Srinivasan K Swamy
The advertising industry was hardly $1 million (at today’s exchange rate) about 60 years ago. About 20 years ago, the volume had gone up 40 times to $40 million, ie we added about a $ 1 million every year after our independence as advertising spends. The role of advertising was limited since the supply side was restricted by control and quota. Let us call this Advertising 1.0.
Over the next 20 years, that is as of today the volume has gone up 100 times to about $4 billion in conventional media. The base was low, yes, but there is no taking away the robust growth our industry enjoyed primarily after the initial seeds of liberalisation were sown by Rajiv Gandhi in the mid to late 1980s. India has witnessed a heady growth since the turn of this millennium. We not only saw growth in creative and media agencies but also speedier progress in digital, healthcare, promotions, events, activation etc. The industry matured with many specialists shops being set up to meet the growing demand of both marketing communication and marketing services kind. We also saw India take root as a force at the world’s most prominent advertising festival like the Cannes. Our agencies also did well at the New York Rx Club Awards shows meant for healthcare. We could call this era, Advertising 2.0.
Many experts have found a strong correlation between size of the economy and the share of advertising investments in it. The larger the economy, the proportion of advertising spends also increases dramatically. Our current advertising to GDP ratio is about 0.35%. In many western markets it is well over 1%. In the US, it is about 2.2%. In China, it is 0.8%. PriceWater- houseCoopers (PWC) estimates that the Indian subcontinent is poised to outdo China in media and entertainment spends by 2012. China, predicts PWC, will show a media-spend growth rate of 15% within the next four years, whereas India is forecast to reach 19%. Because of the great growth opportunities, many multinational agencies took to India seriously and today, virtually every advertising company that is somebody elsewhere is here.
The major holding companies of the world—WPP, Publicis, Interpublic and Omnicom—have a India-specific strategy since they all have to manage ‘Wall Street’ expectations on this important developing market. There are also many smaller ones, with differentiated offering who have set up shops or have shown their keenness to do so.
Both quantitatively and qualitatively, therefore, India is in for heady times. Our economy is robust and only 22% of it is export dependent. Our products and services principally serve the local market. And the western market needs our low-cost service inputs to bring their economies on their feet, albeit at highly competitive terms. Therein lies the challenge and the opportunity and Indian business is confident of seizing the opportunity. Be that as it may, the advertising industry will be affected by this economic downturn. There will be some corrections required.
There is some fat that has been added to the system and times like these will help us shed them. Further, the advertisers require a different kind of service to address their immediate needs. They are looking for help that not only generates sales leads but one that can help close the sale. This is where marketing services industry would have a significant role to play.
In the USA, according to Advertising Age, the total spend in marketing communications was of the order of $31billion in 2007. Of this, advertising and media spends were of the order of $ 16.4 billion and spends on marketing services—direct marketing, promotions, digital, healthcare and public relations—accounted for the balance $14.6 billion. The ratio was 53:47 between above-the-line (ATL) and below-the-line (BTL) advertising.
While we don’t have hard estimates on BTL activities, it is generally believed that it is about 25% of the total marketing communications spending. The growth we saw in the ATL advertising since 2000 is likely to soften. From the highs of 15-20% growth we witnessed since the start of the millennium, we are likely to witness a modest 5% to 7% growth in the year 2009 and probably 2010. The growth in BTL was quite impressive in the preceding periods, but this is unlikely to be significantly affected in the next couple of years. BTL, particularly events and activation, digital/interactive media, promotions etc promote immediacy in sales and companies are likely to embrace such processes, rather than brand related advertising. Over the next few years, India is likely to match the relative (53:47) USA market spends of ATL and BTL.
Agency groups that have seen the potential and started these specialised BTL units are likely to do well. Digital/interactive, customer relationship management, direct response advertising, events, activation, sales promotion are some of the units that will be in demand in 2009 and 2010 and once the advertiser gets used to this efficiency, he will continue to use them to good effect when good times return.
The industry better brace itself to welcome Advertising 3.0. You cannot wish that away any more.
The author ischairman and managing director, RK SWAMY BBDO