NEW DELHI: Hindustan Unilever, the FMCG group, is creating specific metrics for allocating its advertising budget and monitoring payback, as commodity costs put pressure on the resources available.
The company trimmed its expenditure in this area by almost 2% during the last quarter – mainly due to reductions covering soaps and detergents, two major categories – but revenues rose by 18.5%.
One reason for this reduction in adspend was that its overall outlay had grown over the previous few quarters, but additional factors, and particularly the surging cost of raw materials, were also key.
Nitin Paranjape, Hindustan Unilever's CEO, told Moneycontrol: "In a market where it had not been possible to fully offset all these increases through price increase, the industry had to find a way to manage ... appropriately."
The owner of Dove, Rin and Lifebuoy – traditionally a bellwether for the Indian consumer goods industry and one of the country's biggest advertisers – has faced steeply rising competition in the recent past.
In determining the appropriate level of spending for the brands within its portfolio, Hindustan Unilever follows a formula based on a range of indicators.
"We have a certain principle which is unchanged irrespective of which quarter it is that all our brands must be supported adequately, set to competitive levels and in line with the goals that each brand has," Paranjape said.
"We measure the share of voice which [each] brand has, we measure how it compares with respect to the share of market that we have got and we look at it in terms of the innovation program, etc."
Paranjape suggested that the share of revenues attributed to advertising could fluctuate between 12% to 14% depending on the exact environment facing the company.
Alongside this process, the need to demonstrate the effectiveness of communications has assumed central importance at a time when all outgoings must come under careful scrutiny.
"It is a big area of expense and just like we subject every other cost in this business to scrutiny, we subject advertising and promotion to scrutiny as well to maximise [what] we call the return in marketing investment," Paranjape said.
"We have done a lot of work to remove some waste in the space and the benefit of that is also getting reflected in the numbers that you see."
Data sourced from Moneycontrol; additional content by Warc staff