Sales volume of major FMCG’s, not in par with ad spends

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Major FMCG’s of India like HUL, Dabur and Colgate Palmolive have showed a great splurge in advertising and product promotion campaigns, especially by the last quarter of 2012.Despite this large spending on advertising activities, there is negligible increase in sales volume for most of these fast moving consumer goods companies.

FMCG firm’s over spending on advertisements is evident from the reports released by Nielsen’s quarterly Global AdView Pulse. It reveals that FMCG sector showed a six percent increase in ad spend by the third quarter of 2012.

Increased adverting in food and drink products is one of the reasons behind increased FMCG ad spending. As these increased investments in advertisements have not resulted in any substantial increase in the sales volume, it is quite obvious that demand for these fast moving consumer brands have come down over previous years.

Other sectors like telecommunications, media and automotive industry have also spent much on advertising. Companies like ITC, Asian Paints and Kansai Nerolac have come out with a bunch of new products last quarter. This indeed forced them to spend more on advertising and product promotion campaigns.

Adjustable raw material costs have helped companies to save much on input costs and to compensate that amount on advertising. They often pay out a part of their net sales volume for advertising and related activities. Percentage of net sales spent towards advertising and corresponding volume growth for firms like HUL and Colgate Palmolive are depicted here.

Company                Percentage of net sales spent towards advertising     Sales Growth

HUL                                               12.8%                                                        5%

Colgate Palmolive                          13%                                                        – 6-7%

Sales records shown by Dabur during the last quarter are also not very encouraging. Even though they had spent 12.8% of its revenues for advertisements, they could not increase their sales above 10%. Marico’s cooking oil brand, Saffola is also facing similar problems in the market.

Increased competition in consumer goods especially for products like soaps and hair oils have attributed much for reduced sales among some of the major brands. Therefore companies in fast moving consumer goods category have to spend more to drive their sales for increased returns. Price cutting is another emerging market strategy which is found equally effective as advertising.

 

 

 

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