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With India emerging as one of the fastest growing market for Telecom and Auto sector, an analysis of their advertisement expenditure and net sales turnover suggests companies in these sectors witnessed robust growth in their sales turnover despite falling advertisement expenditure, according to an ASSOCHAM Study.

The elasticity of advertisement to net sales for the telecom and auto sector was found to be -9.31 per cent and -1.32 per cent respectively as against 0.80 per cent for the FMCG sector as analyzed by the ASSOCHAM Eco Pulse (AEP) Study.

A negative figure for the advertising elasticity for Indian telecom and auto industry implies, despite spending less on their advertisement and promotion campaigns, companies in these sectors were able to increase their sales volume significantly.

While for the FMCG sector, the advertising elasticity was found to be 0.8; signifying for every rupee increase in the net sales volume, companies in the sector spent 80 paise on advertisement costs.

According to the ASSOCHAM Eco Pulse (AEP) Study titled “Cost-Benefit Analysis of Advertisement Campaigns”, the ad spend, proportionate to sales, by fast rising telecom and auto (two wheelers) sectors has grown the most among a host of sectors.

“With services becoming driver of the Indian economy, advertising which spreads awareness to consumers has made an important contribution to the growth in some of the dynamic sectors like telecommunications, auto and FMCG” said ASSOCHAM President,  Sajjan Jindal.

The amount spent on the marketing expenses in proportion to the sales has undergone a substantial decline in 2008-09. As the advertising outlays of the sectors like auto and telecom swell down due to the low pace in the economic conditions to overcome the manufacturing cost of the products and services.

Riding the robust growth in the number of wireless subscribers by 50.1 per cent in 2008-09 as against the previous year, top companies in the telecom sector, which used to be fervent advertisers in the past, have marginally lowered down their advertisement and sales promotion budget by 3 per cent. However, their net sales increased by 26.9 per cent despite the decline in their advertisement expenditure.

The telecom major Airtel increased its subscriber’s base by over 30 per cent in 2008-09, as the company increased its advertising and sales promotion expenses by nearly 10 per cent, while the company achieved 32.50 per cent growth in net sales figures during the same period over 2007-08.

Reliance Communications reduced its ad and sales promotion expenditure by 26 per cent in 2008-09, besides this reduction the company gained 21 per cent in its net sales while other telecom major Tata Telecommunications spent 63 per cent more on advertisement and sales promotion activities in 2008-09 over a year ago while it’s net sales increased by 14.20 per cent over the previous year 2007-08.

As per the analyses of the income and expenditure for the auto sector, it has been observed that the top auto companies in the two wheeler segment have decreased their advertising expenses by 5.87 per cent in 2008-09 as compared to the corresponding period of 2007-08, whereas the sector grew by 2.5 per cent in terms of net sales.

The analysis of three major auto companies in the two wheeler segment revealed that Hero Honda spent 12.54 per cent more on the advertising and sales promotion activities in 2008-09 as compared to 2007-08 while its net sales increased by 19.23 per cent during the period.

Whereas Bajaj Auto Ltd. and TVS motors cut their advertising expenditure by 32.94 per cent and 12.02 per cent respectively in 2008-09. However, according to their net sales figures, TVS motors registered a growth rate of 14.02 per cent whereas Bajaj Auto Ltd. witnessed a decline of 6.60 per cent during 2008-09 over the corresponding period of 2007-08.

The FMCG sector which had kept the highest advertisement expenses as the proportion of sales, has kept the ad expenses almost proportionate to growth in net sales. Income and expenditure statement of the major companies in the segment analyzed by AEP for the FMCG companies, suggests marginal hike in their ad budget in 2008-09 in comparison with 2007-08.

According to the analysis of FMCG sector, Hindustan Unilever Limited increased its advertising costs in 2008-09 by 48 per cent while its net sales rose by 47.12 per cent. Another FMCG major ITC Limited spent nearly 33 per cent more in 2008-09 than the previous year, as the company earned 8.4 per cent growth in net sales during the same period whereas Britannia which spent about 17.50 per cent more on advertisements in 2008-09 as compared to the previous year recorded a growth of 20.50 per cent in its net sales.

Source: ASSOCHAM

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