Media buying experts have noted that the auto industry, which has suffered the worst decline in sales in the last 20 years, has had to cut down on ad spend during the first half of the year.
By Venkata Susmita Biswas
Prompted by the economic slowdown and low demand from consumers, India Inc has hit the pause button on advertising activities. The Pitch Madison Advertising Outlook Report 2019 has already downgraded its advertising expenditure forecast for the year from 16.4% to 13.4%.
Media buying experts have noted that the auto industry, which has suffered the worst decline in sales in the last 20 years, has had to cut down on ad spend during the first half of the year. The liquidity crisis in the non-banking financial companies sector, too, has hit ad spend from the BFSI sector.
According to Sam Balsara, chairman, Madison World, advertising spends from the auto and NBFC sectors have de-grown by about 10% in the first half of 2019 compared with 2018. The auto industry is the second-largest contributor to the advertising industry, after FMCGs. Last year, automotive manufacturers spent Rs 4,755 crore on advertising while the BFSI sector contributed Rs 1,478 crore to the advertising industry.
“The months of June and July 2019 have been one of the worst months for the television and print industries, in terms of advertising revenue,” says Vineet Sodhani, CEO, Spatial Access.
According to a television ad sales executive, some Indian auto companies have withdrawn campaigns and one manufacturer has cancelled plans to launch a new model for now.
Advertising budgets are typically the first to take a beating when the going gets tough. “Marketers tend to err on the side of caution when faced with uncertainty,” says Ajay Kakar, CMO, Aditya Birla Capital. Around 2016 and 2017, demonetisation and the implementation of the GST regime led companies to clamp down on ad spend. The industry saw a revival in 2018 after two consecutive years of low growth, achieving 14.6% growth and witnessing a total ad spend of around Rs 60,908 crore.
The implementation of Trai’s New Tariff Order (NTO) also negatively impacted ad spends this year. As per the Pitch Madison report, the chaos in the television industry has resulted in degrowth of 5% in television adex for the first time in many quarters.
At the beginning of the year, industry experts were bullish about 2019 whose first half was filled with marquee events such as the Vivo IPL, ICC World Cup and general elections. Since advertisers spent their big bucks on these events, they are not left with huge budgets for the remainder of the year. The government, too, did not contribute to large ad spend in the first half of the year becuase of the elections. Sodhani expressed hope that government spending will bounce back since new policies have been announced.
Now that demand for advertising is slowing down, broadcasters who are under pressure are said to be wooing marketers with offers. “Most broadcasters take a long-term perspective and prefer not to slash rates, knowing that they will find it hard to increase rates later on. Instead, at these times they are likely to offer limited period ‘special packages’,” says Kakar.
As per a Refinitiv study, more than 60% of 125 firms that report quarterly earnings have missed their profit forecasts for Q1. FMCG company Hindustan Unilever, whose volume sales grew by just 4% in the first quarter, said “near-term demand will remain subdued given macro-economic conditions”.
Despite weak demand, Parle Products is aggressive about advertising during this season because there is less clutter on air. BS Krishnarao, senior category head – marketing, Parle Products, said his competitors are mostly absent on television and some FMCG companies are focussing on offer-based marketing initiatives instead of the expensive ATL (above the line) medium.
Weak consumer sentiment can potentially harm ad spend over the next two quarters. Traditionally, the second half of the year witnesses higher advertising spend from brands on account of festivals such as Navratri, Diwali and Christmas. As much as 35-40% of annual ad spend occurs during the festive season.
Anand Bhadkamkar, chief operating officer, Dentsu Aegis Network, India, expects sentiment to improve as the festive season approaches and the government infuses the economy with growth stimulus. Sodhani says that because of the current hiatus on spending, brands should be able to put up a better show during the upcoming festive season. Handset manufacturers and e-commerce players that have been making a splash with advertising will continue to be among the big spenders during the festive season in addition to a few auto manufacturers like Kia Motors that are expected to launch new models soon.