Is advertising losing its relevance in driving cola consumption? Didn't the Aamir Khan ads proclaiming "Thanda matlab Coca-Cola" push up sales of Coke? No and Yes. No, advertising is still an integral part of selling colas and yes, Aamir Khan did a good job of making Coke's name synonymous with Coca-Cola. But then why did Coca-Cola and PepsiCo slash their advertising spends, especially during the peak season of summer 2004? Aamir's proclamations for Coke have been off TV sets for most of this year and only recently has superstar Amitabh Bachchan returned with a fresh Pepsi commercial.
Coca-Cola India has pruned its advertising budget by a whopping 20 per cent between January and August this year even as that of PepsiCo has seen an increase of 12 per cent. Till July this year, both cola companies continued to retain a tight hold on their purse strings and only after July did PepsiCo begin investing in ads again.
However, industry sources claim that not only will Coca-Cola spend less this year compared to 2003 but will continue to be circumspect about advertising budgets even next year. This appears to be in line with what Coke's Atlanta-based headquarter has already indicated - that the relevance of the 30-second commercial for Coca-Cola is diminishing and that the company would rather explore alternative marketing tools to reach its target consumer - young adults and teenagers.
When contacted, a Coca-Cola India spokesperson said, "Ad spends have been optimised this year but the overall marketing spends remain at last year's levels." Coke has reduced its advertising spend between January and August this year by 20 per cent as compared with the corresponding period last year, according to data by market research agency AdEx. Pepsi's spends were also down by about 8 per cent till July but recovered thereafter and the company's total advertising budget has seen an increase of over 12 per cent between January and August 2004.
In fact, if one were to compare total ad spends of the two companies in 2004 with last year, Pepsi has beaten Coke to emerge the leader with Rs 58.88-crore total spend between January-August against Coke's Rs 50.87 crore, spanning television and print media advertisements.
According to AdEx, Pepsi has hiked ad spends on TV by about 22 per cent if one were to consider January-August 2004, to Rs 56 crore, while Coke's spends on TV during the same period witnessed a decline of about 17 per cent, from Rs 56.2 crore last year to Rs 46.8 crore during the corresponding period this year. Again, spending by the two companies in print media has declined across all eight months with Coke's spends down by more than 48 per cent to Rs 4 crore and Pepsi's down 55.44 per cent to Rs 2.78 crore.
The Coke spokesperson said that apart from advertising on television and in the print media, the company undertakes a whole host of marketing activities including below-the-line activities, consumer promotions, Internet marketing, point of purchase material among others, and that the combined spends have been maintained at last year's levels.
This year, the high point was launch of Vanilla Coke in April and the spokesperson said the new variant was marketed under what is known as a `360 degrees' plan. "This integrated every aspect of marketing including radio, outdoor, print and TV advertising; on ground promotion through point of purchase and point of sale material and activation of key accounts." He said key account activation included promotions at outlets such as McDonald's, which Coke calls one of its key accounts.
Besides, there was a massive SMS campaign, conducted in association with Hutch and Airtel, that generated over four lakh responses, he claimed, adding that the company may have reduced spends on actual advertising but that marketing efforts have not suffered.
Media planners said Coke's reduced emphasis on advertising in TV and print could be due to the reduced effectiveness of traditional media after changes in consumer behaviour and media fragmentation. Atul Phadnis, Vice-President at market research agency TAM India (of which AdEx is a part), endorsed the industry view that traditional advertising was losing out to alternative marketing routes, perhaps since the cost of media has been rising without commensurate increase in audience.
"We have seen a fall in ad spends not only among beverages but across a range of FMCG products including toilet soaps and detergents because the re-launches this year have not worked, largely because of a rural slowdown." He said it was possible that most FMCG companies have increased below-the-line spends while curtailing those on advertising.
Sources said reaching teenagers and young adults, a particularly important group for Coke and one of the most elusive for all marketers, requires the company to create and produce ads that not only reach the group but can retain their attention and that television may not be the best medium to achieve this goal. One of the best ways to reach this audience is through the Internet and SMS and the company seems to be developing new ways to do that.
But is looking at alternative avenues to reach target consumers the only reason for curtailed ad budgets? Sources say that the mounting pressure from Atlanta to deliver profits also has a part to play in changing the Indian venture's marketing spends.
In fact, the reduced advertising is believed to be driving this company's "affordability strategy" that brought down the price of 300 ml Coke and Pepsi from Rs 10 two years ago to Rs 6 till August this year. This massive price reduction meant double-digit volume growth for both Coke and Pepsi but severely dented their bottom lines.
PepsiCo India Chairman Rajeev Bakshi said that while ad spends were down in the first six months, the total spend in 2004 is expected to be up about 5 per cent over the last year. He attributed the decline in spends in the first half of 2004 to the absence of sporting events (there was the World Cup last year) and to the fact that the company did not launch any new product till October, when sports drink Gatorade was introduced in India.
However, putting aside scepticism, media buyers are already projecting that next summer may witness some fizz in cola advertising. Says Sundar Raman, General Manager at Mindshare (Delhi), the media buying arm of WPP, "Soft drink advertising will look up next year in percentage terms because next summer the Pakistan cricket team is expected to tour India. But whether the cola companies will use below-the-line route or the mass media remains to be seen."
So, it is early days yet to predict whether cola advertising is losing its fizz after all. What does appear certain is that soft drinks will continue to be promoted, if not aggressively through advertising, then through other marketing tools.