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P.T. Jyothi Datta

The scaling down of advertisement expenditure was a part of the overall strategy of cost reduction initiated by FMCG majors to maintain profitability margins in the face of declining sales," the study says.

NEW DELHI, July 8

CONSUMER goods majors are increasingly going to put their money where the innovative promotional strategy is - for, this seems to be paying off more than conventional advertising. Departing from the oft-beaten track of resorting to heavy advertising, the big spenders of the Fast Moving Consumer Goods (FMCG) segment are adopting innovative avenues, such as — competitive pricing, small packaging, rural initiatives and personalised promotional strategies — in an effort to woo consumers, while retaining their profitability.

"Be it a small packet of Tiger biscuits from Britannia, rural initiatives from Hindustan Lever Ltd (HLL) or Rs 5 chocolates from Nestle — FMCG majors are increasingly moving away from pumping money into advertising and are looking instead at innovative promotional strategies that are more effective in terms of translating into sales," an industry analyst told Business Line.

Citing Nestle India Ltd (NIL) and Colgate Palmolive Ltd (CPL) as a case in point, a recent industry analysis undertaken by information and credit rating agency ICRA points out that the initiatives taken by these companies, in a given period, "focused primarily on effective supply chain management and not on advertisement expenditure. It is possible that such initiatives resulted in increasing market awareness of their products, which in turn helped the companies push up sales."

Further, it points out that an overall slowdown in advertising expenditure of India Inc follows the economic downturn and even though corporate advertisement expenditure reported a six per cent growth in calendar year 2002, as a percentage of GDP it showed a decline from 0.42 per cent in fiscal 2001 to 0.41 per cent in financial year 2002. "FMCG majors have also scaled down their advertising expenditure relative to earlier years," the report said.

Putting FMCG majors HLL, NIL and CPL under the scanner — the agency evaluated the "elasticity" of net sales with respect to advertisement expenditure for these three companies for the seven-year period ended financial year 2003. Incidentally, HLL, NIL and CPL were the three FMCG companies in the top 10 list of advertisers in 2002, according to the Indian Readership Survey 2002.

Taking financial year 1997 as the starting point, since all three FMCG majors reported a sharp increase in advertising expenditure since then, the agency undertook its evaluation of elasticity or the change in net sales for a change in advertisement expenditure. The estimates revealed that the overall "elasticity" coefficients were elastic, even though declining over time. However, in cases like NIL and CPL, who undertook promotional activities, a marginal increase was seen in 2003, the author of the study said.

Meanwhile, while HLL reported a 2.2 per cent increase in advertisement expenditure for fiscal 2003, NIL and CPL both scaled back their advertisement expenditure in the same period. "The cutback in advertisement expenditure was the sharpest for CPL — a decline of 20 per cent over the financial year 2002 levels. The scaling down of advertisement expenditure was a part of the overall strategy of cost reduction initiated by FMCG majors to maintain profitability margins in the face of declining sales," the study observes.

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