Advertisement budget of India’s Inc. for brand promotion have reportedly been curtailed by nearly 40-45% in fiscal 2011-12 due to high cost of credit, increased raw material prices, hike in interest rate, weak demand in domestic and export market, poor infrastructure etc, reveals the survey undertaken by Industry body ASSOCHAM.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) survey on “Ad Budget of Corporate India for 11-12” has highlighted that a vast majority of corporates in private sector have reduced their budgets by over 50%. The Banking, telecom, financial Services and Insurance sector, which accounts for major share of ad expenditure in India, have reduced its spending in the quarter ended March 31, 2012. Even the government has also minimized its spending on advertisements.
The most impacted sectors are newspaper, magazines and visual sectors especially the less popular dailies, magazines and channels. Though the newspaper and TV Channels are officially not reducing the ad rates yet heavy discounts are being offered to the advertisers, adds the survey.
“The subsequent increase in interest rate adversely affected industry as its cost of borrowings increased, investments dried up and profit margins took a hit. The subsequent rise of interest rates seemed to have hurted the industry more (as their costs of borrowings increased) than it helped in bringing down the rise in prices. The overall inflation for the year 2011-12 stood at 10.7 per cent against the 9.6 per cent growth seen in 2010-11, said Mr. D S Rawat, Secretary General, ASSOCHAM.
Nearly 500 companies in large and medium segment that participated in the Internal Assessment Exercise of ASSOCHAM held in last 25 days of June 2012 at Delhi, Mumbai, Chennai, Hyderabad, Bangalore, Pune, Kolkata, Ahemdabad and Chandigarh, around 370 participants said that for the quarter ended March 31, 2012, the advertising expenses declined by 40-45 per cent in rupee terms on a year-on-year basis.
At each place, over 55 executives shared their experience held under aegis of ASSOCHAM with representation from corporates in areas of Fast Moving Consumer Goods (FMCG), Home and Electronic Appliances, Real Estate, Textiles, Gems & Jewellery, Oil and gas and Luxury Products.
Releasing the ASSOCHAM assessment, its Secretary General, Mr. Rawat said that not only private sector ad and entertainment budget is shrink by 40-45% in entire fiscal 11-12 but the situation would more or less remain likewise in public sector, especially in its Scheduled B, C, D category companies.
According to ASSOCHAM, in automobile and FMCG sector, corporates during boom time would spend 15-20% of their total earnings by releasing advertisements through all available modes such as electronics, print and periodicals/publications in vernacular also.
The survey further reveals that big companies are cutting back on big brand advertising campaigns and focusing on “quick win” sales promotions such as coupons and point of sale discount promotions to win over cash-strapped consumers.
Mr. Rawat also said that both television and radio networks—are staring at tougher times as advertisers cut back on budgets for brand marketing and promotions in the face of deepening economic gloom.
The situation is so bad that despite electronic and print media have already curtailed their ad cost by nearly 25-30% with luring offers for heavier discounts, corporate earnings declined so much in 2011-12 that majority of them are still dithering to fix allocations for ad and entertainment.
This has happened because annual earnings of corporates are shrinking as there is hardly any demand as a result of which manufacturing is under severe constraints, even though input costs have fallen down. This has resulted in shrinkage of demand, which is happening because there is no liquidity in the market and buyer’s purchasing power has come under severe pressures, said Mr. Rawat.
One of the reasons as to why cost cutting in corporate world is taking place not only in ad, entertainment and administrative front but also their charitable activities are restricted for want of funds but the consensus in most of corporate houses is that employees are not hurt.