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Going Full Speed Ahead

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It’s been said that marketing is a process, not an event; it has a beginning, a middle, but never an end. Yet, as growth of the Indian economy slowed after the global crisis of 2008, most companies cut spending on marketing, suspended advertising and generally behaved as if the murmurs of an impending slowdown had turned into a din.

But that was only until 2011. That year, the European crisis affected all economies including India’s; but marketers chose to not bury their heads in the sand to tide over bad times.

A study by Businessworld’s research team of the advertising and sales promotional expenses by the top 50 spenders in India reveals that they actually increased marketing spends by nearly 18 per cent overall in 2011-12 (FY12) over the previous year. Remember this was the period when India’s GDP growth declined from 9.6 per cent in 2010 to 6.9 per cent in 2011.

Despite the slackening pace, only 10 of the top 50 spenders on marketing spent less in FY12 compared to what they had spent in the previous financial year. Marketing consultants attribute this to the sea change in the attitude of Indian marketing professionals to how they respond to a consumer slowdown.

“Clients have not backed off from spending or investing in their brands,” says Sharda Agarwal, director, MarketGate, a Mumbai-based marketing consultancy. “The difference between the previous slowdown and the present one is that clients are being a lot smarter about marketing investments. They realise that in a tight market you have to continue investing in the brand.”

Other market observers such as Vispy Doctor, founder, Ormax Consumer Research and Brand Consulting, believe that the relatively small spenders are the ones who have cut outlay. “The top spenders realise that their biggest strength is advertising,” says Doctor.

Outsmarting The Slowdown
Ramesh Chauhan, chairman, Bisleri International, says that in order to retain marketshare, companies will spend. “You have to maintain the asset value, hence you cannot stop advertising for long,” he points out. It almost sounds similar to the message cautioning against drunk driving — drink, but be responsible. And it’s not just India; the phenomenon is global (see interview with Preyas S. Desai of  the Fuqua School of Business on page 40).

A lot, however, also depends on the sector. K. Ramakrishnan (Ramki), president of marketing at Café Coffee Day (CCD), or even Bisleri’s Chauhan, believe their businesses have not been hurt by a slowdown. But for those in the consumer durables business, like Alok Bharadwaj, senior vice-president of marketing at Canon India, it’s life in the slowdown alley — one where the next quarter threatens to be worse than the previous one.

But the key, be it a CCD or a Bisleri, is to keep growing and remain salient, irrespective of market conditions. Bisleri, for instance, is in a growing market for bottled water; one where the demand is large and reaching ever more places is key to growth.

Canon, despite the decline in the industry’s growth, is still growing at 23 per cent annually. Though that number is way below its 50 per cent growth the previous year, the company has managed to retain consumer attention through innovative marketing strategies. “In testing times, smart companies increase their relative share of voice that correlates into a higher marketshare when the cycle turns around,” says Ashish Bhasin, chairman at media buying house, AegisMedia.

Marketing in a slowdown, or even otherwise, is not only about increasing or decreasing marketing expenditure. It is also about deploying the budget effectively. “People have been less wasteful. They are raising the quality of advertising,” says Doctor.

Many companies have come up with smart marketing strategies. Those operating in markets where growth is in decline are looking at ways to market more effectively to an existing customer base, and to increase the lifetime value of a customer — where he keeps coming back to buy a lot more from the same brand over a period of time.

In digital cameras, for instance, buyers are known to accumulate nearly 20 lenses over a period of 8-9 years after their first buy. So, it makes sense to keep them effectively engaged rather than splurge on mass media in a bid to enlarge a brand’s consumer base.

Others like consumer goods company Hindustan Unilever (HUL) are looking to increase the return on their marketing investment. Yet others, such as Piramal Healthcare, which may not have the marketing muscle of Unilever, are employing smart placement strategies to compete in categories such as deodorants.

Big Bucks, Big Bang
What about promotion? Clients of advertising agencies often talk of getting more out of every advertising rupee. In fact, many large marketers like HUL are now actively letting investors know how they are squeezing costs out of a gigantic marketing machine.

In a presentation made to Goldman Sachs a few weeks ago, HUL showed what the company meant by getting more out of its advertising buck. In calendar 2011, HUL had managed to shave off a significant 9 percentage points from the fees it paid its creative and media agencies. Given that HUL spent nearly Rs 3,000 crore on advertising in 2011, the savings would have been significant. Even if one assumes that the company paid production fees of around Rs 200 crore, its savings on production and media fees would be Rs 18 crore (an amount equivalent to a mid-sized brand’s annual advertising budget).

