Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Ad expense: Fight for market share - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Apr 11, 2003

    Ad expense: Fight for market share

    To sell a product all it takes is four P's (Price, Place, Promotion and Product). All these parameters play a very important role in the sale of any product. If any one of the parameters fail then the product in all probability is likely to face pressure in its performance. Promotion or for that matter, advertising, is one of the most important parameter for the success/failure of a product. We take a look at what the top Indian companies have done for the success of their products commodities.

    Over the last few years the Indian consumer industry has come a long way. Spending habits have changed, the consumer is more aware of what he wants and what he gets, the price he is ready to pay for and so on. This resulted in companies pulling up their socks and becoming more efficient and competitive looking at value add consistently. Not only have the methods of advertising changed, the advertisements have become more attractive, more precise and as a result, the consumer is more aware of the quality and pricing.

    Top ad spenders
    (Rs m) FY02
    Advertisement exp. % of Sales
    Hindustan Lever Ltd. 8,238 7.5%
    Colgate-Palmolive (India) Ltd. 2,310 20.9%
    I T C Ltd. 1,801 3.6%
    Dabur India Ltd. 1,545 15.0%
    Nestle India Ltd. 1,543 8.6%
    Reckitt Benckiser (India) Ltd. 907 16.7%
    Britannia Industries Ltd. 906 6.6%
    Hero Honda Motors Ltd. 902 2.0%
    Bajaj Auto Ltd. 888 2.4%

    As is apparent from the table above, the top spenders on advertisements have been FMCG companies. The highest spender for FY02 has been HLL (atleast among the listed companies). But one very interesting factor seen here is that Colgate with only one product segment (oral care) in its portfolio spends the highest in terms of advertising as a percentage of sales. In FY02, its spending touched around 21% of sales.

    Over the last decade (FY92-FY02), Colgate’s advertising spends have increased at a CAGR of 26%, but revenues unfortunately have grown only at 10.4% CAGR in the same period. Colgate has an over 50% market share in the oral care division, which has been slowing sliding down due to competition from other players. The other players in this segment are HLL (36%) and SmithKline Beecham (5%).

    Company Name Sales CAGR* Ad expense CAGR*
    Hindustan Lever Ltd. 19.8% 30.3%
    Colgate-Palmolive (India) Ltd. 10.4% 26.5%
    I T C Ltd. 12.1% 17.4%
    Dabur India Ltd. 14.9% 26.1%
    Nestle India Ltd. 15.4% 20.4%
    Reckitt Benckiser (India) Ltd. 15.4% 26.5%
    Britannia Industries Ltd. 11.6% 27.7%
    Hero Honda Motors Ltd. 29.0% 33.9%
    Bajaj Auto Ltd. 12.7% 21.2%

    *CAGR for period between FY92-FY02

    2-wheeler auto majors Hero Honda and Bajaj Auto are also among the top spenders on advertisements, but their advertisement spending as a percentage of sales has been marginal, around 1% in FY92 to 2.4% in FY02. However, the advertisement spending for both two-wheeler majors has clocked a 21% CAGR over the last decade. While Hero Honda recorded 29% sales CAGR, Bajaj Auto too, clocked respectable 12.7% sales CAGR during the same period. Although Hero Honda continues to be a market leader, Bajaj Auto seems to be catching up with the leader to get a share of the market. What this indicates is that the Indian market place is getting more competitive and consumers getting more sophisticated. Consequently, ad spends have increased rapidly.

    So as time rolls, ad spends reach new highs, which results in the increase in consumer awareness. Companies hope that this will lead to increase in the consumer spending and hence increase their bottomlines. The companies do benefit from this, but sometimes, this is at the cost of margins. As companies fight for increasing their market share, the consumers benefit the most as they get more substitutes at more and more competitive prices.



    Equitymaster requests your view! Post a comment on "Ad expense: Fight for market share". Click here!


    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    Dec 9, 2016

    Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    GSK Consumer: Price Hike Hurts Volumes (Quarterly Results Update - Detailed)

    Nov 30, 2016

    GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.

    Marico: Margin Expansion Drives Profit Growth (Quarterly Results Update - Detailed)

    Nov 28, 2016

    Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)