Indrani Sen: E-commerce muddles advertising growth in 2016

16 Aug,2016

By Indrani Sen

 

Last week, Pitch Madison released its mid-year advertising report for 2016 and revised the annual advertising growth forecast from 16.8% to 13.2%. It appears that our advertising growth rate will take a plunge in 2016 after achieving growth rates of 16.5% in 2014 and 17.6% in 2015. Madison no longer expects the total advertising in India to cross Rs 50,000 crore by end of 2016.

A slowdown in TV advertising in the first half of the current year has compelled the agency to cut down on its original projection of TV advertising annual growth rate from 20% to 11%, the same as the growth rate achieved by the medium during the first half of 2016. The TV advertising expenditure has lagged below the estimated level for the first half of 2016 largely due to the lower contribution from the e-commerce sector. The shortfall in TV advertising has downgraded the overall advertising growth forecast by 3.5%.

Shortly after the release of “Pitch Madison Advertising Report 2016” in February 2016, the Union Government gave a blow to the e-commerce industry by prohibiting them to offer direct discount to the consumers in March 2016. Financial Express warned in an article on March 29, 2016 about a slowdown of funding in e-commerce companies from last quarter of 2015 (http://www.financialexpress.com/industry/companies/flipkart-bigbasket-alibaba-flows-to-e-commerce-slow-down/230340/ ) backed by some hard data.

In its issue dated April 24, 2016, Business Today carried a cover story “The Party is over” by Goutam Das (http://www.businesstoday.in/magazine/cover-story/realism-now-takes-root-among-indian-e-commerce-cos/story/230732.html) suggesting that “After two years of reckless funding and growth, realism takes root among Indian e-commerce companies.” The article showed that venture funding in e-commerce had slowed down since October 2015.

However, around the same time Deloitte, supported by Mjunction and CloudBuy released the report “E commerce in India: A Game Changer for the Economy” commissioned by CII which (https://www2.deloitte.com/content/dam/Deloitte/in/Documents/technology-media-telecommunications/in-tmt-e-commerce-in-india-noexp.pdf) marginally raised the hopes of the advertising industry.

The writing on the wall was all over the financial and trade media during the last two months (June and July 2016) with various articles appearing on the changes in India’s e-commerce industry.  It became quite clear that all is not well in the e-commerce sector even before Pitch Madison released its mid-year advertising report. The revision in the advertising growth rate of e-commerce sector raises a question if it is too conservative. The festive season advertising spends usually yields a higher growth rate in the second half of the year compared to the first half in most categories, but we find that the Madison has pegged the revised advertising annual growth rate for the e-commerce sector at the same level as the first half of the year.

GroupM released its “This Year Next Year” report in January 2016, a few weeks before the Pitch Madison Advertising Report. In 2015, the adspending in India grew by 14.2% which was higher than their predicted growth rate of 12.4%. GroupM projected a growth rate of 15.5% in advertising spend in India in 2016 to Rs 57486 crore driven by Digital. TV remained as the dominant medium with a 47.1% share, up from 46.3% in 2015. It also predicted that consumer product, automobile and e-commerce companies would continue to drive the growth in advertising expenditure as they did in 2015. The e-commerce sector has been burning less money on the traditional media as well as digital media for advertising, which will also affect the GroupM projections.

The government has recently set up a high-powered committee to review all issues including FDI of the e-commerce industry in India. The committee will submit its report within two months. The introduction of Goods & Services Tax (GST) is also supposed to give relief to the e-commerce companies. However, the effects of all these measures will not be felt in immediate future and media and advertising industry will have to wait and watch for the revival of e-commerce advertising spends.

 

Indrani Sen is a veteran media agency and marketing services professional. She is currently an Independent Consultant and Adjunct Professor, Media Management at Symbiosis Institute of Media & Communication, Pune. The views expressed here are her own.

 

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