IIPM’s 36th Glorious Year of Academic Excellence
A similar story unfolds for India; albeit with a few differences. Given that Wall Street has sneezed and expectedly even the Indian economy has caught the proverbial cold, sales momentums have turned sluggish post January 2008. Predictably sectors like auto, consumer durables, real estate and financial services have been the most affected by the economic slowdown and many have consequently also reduced their ad spends, some by as much as 40%.
TVS has cut down on its ad expenses by 35%, while Mahindra & Mahindra has reduced by 6%; Videocon and Omaxe have brought down their ad expenses by 9.3% and 21.65% respectively. Others that have not reduced their advertising onslaught, instead upped it in the time of crisis are not faring much better either. Maruti Suzuki accelerated its ad expenses in FY08 by 10% over FY07, but its ad expenditure to sales ratio over the same period has come down by 9.66%. The same ratio for Mahindra, TVS, Videocon and Omaxe has come down by 18.24%, 22.12%, 20.79% and a whopping 58.80% respectively.
Given the tragic chain of events, even the ongoing festive season gives little reason to cheer. Reason? Most companies are already lagging behind in achieving their annual sales and revenue targets. The festival season is the only chance now before year closing that they can hope to achieve a semblance of respectability for their balance sheets.
But, it’s also a catch-22 situation. If despite high input costs, lower margins and the recent increase in ad rates, they continue with their advertising blitz as planned at the beginning of the year, they would literally be playing a gamble with their monies, given that consumers may still not buy due to inflation, high interest rates and exchange rates differentials. On the other hand, if they don’t advertise as planned, they will lose out on even the little chance of dragging up their targets. Marketers would therefore possibly be spending many additional hours closeted in their board rooms, scratching their heads over ways to balance their ad spends vis-à-vis sales (revenue) potential.
For the consumer durable sector specifically, the going is becoming increasingly tough. After all, every year more than a third of their sales happen during the festive season (October-December) and this festive season, the outlook is anything but rosy. Admits V. Ramachandran, Director (Marketing & Sales), LG Electronics India, “Profitability is hit for most of the sector. As far as LG is concerned, we’ve already crossed our budget of Rs.100 crore and will continue to increase our advertising expenses to tide over these tough times.” To make up for the fast-sinking revenues, LG (just as Samsung, Philips, et al) has decided to do away with the traditional marketing gimmicks, like discount and gifts, during this festival season. Clearly, while reallocation of assets is being done, companies will necessarily have to continue advertising to remain in the popular mindset during and after slowdown.
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Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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