India's ad to GDP: Stuck at 0.4%

“Ad mkt to GDP ratio in India among the lowest in the world”, screamed the headline featuring an interview of Sanjay Gupta of Google India (Business Standard, October 20, 2023). In his interview, Gupta mentioned that the ad market in India was only a miniscule 0.4 per cent of the country’s GDP, lagging even many of our Asian neighbours. From what I can recall, the number of 0.4 per cent has not changed in the last three decades. Why is the ratio low? What could be the underlying causes?

For one, Indian television advertising rates are among the lowest in the world. This is thanks to the intense competition among the multitude of channels. While premium properties like cricket get sold for eye-watering rates, they are often being used for driving subscriptions and overall channel affiliation. The same could be said of print advertising. In cost per thousand exposures, both television and print rates are among the lowest in the world, in spite of the fact that subscription rates are also among the lowest. The low rates may be a result of lower operating costs/wages and intense competition in the market for eyeballs.

The myth is that digital advertising is cheap. Wastage is low. Selectivity is high. In overall terms, digital advertising may be cheaper than traditional print advertising, but when you start applying filters the rates go up.

So one reason why ad to GDP ratios is low is our lower ad rates. But is there another, maybe bigger, reason?

In her column (Business Standard, October 24), Rama Bijapurkar commented that there are 10 times more local and regional small fast-moving consumer brands than large ones that offer great consumer value. The question remains, are they doing enough to reach out to the consumers? Are they advertising enough?

I often get asked at my brand coaching sessions, “What should be my ad expenditure?” The answer I give is often a simple “it depends”; then I qualify that companies like Hindustan Unilever spend upwards of 11-12 per cent of their sales in advertising. If you take high-end cosmetics the percentage could be as high as 30 per cent. Most small Indian brands get disheartened hearing this since their operating margin is often less than 15 per cent. The truth is that you don’t need to spend 10 per cent or even 5 per cent of your top line in advertising. There is the theory that you should not spend below a particular quantum on advertising lest you are below a “threshold level” of advertising. Often media plans are made so that a minimum number of target consumers (30 per cent) get at least a minimum level of exposure (5+). While that is generally true, research by John Philip Jones has indicated that even one exposure can create a small effect.

Probably therein lies the rub. Most small players don’t spend anything on advertising. This is even truer of B2B players. For one, we have not had a robust B2B media culture in India. The only significant player used to be Industrial Products Finder. In this digital era, I would have expected many more to emerge. I would have also imagined trade shows and exhibitions become huge drivers of business. While there has been some progress, a lot more is needed. Directional media like Yellow Pages did not take off in India due to various reasons. Offerings that mimic Yellow Pages like Just Dial have definitely managed to create an impact but for a country of our size we probably need a few more of those.

When my friend Ravi Chandra Mouli, a very successful metallurgical engineer running his own company that makes speciality products for the foundry industry, asked me if he should advertise in an industrial products journal, my first instinct was to tell him not to waste his money. Then I realised that he may benefit from this advertising if he can create a package out of it. After some discussion we came to the conclusion that an ad coupled with an interview both in the digital and print version would be beneficial. Add to this, if the publisher can offer copies of the magazines to Mouli that he can send out to his customers, prospects and suppliers, he will extract maximum bang for the buck.

I am sure numerous small players are not taking the first step towards brand building and demand generation through paid forms of advertising. The media hype around big budgets and film star-dominated television advertising has also created an artificial moat that small players are scared to cross. What we need is a deeper outreach to the smaller players by the big media operators who can offer not just advertising space but also interesting packages that a small player can leverage in many ways. When that happens, we can see the 0.4 per cent climb up to 0.5 per cent or more.

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Ambi Parameswaran is a best-selling author and founder of Brand-Building.com a brand advisory. His latest book, All the World’s a Stage, is a personal branding story