MUMBAI: Brand owners in India spend an average of 3.4% of their sales revenues on advertising, a figure rising to 4.6% among multinational corporations operating in the country, but falling to 2.4% for domestic companies, according to a study by R3 and Grupo Consultores.
Based on interviews with over 400 leading marketers, the two companies found that ad-to-sales ratios in India were below the average of foreign firms both in global and local terms.
In its last set of full-year results, Procter & Gamble reported that its worldwide ad-to-sales ratio has averaged out at around 10% over the last 15 years, whereas Indian fmcg to hotel group ITC's ratio was just over 1.9% for the fiscal year to March 2008.
Sanjay Tripathy, evp and head of marketing at HDFC Standard Life Insurance, argues one reason for the comparative lack of investment by Indian companies in advertising is a "lack of focus on measurement of ROI" among agencies in the country.
By contrast, Arvind Sharma, chairman/ceo of Leo Burnett India, countered that advertisers in India are "like teenagers", as they "think one way, look another way, and then go the third way."
R3 and Grupo Consultores also found that the average length of an agency–advertiser relationship in India is 3.6 years, compared with around six years in Europe and the US.
Their study further shows that 33% of "local" advertisers in India – which are particularly prominent in categories like packaged food – manage digital marketing in-house, a figure rising to 42% for event management and 47% for direct marketing.
However, as internet penetration increases, the media mix used by advertisers will change, and brand owners are thus likely to be "reviewing their agency mix", according to R3's Sally Warren.
In all, over half of all companies across Asia are predicted to cut their adpsend levels this year, compared with 6% increasing it, leading R3's founder Greg Paull to suggest that "the already low sales–ad ratio may deteriorate."
Data sourced from Livemint.com; additional content by WARC staff