ASSOCHAM
ECO
PULSE
September 2007
Advertising Spend Among the Sectors
Swati Gupta
Advertising buzzword among real estates and telecom companies: ASSOCHAM
The ad spend proportionate to sales, by fast rising real estate and telecom has grown the most among a host of sectors, says ASSOCHAM Eco Pulse (AEP) Study.
The real estates including construction and telecom firms increase their advertising budgets as a ratio of their sales by an annual 36 per cent and 21 per cent between FY2000 and FY 2006, the Study revealed.
Interestingly, these sectors, thanks to their aggressive selling, went on increasing their ad spend much more than the conventionally high spending FMCG Industry. The FMCG firms, which used to be fervent advertisers in the past, have marginally hiked their ad budget by 2 per cent.
The next big spenders after real estates and telecom are white goods manufacturers especially air conditioners & refrigerators, liquor and passenger & multi-utility vehicles companies. The maximum rise among these was accounted by white goods producers with 20 per cent increase, followed by growth of 10 per cent in liquor industry and 9.5 per cent in passenger car companies.
“With services becoming driver of the Indian economy, advertising which spreads consumer awareness has made an important contribution to the growth in some of the dynamic sectors like real estates and telecommunications”, said Mr. Venugopal Dhoot, President, ASSOCHAM.
While the Indian real estates market is growing at 30 per cent, construction sector has grown at a staggering rate of 16.6 per cent in first quarter of the current fiscal as compared to 15.6 per cent in corresponding period of previous year. Average growth of the sector over the period FY2000-01 to FY2006-07 at 9.9 per cent has surpassed manufacturing and service sector growth as a whole at 7 per cent and 8.6 per cent. Rising income levels, bulging middle class, rapid urbanization, emerging cities has led to sharp rise in demand for housing properties in India and has thus boosted the advertising needs of the construction and real estates companies.
The growth in advertising spend of these companies has surpassed the marketing as well as total expenses which were averaging to 6 per cent and 12.8 per cent. The advertising expenses of the construction sector have increased from being 0.1 per cent of sales in the financial year 2000 to 0.2 per cent in fiscal 2006, registering 36 per cent rise. The 233 companies used for the study witnessed average 16 per cent jump in their sales and total income during the seven years.
Telecom sector is growing fast as it is adding total mobile subscribers at a record rate of average 46 per cent per month as the total telephone subscriber base reached 225.2 million with 136 million GSM mobile users and 49.1 million CDMA users. Intense competition and huge growing youth population as target customers for the telecom companies is leading to rising advertisement and marketing expenses by them. The advertising expenses in the telecom sector have risen from 0.9 per cent of sales to 1.9 per cent in the seven-year period. The sector has witnessed average growth of 13.7 per cent in sales and 14.4 per cent in total income during FY2000 to FY2006.
Even as the advertising outlays of these sectors swell, the amount spent on the marketing expenses in proportion to the sales has undergone a substantial decline. Majority of the big ad spenders including liquor, passenger & multi utility vehicles, telecom and white goods manufacturers, have cut down their marketing overheads by 22 per cent, 5 per cent, 3.2 per cent and 0.8 per cent respectively.
FMCG sector, though with highest advertisement expenses as the proportion of sales, has kept the ad budgets almost unchanged during the period of fiscal 2000-2006. Average sales and income have grown by 7.7 per cent and 7.4 per cent during this period.
In order to tap the growing consumer market, air conditioner and refrigerator manufacturing companies have increased their ad-spend by 20 per cent from 1.4 per cent in FY2000 to 2.7 per cent in FY2006. After being negative for two consecutive years in FY03 and 04, the sales increased by 8.4 per cent and 20.3 percent in FY05 and FY06. Income and expenditure statement of the 14 companies in the segment analyzed by AEP has shown a massive 405 per cent decline in total expenses proportionate to sales.
Despite the government’s ban on the direct and indirect advertising by the liquor companies, the advertisement expenses of the 42 beer and alcohol companies have shot up from 3 per cent of sales in FY2000 to 3.6 per cent FY 2006. Marketing expenses have reduced by 22 per cent and the total expenses have also declined by 33 per cent during the seven years starting from the fiscal 2000.
Growth in customer market for cars has driven the advertising activities of the segment at much higher rate than the overall auto sector. With annual rise of 11.8 per cent in sales, the passenger and multi utility vehicles manufacturing companies have stepped up their advertising expenditure by as much as 9.5 per cent, whereas the automobile sector on the whole has recorded a very small rise of 2.7 per cent in advertising expenses.
