Despite poor GDP, ad industry hopeful of better numbers in Q3

The ad industry’s contribution to GDP is 0.4% and it has seen an overall growth of 10-15% in Q2, say industry heads

e4m by Tasmayee Laha Roy
Updated: Dec 4, 2019 4:48 PM

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economy

Even with India's GDP slowing down to 4.5 per cent in Q2, the ad industry remains hopeful of achieving better numbers in the next quarter. According to experts in the sector, advertising has little role to play in the poor GDP show.

According to Mayank Bhatnagar, Executive Vice President, Carat, Dentsu Aegis Network, “While the GDP rate has fallen, the ad spend numbers have actually gone up between August and October given the festive spends. The growth might not be as much as it were last year but there has been a 10 to 15 per cent growth as compared to the first quarter of this fiscal.”

Jyoti Kumar Bansal, CEO, PHD Media, also highlighted the festive spends. “The continuous decline, six quarters in a row, clearly shows a depressed consumption sentiment. With consumer confidence worsening across all parameters, including one year ahead of expectations, the only silver lining seems to be a slight increase in spending confidence shown between July and September.”

Bansal further said that marketers based their festive spends on “this glimmer of hope and on the corporate tax rate cut announced towards end-September”.

“However, overall the focus on ad spend is only to do what is absolutely essential, and will move inventory off the shelves, leading to budget mix changing between ATL and BTL opportunities,” she added.

Sharing further insights on the GDP numbers, Sanjay Mehta, Joint CEO, Mirum India, said a few sectors like real estate and automobiles are affected more. “In such a scenario, undoubtedly, large campaign spends are likely to be held back. With respect to the auto sector, there is a good chance of fewer new launches till the economy improves. However, most manufacturers (and real estate companies as well) have the problem of unsold inventory, which needs to be moved. Add to that seasonal factors of Diwali, New Years' and the wedding season, all triggers for spending, there will be tactical advertising spends irrespective of the GDP numbers. And this is what we are seeing, including the Black Friday and other such sales, which were otherwise alien to India."

How much does the ad industry actually contribute to GDP?

“In India, the contribution of the ad industry to GDP is only about 0.4 to 0.5 per cent, which is way less than developed markets like the US where the ad industry accounts for 3 to 4 per cent of GDP. But on the other hand, the ad industry overall is growing between 9 and 10 per cent annually, which is higher than any other market globally. So overall it’s positive,” said Bhatnagar.

The economic slowdown in Q2 did hamper the ad spends. FCB India Chairman and CEO Rohit Ohri, further says, "The liquidity crunch held back brands to cut down on ad spends."

Ad spends are a reflection of the health of an economy, says Indrajit Sen, an independent consultant and ex-CEO and Consultant at Indian Outdoor Advertising Association (IOAA). According to Sen, during the Q2 slowdown popular media showed maximum traction, while platforms like OOH recorded low ad bills.

“Ad spends reflect economic status. So, to an extent, brands will increase ad spends to counter a slowdown. But if that is not working, they will stop their spends and wait to see the organic demand to grow before they return with ad visibilities to further improve matters,” said Sen.

Explaining the dynamics of how the ad industry works during a lull, Sen futher said that in these periods, the winner is always among the top two or three brands in every category. “And, of course, the lowest-cost options also tend to see traction. So, while TOI has reduced the number of pages, it still has full pagers. Similar is the case with highest-rated TV programmes. As a category, OOH should have seen more spends due to low costs but the lack of audience numbers pushed the budgets to media where one cannot be at least faulted for not knowing reach numbers.”

How hopeful is the industry about a recovery and how long would it take to see a turnaround in numbers? Experts say Q3 is expected to be better than Q2.

“While clients have been cautious about ad spends, they are also hopeful about the recovery given the government’s initiative to push GDP numbers higher. Thanks to the festive period, we are confident that Q3 numbers for the ad industry will be higher than Q2,” added Bhatnagar.

“Now is also the time for innovative and creative communication by brands and some brands have already started exploiting that and capturing that mindspace,” said Sen.

Aatef Bham, Co-founder and Director of Business Development, Togglehead, says brands have been careful not to miss out any opportunity in reinforcing consumption sentiments due to the year witnessing regressing consumer confidence. “However, the industry saw a dip in the growth of ad spends from last year’s 13 per cent to 9 per cent this year. Digital, however, saw an upward trend due to the targeted and result-oriented communication it allows making it the go-to medium, especially in a sluggish growth environment. Overall, while the percentage of ad spends saw a drop this quarter, the clock of progress still ticks for the digital industry."

Explaining GDP numbers further, Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC, said: “The real GDP figure of 4.5 per cent for Q2 FY20 year-on-year was broadly in line with expectations, but nominal GDP growth was much slower at 6.1 per cent. There was a contraction in manufacturing growth, while both private consumption and investment stayed weak. Some support from government spending was expected, given combined central and state expenditure grew 22.5 per cent year-on-year in Q2 FY20 as against 1.3 per cent in Q1.”

Summing up the need for the day, Bansal said some heavy lifting from the government to improve the industry and consumer sentiment will definitely be required for pushing growth in the quarters to come.

With inputs from Shikha Paliwal

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