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BW Businessworld

Currency Ban Puts Marketers To Test

Media’s mightiest battle it out as demonetisation spells threat to over Rs 1,000 crore of advertising spends

Photo Credit : Shutterstock

The step to demonetise Indian currency denominations of Rs 500 and Rs 1000 may well be in the right direction but its impact in the short term has put pressure on the country’s media and advertising industry. Raj Nayak, president of The Advertising Club, explains this best when he calls it “a cascading effect”. While demonetisation has spared none, its impact on the likes of the FMCG sector that contributes to nearly half of the Indian advertising industry has posed marketers one of their biggest challenges in the year.

At present, the Indian advertising sector is pegged at Rs 52,000 crore as per industry reports such as the Pitch-Madison Advertising Report 2016. Industry leaders are expecting at least 2 per cent of this pie to get affected due to the postponement and even cancellation of campaigns, putting over Rs 1,000 crore at stake.

“I would have assumed it to be more,” says Nayak, adding, “Demonetisation is a good move, done with the right intent, but it struck out of the blue and no one was prepared. Goods are not moving in the market, traders are under stress and subsequently advertisers have been pulling back. This is not a good sign.”

Media agencies, essentially companies that manage the advertising budgets on behalf of large brands and marketers, and media platforms that include broadcasters, print publications and other media outlets, were caught off guard when major spenders began requesting ad campaigns to be suspended. The Indian Society of Advertisers (ISA) advised its members to pursue a push back due to a stark fall in demand. The reasoning is that consumers are unlikely to buy colas, confectionaries or any higher-end goods, when they are devoid of cash.

The Indian Broadcasting Foundation (IBF) did not welcome the move. IBF at present is basing its logic on the fact that all transactions between channels and marketers are electronic, and hence there is no reason to alter contracts. The tug-of-war between the two and the Advertising Agencies Association of India (AAAI) has only just begun. Dishonouring contracts may lead to legal tussles but that is a step that not many companies would like to take, especially where long-term relationships are involved.

A New Storm
At a broader level, perhaps there is respite in the belief that companies will adjust to the new norm sooner than later. “I see a significant part of the business coming back on track by the end of November itself. Much like anything that impacts advertising, this is also a change that has begun at the economy and consumer level. People and businesses are already adjusting to the new norm,” says Nandini Dias, chief executive officer of Lodestar UM, a media agency.

Dias’ rationale is rooted in the manner in which the marketplace has reacted and evolved ever since demonetisation was initiated. On the one hand, the banking and financial sector has worked out different routes to encourage cashless transactions and make availability of cash slightly easier, and on the other hand, small businesses are creating alternative ways of accepting payments and enabling sales.

“The consumer class will not be scrounging for daily necessities, and I expect the everyday brands to be on track soon,” Dias states.

While some sectors may begin transacting faster than others, on the whole, the short-term demand has been impacted. “Consumers are spending cautiously but they will spend on necessities. That being said, I really expect this to change soon except for perhaps sectors such as real estate, where large transactions have taken place in cash in the past,” seconds Debraj Tripathy, managing director of MediaCom South Asia, which is a GroupM media agency.

Tripathy expects business as usual by the end of financial year 2016-17 — a view that Nayak agrees on. He attributes this to two reasons. The first is the fact that the dust is still settling on the fallout of demonetisation. “The second is that the budget has been advanced to 1 February next year. Companies may wait out to see the implications of the budget before deciding what the marketing budget should be for the year ahead,” says Nayak.

The Impacted
Some sectors will feel the pinch more than the others. Real estate has been deemed as one such sector, but Dias draws attention to the industries allied to real estate, such as furnishings, interiors and the likes that would be impacted a lot more. “Not only do these industries transact heavily in cash but the labours involved in these are also paid in cash,” Dias says. Most industries that are reliant on daily wages are feeling the heat. The distribution system, for instance, is significantly derailed due to cash crunch.

In the same vein, durables and the e-commerce sector that offers cash on delivery is impacted. Jewellery is another industry that has been deeply affected, and is suspending most advertising for now. While this is also the case for the luxury sector, the luxury spends in India are much more modest than other categories, and hence would not make a significant impact on the advertising industry per se.

The auto sector is bracing for impact, and so is the retail sector. Footfalls are said to have decreased significantly but Dias expects the impact to continue. “This was also the time when many brands and retail outlets would have begun their seasonal sales and yearend sales. These too would be affected substantially,” explains Dias.

Dias cautioned also for sectors such as travel, where travellers are likely to hold back spends until businesses and cash flows resume fully again. “People will prioritise what they are spending on. Until the level of uncertainty settles down, any indulgent spend will be affected. I would estimate at least a 30 percent reduction in outbound travel in the month of December,” she said.

A Lost Opportunity?
Most marketing gurus quote success stories of brands that have risen in times of crisis and have seen a higher return on investment. In the case of demonetisation, the reaction from most marketers, while understandable, has also been predictable.

“Advertising, as an industry, is often the first to get impacted by any such change. We saw this during the slowdown as well. We are observing deceleration in spends now too. This will continue as long as brands treat advertising as an expenditure, and not an investment,” says Anita Nayyar, chief executive officer of Havas Media Group South Asia.

Nayak dubs some advertiser responses as knee-jerk reactions too. The bigger question however is that if this was a crisis that should not have been wasted, who are the advertisers that are thinking of that.

[email protected]; @NFWarsia