Mktg - Dealing with the slowdown

It’s a bit of a chicken-and-egg situation,” says Charles Carneiro, Head (Marketing and Corporate Communications) of the Bird Group (India), the travel and IT company. Like all wise old sayings it is true again — in the face of an expectation of a slowdown, companies could reconsider their advertising and promotional spends and strategy.
According to media buyers, some already are. It is too early to back it with numbers, but over the next few weeks the forecasts are likely to be generated. “Figures from sales and retail outlets have just started to come in, the impact at the consumer end and on his budget will determine much of the strategy for marketers,” says Punitha Arumugam, CEO, Madison Media Group. “It’s only natural that the first two quarters have been exultant and positive. But we could anticipate problems in the future, it’s too early to say yet. The impact of inflation will be visible between July and December,” she says.
Starcom is already planning to conduct a seminar on the impact of an overall slowdown in a week or two. According to Nikhil Rangnekar, Executive Director (India-West) Starcom Worldwide, the impact has not been felt yet in all categories, but airlines and financial services may be already tightening budgets. “Financials have been impacted by the economy and the market. Today, most financial products are unit-linked,” explains Rangnekar.
Airlines under pressure are also redesigning their plans. “After all, they have to advertise to fill their seats. But while tactical and promotional advertising will be continued, brand advertising may take a hit, and probably already has. That’s why you are seeing fewer hoardings; brand advertising in speciality magazines could also go,” says Carneiro. That shift would be more visible for international airlines which reserve anywhere between 40 and 50 per cent of their ad spends for brand building; Kingfisher and Jet spend 20-30 per cent on branding while other domestic airlines concentrate primarily on tactical advertising. Full page ads could thus shrink to strips. “It’s difficult to gauge how much an airline would save but if you mark ad spends between 2 and 5 per cent of the cost, even a 50 per cent saving works out to two per cent of costs,” says Carneiro.
In an effort to increase revenues, airlines will also look at their registrations and use their database of both frequent fliers and others for marketing. The category being a lucrative one and attracting more visibility, used to get better deals from print media, but those could also be renegotiated in the near future. “Clients are certainly taking more time to design their strategies. I would describe the attitude as that of cautious optimism,” says Gowthaman Ragothaman, Managing Director, MindShare.
“The Indian Premier League (IPL) added an inflationary spike to television rates, at the same time advertisers on general entertainment channels during the IPL tournament ended up paying more money for a smaller audience, or higher Cost Per Rating Point. Some of that has come down, but we will still have to wait to see what clients do,” says Ragothaman. Considering that the third quarter of the financial coincides with the festive season which always sees high spends, advertisers could choose to control spends this current quarter, he predicts.
Some in the industry say rates on general entertainment channels (GECs), on an average, have been stagnant or have been rationalised recently. On the contrary, says Kevin Vaz, ad sales head for Star Network, television is doing very well. “I see no slowdown, advertising and sales have been growing at a double digit rate benefiting from both better rates and big properties,” he says “Those in the lead space are hardly likely to suffer, it is those at the bottom of the pyramid who should have something to worry about. Because when ad spends are reconsidered, advertisers will continue to stick with the leaders for maximum coverage but tighten the spends on others,” explains Madison’s Arumugam.
“You could also see some kind of shift, maybe to the digital platform, it is more effective and accountable,” says Rangnekar. Advertising rates on newspapers burdened by rising costs are set to go up by as much as 40 per cent for some publications. Return on investment on television is also becoming expensive. Rates may not be climbing as dramatically but there is much greater fragmentation, says Rangnekar. Star’s Vaz says the network’s inventory is still running 95 per cent full and points out that the GEC category itself has grown. With the recent entrants it is now getting 1,100 Gross Rating Points (GRPs) from an earlier 800-900 (GRPs). In terms of share of viewership, GECs now account for 36 per cent of total viewership from 30 per cent earlier.
Star’s owner News Corp, meanwhile, has been affected as everyone else from the same advertising slowdown that has overcome the media industry in North America. Rupert Murdoch, News Corp’s chief executive, anticipates an increasingly difficult economic environment, but also bets on the long-term outlook of the media and advertising for Asia. “There has been a sharp drop in above-the-line spends in the US. The trend has not been the same for digital,” says Vijay Singh, Managing Director, 141 Sercon. In India too marketers are turning to below-the-line, where you can quantify return on investment more easily and accurately. “It’s also more effective in customer retention which costs one-fifth of what it would to acquire a new customer,” says Singh. It works extremely well for FMCG players for whom last-mile conversion is very important. “Across sectors, brands are looking more and more at below-the-line activities. It’s very visible for consumer durables, and now even telecom, one of the hottest and fastest categories, is switching to below-the-line,” he adds.
FMCG companies that have undertaken price increases will also have to support them with advertising, predict some planners. Despite cost constraints, and an advertising spend that was flat this quarter vis-a-vis the same quarter last year, Dabur India has plans to renovate and repackage some of its products giving it a shot of vigour. The company’s advertising and promotional budget is up from last year to 14 per cent of sales this year.
HUL during its latest quarter has increased A&P spends by 30.5 per cent. Compared to the ad spend of 9.7 per cent of sales last year, this quarter ending June it stood at 10.4 per cent of net sales. The company, in spite of steep escalation in costs, continues to make brand investments in new categories. And why not, asks Vodafone’s Chief Marketting Officer Harit Nagpal. “Why are marketing spends the first thing to be cut every time there is recessionary scare, are they luxuries or frivolous exercises?” questions Nagpal. In fact, if anything, it should be most relevant now so that you can generate better top line. It’s also not about the spend but the efficacy of the spend,” he adds.