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"P&G has announced a compensation structure based on percentage of sales and as history shows - What P&G does soon becomes the norm" - Views on News from Equitymaster
 
 
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  • Mar 6, 2000

    "P&G has announced a compensation structure based on percentage of sales and as history shows - What P&G does soon becomes the norm"

    V. Shanta Kumar is Managing Director of Saatchi & Saatchi. He has had an interesting career with 6 years in Consumer Product marketing and 22 years in Advertising and his diverse experience includes working at Madura Coats, Hindustan Lever and Rediffusion Advertising.

    Says Shanta about himself "Reading everything and anything - while I'm a vegetarian, when it comes to reading I'm omnivorous! Meditation is wonderful to do too! I like travelling. My favorite author is Charles Dickens - still!! And my favorite person is my Guru...... Yes I have one!"

    In an interview to equitymaster.com, V.Shanta Kumar MD, Saatchi & Saatchi outlined the future of the advertising medium in India and the impact of the Internet on this space.


    EQM: Is it accurate to say that the level of spending on advertising is a barometer of the recovery of the economy? Or is ad. Spend the last to be increased by corporates?

    Mr. Shanta Kumar: Yes advertising spends reflect the state of the economy. A buoyant economy supports enough consumer pull to attract advertising budgets. On the other hand it has been proven time and again that increasing advertising during times of recession actually helps in brand building and in keeping the brand top- of- mind leading to higher gains when the economy recovers. Traditionalists though think that advertising should be the first thing that needs to be slashed when there is a downtrend in the economy. Unfortunately these are the people who treat advertising as an expense and not as an investment.

    EQM: Which sectors have seen the largest spend on advertising in the last 6 months? Looking ahead for the next 6 months which sectors do you see growing fastest and spending the most?

    Mr. Shanta Kumar: Consumer durables as a whole have seen the highest growth in the last 6 months. Televisions, washing machines etc continue to grow. The spends in the last six months have been fuelled by the emergence of new product categories- DIGITAL ELECTRONICS!

    The automobile sector is not far behind. What with the establishment of a completely new segment- low end salon cars. The Ford Ikon, Hyundai Accent, Opel Corsa etc. are trying to out- spend each other.

    The trend in the next six months will be similar. The next six months will also see the emergence of technology led companies including dot com companies vying for the consumers' attention and hits!

    EQM: Are there any benchmarks by which you can analyze the effectiveness of ad spend by a company?

    Mr. Shanta Kumar: Like I mentioned before current evaluations are based on page views, unique hits as reported by the website. Unfortunately there isn't any independent agency that runs an audit on these figures. But a good measure is "click throughs" which measures the actual number of people who have been directed to the company's website by the advertising placed on another website. Of course the ultimate measure will be the actual sales that take place once the e-commerce backbone is in place.

    EQM: Is there a shift in advertising from conventional media to the Internet medium in India? Would you hazard a guess on what amount in absolute terms is being spent on advertising on the Internet directly?

    Mr. Shanta Kumar: There are no signs of major shifts in advertising from conventional media to the Internet medium. Currently advertising on the Internet is seen as an experiment. Advertisers are evaluating Internet as in addition to conventional media. This will continue for some time to come. The trend towards Internet will be led by product categories, which have a long drawn out process of evaluation-competitive evaluation, price comparison etc. High value consumer durables, technology related products would lead the pack. My guess on absolute advertising spends - approx. Rs 15 crores... Not counting the amounts spent on designing and maintaining their own websites.

    EQM: Are there any reports / studies on the effectiveness of Internet as a medium for advertising in India?

    Mr. Shanta Kumar: No. Currently there are no reports/ studies on the effectiveness of Internet as a medium. Decisions on effectiveness are made on Page hits, Page views as reported by the website owner.

    EQM: Any comments on the recent slew of advertising by several dot com companies?

    Mr. Shanta Kumar: Dot com business is here to stay and is the future. Unfortunately the name of the game is "Valuation" and IPO. The current advertising campaigns are aimed at generating "eyeballs" and "registrations" and not at brand building. I can understand Amazon.com losing over $100 Mn. every year... they can recover the loss in the future since they have grown to be a brand with its own equity... I can't say the same of some of the dot coms that are advertising in India.

    EQM: Is there a move to reduce ad? Agency commissions from the prevailing 15% levels? How does this compare with other companies?

    Mr. Shanta Kumar: With the emergence of media independents the traditional 15% is already down to 12.5%. The future will see the trend towards other means of agency compensation.... Fees, Stock Options etc., and in some cases cutting down the agency commission to negotiated terms. In fact one of our biggest clients P&G has announced a compensation structure based on percentage of sales. For the first time the client is pinning down the agency making it responsible for in market performance of the brand. And as history shows what P&G does soon becomes the norm.

     

     

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