“Many clients now insist on cost-per-rating-point deals. Three years back, 1 per cent of clients insisted on such deals; now about 20-30 per cent do so,” says Bhasin of AegisMedia.

At another level, HUL is focusing on driving up the return on investment in marketing — it claims an improvement of 200 basis points in the past year. The FMCG major also says that its advertising preview scores have improved by 800 basis points. As most consumers, particularly in global markets, gravitate towards companies that are environmentally responsible, HUL’s marketing messages talk about its green agenda, such as environment-friendly sourcing of tomatoes for ketchup, and so on. HUL did not wish to participate in this article.
 
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Beyond The Obvious
Every marketer likes to exercise tight control over marketing budgets, especially in testing times. If you want to be a prudent spender, think beyond the obvious. An example of this is Jungle Magic, a perfume for children by Piramal Healthcare. The company has looked beyond the product and is using innovative placement strategies for it.

The perfume, which comes in four variants and targets children in the three-and-a-half to 10-year age group, comes with a promise that aromatherapy helps in improving concentration and alertness, and refreshes the mind. So, to target the child where it mattered, the product was promoted through book chains such as Crossword, where the perfume was placed in the kids’ section. The book store, initially used for promoting samples, is now a retail point.

“If you are contextual to the ambience that influences shopper behaviour, you get the desired results,” says Vishakha Singh, executive director and founder of Aurora Comms, a Mumbai-based shopper marketing company.

And it is not only the smaller brands that are using shopper marketing to get a better return on investments. To send home the message that HDFC debit cards help you complete a transaction 40 per cent faster than others, the bank opened exclusive counters in the billing sections of food and grocery outlets during weekends when queues are usually longer. HDFC debit card users could use the exclusive counters and check out faster. The bank saw an 18 per cent increase in usage from this exercise.

A promotion like HDFC Bank’s, however, needs to be managed carefully. Too few users means there aren’t enough takers; and queues that are too long make the promise of “faster transactions” sound hollow.

Customising For Customer
Canon’s Bharadwaj has a stiff challenge on his hands. In the last quarter, the digital camera segment has shown a 20 per cent decline in sales with little guarantee that the next quarter is going to be any better. One thing that Canon has been doing in recent times is to take a hard look at its marketing plans, and be prudent with its marketing spends and communication strategy. “Earlier, we used a lot of mass media. A little bit of spillage did not matter. Now, we are looking at more cost-effective initiatives,” says Bharadwaj.

Three years ago, above-the-line (ATL) media (television, print, outdoor and radio) would have taken 70 per cent of the company’s total marketing spend. Now, the split is almost 50:50 with below-the-line media (promotions, digital, etc.) getting a major share of the advertising budget.

In peak times, when companies are adding more customers, and spend on ATL, not enough time is devoted to customer engagement. Now, says Bharadwaj, “the idea is to engage better with existing customers rather than spend too much on acquiring new customers”. Canon has decided to focus on the end-consumer segment through better experience at its 90 exclusive outlets, where a consumer can buy better products. This may lead to fewer customers but also better ones who increase the value of the sale.

To this end, says Bharadwaj, Canon has engaged in stronger customer relationship initiatives and digital marketing. For example, one insight that Canon is tapping is that inkjet printers at home are used mostly for school projects. So, it created applications such as ‘creative park’. Likewise, for its imaging consumers, the company is promoting a face-recognition software application to help consumers rearrange albums according to chronology.

In the business-to-business segment, Canon is focusing heavily on services. For institutions that invest in printers and copiers, Canon’s  marketing message is: equipment on rent. In a way, Canon is changing what used to be a client’s capital expenditure into operating expenditure — copiers on a per-use basis rather than buying the machines.

Alternatively, Canon is also taking up contracts for digitisation initiatives of large enterprises, and plans to expand its cinematography and medical imaging businesses.

 
"PRICE IS KEY LEVER IN THE MARKETING MIX"
The big change between earlier slowdowns and the most recent one has been that marketers did not tighten their marketing budgets. In an email interview, Preyas S. Desai, the Spencer R. Hassell Professor at Duke University’s Fuqua School of Business, tells BW’s Prasad Sangameshwaran that marketers are able to spend wisely because they have more consumer information than ever before. At the same time, they are also not shunning opportunities that may be high-risk, high-return.

