Progressive decline in ad expense to net sales ratio.
Corporate India's ad spend rose by 9.45 per cent to Rs 6,378 crore during 2004-05. This is the highest growth rate in ad spend over the last three years.
The ad spend had increased by 7.51 per cent in 2003-04 and 9.01 per cent in 2002-03. In absolute terms, the ad spend increased by Rs 551 crore in 2004-05, Rs 416 crore in 2003-04 and Rs 445 crore in 2002-03.
A sample survey of 645 companies, however, shows that the ratio of expenditure on advertising to net sales dipped in 2004-05 to 1.26 per cent.
In fact, there has been a progressive decline in the ad to sales ratio. It was 1.36 per cent in 2003-04, 1.41 per cent in 2002-03 and 1.50 per cent in 2000-01. This essentially means that the corporate sector has been generating higher sales on a lesser spend on advertisement.
The fast moving consumer goods (FMCG) companies remained the biggest spenders on ads in aggregate terms with Rs 2,363 crore in 2004-05. Against a 2.6 per cent decline in ad spend in 2003-04, the FMCG companies increased their ad spend by 3.8 per cent in 2004-05.
The ad spend to sales ratio for the FMCG sector is much higher than the corporate sector as a whole even though it had sharply declined to 6 per cent from 6.40 per cent in 2003-04 and 7 per cent in 2002-03.
An aggressive ad campaign for grabbing a thick slice of the retail pie saw the banking sector emerging as the new big spender. The sector spent Rs 519 crore in 2004-05, up 31.8 per cent from Rs 396 crore in 2003-04. In the last two years, commercial banks have more than doubled their ad spend from Rs 246 crore in 2002-03.
Automobile companies, too, raised their advertisement budget in the last three years to attract consumers. The ad budget of the automobile industry has increased by 11.6 per cent to Rs 714 crore in 2004-05. The automobile companies had spent Rs 640 crore in 2003-04 and Rs 554 crore in 2002-03.
Within the FMCG sector, personal care products companies Hindustan Lever, Dabur, Marico and Procter & Gamble stepped up their ad campaigns to maintain their share in detergent, hair & care and toiletries segment. The ad spend by personal care companies increased by over Rs 140 crore to Rs 1,429 crore in 2004-05.
Hindustan Lever remained the top ad spender, accounting for 13.67 per cent of the total ad spent by sample companies. HLL's advertising expenses rose by 10.13 per cent to Rs 835.98 crore in financial year 2004-05 against Rs 759.09 crore in the previous year.
ITC, the second largest ad spender, cut its ad cost by 17 per cent from Rs 265.72 crore to Rs 220.53 after the government imposed restrictions on advertisements, sale and consumption of tobacco.