Advertisement expenditure of 385 companies ( for which annual reports are available) which account for 50 per cent of the Rs 5,000 crore ad market rose by a hefty 25.91 per cent in 1997-98. During the previous year, ad expenditure of the corporate sector grew by 16 per cent while in 1995-96 it rose by over 35 per cent.
The sample companies spent Rs 2,427 crore during 1997-98 compared with Rs 1,928 crore the year before- a rise of 25.9 per cent over the previous year. This indicates the corporate sector spent more on advertisement during the year in order to increase and retain market share in a recessionary phase.
Though most companies spent more on advertisement, a majority of them failed to generate growth in sales turnover.
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Sales turnover of the sample companies grew by 10 per cent compared with a sales growth of 13.7 per cent the previous year.
Higher expenditure on advertisement had a severe impact on the net profit of the sample companies. The net profit of the 385 companies grew by marginal four per cent during 1997-98. With a lower rise in sales compared with the climb in ad expenditure, adspend to net sales ratio during 1997-98 went up sharply to 1.42 per cent from 1.24 per cent in 1996-97.
Hindustan Lever topped the ad spend list with an annual spending of Rs 443.11 crore (Rs 273.38 crore)- a growth of 62 per cent over the previous year. This marketing strategy has paid good dividends. HLL's sales turnover during the year-ended December 1997 rose by 18.48 per cent while net profit climbed 40.6 per cent.
ITC, though second in ad spend, curtailed expenditure during 1997-98. The company's ad spend decline marginally by 0.58 per cent to Rs 171.56 crore. With ad spend as a percentage of sales declining to 5.58 per cent from 6.13 per cent, ITC's net profit grew by 51.69 per cent.
Colgate-Palmolive's expenditure on advertisement rose 42.58 per cent to Rs 147.93 crore. This impacted the company's bottomline which grew marginally by 1.46 per cent. Nestle (a rise of 42.66 per cent), Reliance Industries (a climb of 119.3 per cent) and Bajaj Auto (a growth of 10 per cent) were the other major spenders.
A sector-wise analysis of advertisement expenditure shows, not unexpectedly, that companies manufacturing consumer goods were the bulk spenders. Twenty-three companies in the field of personal care, paints, electronics (audio video) and consumer goods spent Rs 1,513.37 crore on advertisement of their products- a rise of 33.37 per cent over the previous year. This in fact helped them scale up sales turnover by over 20 per cent. While most corporates were struggling to increase profits these companies registered a 33.18 per cent rise in net profit during 1997-98.
With increased competition and a recession in the automobile market manufacturers spending on advertisement rose by 34.92 per cent. This high expenditure, however, did not help them to shore up sales and profits during 1997-98. While sales declined by 9.6 per cent, net profit fell 21.4 per cent.
Banks, who have been flush with funds for the last couple of years, have spend a whopping 48.44 per cent more on advertisement compared with the year before.