. What challenges do advertising agencies face? Again, since the mid 1990s, there has been a change in agency remuneration structures — moving from commissions to fees, thus insulating themselves from the vagaries posed by depending on client media-spends. Hopefully, it will stand them in good stead, at least in the short run. However, if this situation persists, there will be a need for agencies to focus on more result-oriented communication and more cost-effective media, like digital and retail, that can bring immediate returns. It may be an opportunity for agencies to develop and evaluate mixed targetting at ‘innovators' in the market to drive change — this could be more effective than carpet bombing, the norm in good times. The larger issue of the inflation and economic slowdown is the real test of India's optimism and buoyancy. It is very easy for businesses and marketers to be upbeat when the consumer is gung ho. The real challenge is when the market goes down and the consumer isn't as positive. Will marketers retain that optimism and drive the market or will they ride on consumer sentiment and slow down? Only time will tell. Something worth thinking about.

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