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Drop in ad spends during IPO honeymoon temporary, say market experts

In 2021, companies spent a significantly less percentage on marketing than the previous year

by exchange4media Staff
Published - Dec 1, 2021 8:56 AM Updated- Dec 1, 2021 9:31 AM

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There used to be a time when newspapers had full-page banner ads enumerating some august company’s achievements, a not-so-subtle hint that was finally offering some of its shares to the public. The announcements made in such ads urged readers to invest in their future. And while that still may occasionally happen, other pages on your newspaper, or news site, are filled with the massive IPO sales of 2021. As the oft-touted EY report states, “In India, total proceeds in YTD 2021 are USD 9.7 billion via 72 IPOs also being the highest first nine months proceeds in the last 20 years,” it said.

And while previously, companies spent a lot on marketing during the lead-up, a lot of the IPOs in 2021 spent a significantly less percentage than predecessors and even some of their contemporaries. And their ad spends have dipped since.

“This is the current natural course of the business trajectory—from an increased focus on customer acquisition and a need for greater buzz pre-IPO to a focus on profitable growth (and not mindless acquisition) post-IPO, you do expect a drop in spends. This is neither temporary nor worrying particularly,” explains Narayan Devanathan, Chief Client Officer, dentsu India, adding, “However, the mistake these businesses could make is thinking that they no longer need to invest consistently in marketing.”

He continues, “By that, I don’t mean just in advertising, a satisfied customer who believes in your business is the best marketing investment any company can make—and so, all-around increase in spends around customer service, brand affinity, and creating a connected value ecosystem (v/s demanding loyalty from customers) all will help in lowering the cost of acquisition and serving customers, and creating more value for the customer and the business.”

According to Mukesh Agrawal, Co-founder and Business Head, The Media Ant, there are three reasons for new-age companies to have to spend on less advertising during this time. He says, “These are brands that the public is aware of after previously having been among the top advertisers in the country; secondly many of these “loss-making” companies have a very small retail portion, whereas traditional companies share IPOs to increase their retail portion. And thirdly and most importantly, a lot of these new-age companies have tied up with trading apps, and who is going to be aware of IPOs and buy shares? Investors that are using these apps.”

Typically, prior to and during IPOs, B2B brands spend a lot of money on advertising, as do legacy B2B brands, the former because they are companies the general public is familiar with, while the latter because they’re increasing their business concerns or raising capital for the same.

“The companies that really have to spend money on advertising and generating awareness ahead of their IPOs are B2Bs, which most consumers have never heard of. There have been some phenomenal IPOs lately, but most people don’t know anything about it,” says Agrawal, pointing out that the B2C brands, especially those with a tech/digital component, have also leveraged social media well.

“However, that’s not the break-it or end-it. The fact is that there is always usually so much public discourse and media coverage about these apps, everyone knows what’s happening with them all the time. Social media marketing is important, but there’s a lot more,” he adds.

As Devanathan points out, “It would be foolish to discount the impact of social media sentiment on marketing outcomes. Equally, it would be foolish to base it on social media sentiment alone. Value to customers and business outcomes should be the only two things that guide marketing investments.”

“A lot of these brands are all also enjoying the first-mover advantage. You can count the number of these new-age companies on both hands, but once the marketplace starts getting crowded, we should see also their ad spends coming up,” says Agrawal, pointing out that India still has room for the hype for upcoming IPOs of brands like Ola, Byju’s and other consumer tech apps.

That being said, Research Analyst Karan Taurani, Senior Vice President–Elara Capital, says internet companies’ marketing spends depend on a host of factors including a number of players in the market, the market structure, their customer acquisition strategy and their plans going forward, among others.

“Every business has got a different variable in terms of the metrics because all these numbers are very different for every internet company in its own way,” says Taurani, concluding that these companies are also in markets that are expected to grow exponentially in size, “As their customer base will grow they’ll have to spend more on promotions, not to mention discounts, operational and capital expenses. And going forward, they’ll have to only increase their advertising budgets along with the rest of their business expenses.”

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