Economic slump forces marketers to slash budgets

The downturn is pushing marketers to use all possible tricks to lure consumers & drive sales. Brands are betting high on festive season & rural demand to overcome depression

e4m by Twishy
Published: Oct 3, 2013 8:37 AM  | 5 min read
Economic slump forces marketers to slash budgets

The industry has seen the worst performance of some of the beverage giants in five years, the automobile sector witnessed the biggest slump over decades, and job-seekers faced a severe crisis. This is the domino effect of the slowdown caused by depreciating Rupee, soaring inflation and high current account deficit.

Core industries such as manufacturing, mining and power are badly hit, with a constant hike in diesel and petrol prices along with high interest rates. The Indian economy grew at its slowest pace in four years at 4.4 per cent and the profit margins are under pressure. On back of the crisis, have all marketers started slashing their budgets to overcome the situation?

It is a dangerous gamble to invest or pull back in these tough times. Experts in the automobile industry believe that the depreciating Rupee is resulting in increased fuel costs, additional excise duties, and high interest rates are adding to the woes. With falling demand, automobile companies are forced to cut production and high inventory levels at dealerships are becoming a nightmare as sales remain sluggish.

Tech tales
Major sectors are witnessing product launches on a small scale and lesser advertising campaigns due to tighter pockets. Consumer electronics major Canon India has increased the prices of its products to offset the impact of Rupee depreciation and will miss the growth target due to demand slowdown.

Dr Alok Bharadwaj, Executive Vice President, Canon India said, “Slowdown has come in a different way. The currency exchange has made a severe impact on technology companies as we know that these products are not made in India and often imported. The cost of imports is continuously increasing and in three months’ time, it has increased by 20 per cent. The bigger question is – can we increase the price by 20 per cent? If we don’t, then the effect is on the bottom line. And if we do, then we cause damage to the demand as price increase of this magnitude becomes very difficult to sustain. Also, there is anxiety due to unpredictability.”

He added, “We have to be a little flexible with the marketing budgets. How can we sustain without damaging the medium-term marketing goals? We decided that the BTL activities have to continue without disruption because customer experience matters the most in our case, which can be addressed better through BTL. In these times, we have reduced the ATL spends to half, but kept the BTL spends same. In other words, the split has become two-third and one-third of the marketing funds.”

Slump in the soda market
Early rains, inflation and health-conscious consumers have already affected the beverage industry. The growth in volumes is barely one per cent from a year ago for some of the beverage companies. With the current slump, companies have started redesigning their strategy through price cuts, trade discounts and different pack sizes.

Anupama Ahluwalia, Vice President – Marketing, India and South West Asia, The Coca-Cola Company said, “We continue to believe that it is important to invest and the investment levels for a brand must be in line with the brand strategy. When we look at brand spends, it is very important to build effectiveness and efficiencies in these tough economic situations. It is really about saying ‘how can we continue to build and leverage a lot more from our marketing investments’. We are focussing on efficiency, effectiveness and driving more RoI on our marketing programmes to be able to continue through these tough times.”

Beverage companies started adopting differential pricing to drive volumes. The saving grace for the cola majors is the upcoming festival season that will hopefully drive consumer purchase.

Upbeat in the mobile phone category
Despite slowdown, Sony recently launched Xperia Z1 and aims to increase the smartphone market share to 20 per cent by FY 14. Sony Xperia Z was launched earlier this year as the first step towards tripling the sales of Xperia smartphones in India to Rs 3,500 crore in FY 13. The marketing budget earmarked for the smartphone category is Rs 300 crore, out of which Rs 75 crore is for Sony Xperia Z1.

Kenichiro Hibi, Managing Director, Sony India said, “There is a slowdown seen in India's economy but that hasn't stopped people from spending on consumer goods such as TVs and smartphones.”

On the other hand, Samsung launched Galaxy Note 3 with a smarter and larger screen and Galaxy Gear. Vineet Taneja, Country Head, Samsung Mobile and IT stated, “There is nothing called slowdown for us. We continue to grow.” 

Major players in the category have decided to hike prices. Samsung has also raised prices by three to five per cent, but Taneja believes that the prices have not been increased as much as the Dollar went up and some part of it has been absorbed.

The high-end smartphones demand has definitely been hit due to slowdown, and as a result of it, people prefer to shift to brands such as Micromax with low cost smartphones and advanced features.

Rahul Sharma, Co-Founder and Executive Director, Micromax said, “We are fortunate to be a part of the industry that is not badly affected by all the economic changes because mobile phones are growing at a humongous pace.”

The truth of the matter is that the slump in the economy has forced marketers to slash their marketing spends and use all possible tricks, be it — price cuts or discounts to lure consumers and drive sales.

Brands are riding high on the festive season and rural demand to come out of the depression. But we have to wait and watch if the festive season can pull up the consumer sentiment and put the economy back on track. At this stage, positive sentiments can only creep in after taming the inflation devil, and by adopting appropriate government measures to improve infrastructure with speedy implementation of policies.

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