Private sector companies are trying to reduce their advertisement expenditure in the recent years.This is apparent from the decrease in the ratio of advertisement expenses to sales for 250 major private sector companies (sales above Rs 100 crore) during 2003-04.
The ratio declined from 2.81% in 2002-03 to 2.63% in 2002-03, which suggests that expenditure on advertisement rose much slower than sales during the year.
Advertisement expenses comprise sales promotion also. For the purpose of our study, sales means sales income net of excise duties. In absolute terms, the 250 major companies earned a net sales income of Rs 2,02,322 crore in 2003-04 as against Rs 1,75,274 crore in 2002-03 (a rise of 15.43%).
The advertisement expenses of these companies worked out to Rs 5,321 crore in 2003-04 as against Rs 4,923 crore in the previous year( a rise of 8.1%).
There are other companies in the private corporate sector which have been incurring a high expenditure on advertisement in relation to sales. However, the present study is confined to only 250 major companies for which data are available for 2002-03 and 2003-04 (April-March).
In terms of the amount spent on advertisement during 2003-04, the top notched in the list of 250 major companies was Hindustan Lever. The pecking order in the top 10 companies after Hindustan Lever was: Maruti Udyog, ITC, Ranbaxy Lab, Bajaj Auto, Dabur India, Videocon International, Colgate-Palmolive, Nestle India and Mahindra & Mahindra. Among the 250 companies, 160 companies have witnessed an increase in the advertisement expenses, while 86 companies have shown a decline in 2003-04 as compared with 2002-03.
The remaining four companies have an equal amount in both the years. On the other hand, 122 companies have witnessed a fall in the advt. expenses-sales ratio, while 117 companies have shown a higher ratio in 2003-04 as compared with 2002-03.
The remaining eleven companies have an equal ratio in both the years.
A significant fall in the advt-sales ratio was observed in the case of Colgate-Palmolive (19.51% in 2002-03 to 15.72% in 2003-04). This can be explained from its performance.
The advertisement expenditure of the company has declined by 20.1% to Rs 147.65 crore during 2003-04. And the sales of the company also declined by 0.9% during the same period.
Similarly in the case of HLL, the ratio has declined from 8.46% in 2002-03 to 7.49% in 2004-05. Here also advertisement expense of HLL decreased by 9.83% to Rs 759.09 crore during 2003-04. But the net sales of the company increased marginally by 1.84% during the same period.
On the other hand, a significant improvement in advt-sales ratio in 2003-04 was observed in the case of ITC (3.75% in 2002-03 to 4.12% in 2003-04). This can be explained from its advertisement expenditure figure.
The advertisement expenditure of the company increased by 21.46% to Rs 266.83 crore during 2003-04. Similarly Maruti Udyog also showed a significant increase in its adverisement expenditure. The advertisement expenditure of Maruti Udyog increased by 34.32% during the study period. So the ratio of advertisement to sales increased from 5.36% in 2002-03 to 5.49% in 2003-04.
In the sector-wise analysis, the ratio of advertisement expenses to sales had declined from 2002-03 to 2003-04 in the case of chemicals others (6.81% in 2002-03 to 6.14% in 2003-04), diversified (1.14% to 0.96%), electric equipment (1.97% to 1.60%), electronics (3.18% to 3.02%), food-processing (6.33% to 5.33%), hotels (3.53% to 3.29%), tea (7.23% to 7.01%) and tyres (1.52% to 1.39%).
An improvement in the ratio from 2002-03 to 2003-04 was witnessed in the case of automobiles (3.71% to 3.75%), cement and products (1.0% to 1.17%), cigarettes (4.13% to 4.39%) and pharmaceuticals (3.63% to 3.8%).
The highest and lowest advertisement expenses to sales ratios for the year 2003-04 were recorded in the case of tea and steel, respectively.