In this recent slowdown, many feel that companies have been a lot smarter about their marketing investments than in the past. What’s changed? 
In most downturns, companies have to trade off short-term budgetary concerns with long-term benefits. Companies tend to reduce advertising expenses because: one, they are seen as discretionary; and two, brand-building advertising works over time. Even before the downturn, there has been a trend towards more accountability for marketing spending. 

Companies have been actively evaluating their marketing spends in terms of effectiveness and returns on investments. A big attraction of keyword search ‘advertising’ on Google and other search engines is measurability through the cost-per-click model. The current downturn has strengthened this trend.  Companies are also seriously rethinking and re-evaluating other longer-term projects in the areas of new product development and expansion into
new geographies.

How have companies been consistently reducing wasteful marketing expenditure? Has spending on market research increased to control spends?
Although one can argue that more market research can help firms make better decisions in tougher times, most companies will not increase spending on traditional market research. However, companies now have much more data about customers and markets, so this is not as big a limitation as it may appear.  Independent of the current downturn, there has been a trend towards greater use of analytics for these large data sets and to develop insights about customers and markets. The current downturn has hastened the move towards analytics.

Have tight marketing conditions been a boon for below-the-line (promotions, digital, etc.) advertising services?
Yes. Greater availability of in-house data, and the move towards analytics make below-the-line advertising not only more feasible, but also a much better option. The greater use of measurable advertising results in more advertising that generates customer action in the short run.
 
What changes have companies made to the 5Ps (product, price, packaging, place and promotion)? Which P, according to you, has been tinkered with the most?
Pricing has become important and is the most important lever of all the marketing-mix elements. However, we have to remember that pricing action can be accomplished through other means (as well). For example, a certain price point can be maintained or a lower price point can be obtained by redesigning “no-frills” products or making small changes in package sizes. There is also a stronger trend towards use of private labels (store brands) in the US, Canada and Europe.    

While most companies have realised the need to continue investing in brands even in tight market conditions, are these spends getting a lot more focused, with either a sharper geographical focus, realignment on portfolio strategy, etc?
Companies have been evaluating higher-risk expansion plans where there is a possibility of higher returns. These include expansion into markets that are expected to pan out only in the long run, as well as parts of the portfolio that are more questionable.


Quest For Scale
When everybody else is slowing down, this could be a chance to drive the message to consumers’ homes. At least CCD believes so. In 2008-09, when the rest of the market slowed down, CCD continued increasing its retail outlets, probably helped by the fact that good locations were available at lower rentals.

Now, the 16-year-old company has launched its first-ever television commercial. Even its first print campaign was launched only a couple of years ago. But CCD’s Ramki says the television campaign has nothing to do with a slowdown as there is no availability of excess advertising inventory or a fall in rates. So what prompted it? Research showed that only 50 per cent of CCD’s target audience in the 17-35 age group had ever been to a café, while 65 per cent had visited pizza or fast food outlets. This is because CCD is seen as a “leisure” space, while quick-service restaurants are seen in the “hunger” space.

Last year, based on these inputs, CCD introduced a new menu, which has now been rolled out in over 80 per cent of its outlets. The television campaign was a natural follow-through. Also, if 100 customers walk into a CCD outlet, they consume an average of 105 beverages, and only 30 units of food items. The campaign is expected to help augment food sales. To find out consumers’ response to its various marketing efforts, CCD is using its huge consumer base on social media sites as a sounding board.

In the food and beverages space, CCD is not the only one trying to get higher ticket sizes per customer. Lite Bite Foods, which runs chains like Baker Street, Fresc Co and Pollo Campero, has innovated with smart combo meals so that the APC (average price per customer) goes up. “If you can offer a combo meal like pasta with a beer for Rs 350, while the pasta alone would be for Rs 250, you will find more customers picking up the combo,” says Amit Burman, promoter, Lite Bite Foods. The company is also trying to move up the value chain to increase its APC. “Baker Street has many more products today. Earlier, it had a coffee shop menu. Now it offers pasta, pizza, and also beer and wine. With muffins and coffee, you can only do standard prices. But if you offer pasta or pizza, you can charge Rs 250 per head.”

Most companies may be looking at other verticals to cut costs, but not at the marketing budgets. To paraphrase what a marketing guru once said: To stop spending on marketing to save money is like stopping the clock to save time.

prasad(dot)sangameshwaran(at)abp(dot)in

(This story was published in Businessworld Issue Dated 21-01-2013)