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Advertising is investment

Shunu Sen

Advertising expenditure should be considered a part of the brand investment as it both develops and strengthens the brand in the long term.

Kaun Banega Crorepati, according to the latest media reports, has become the most expensive commercial platform on Indian television in a mere six weeks, reportedly commanding a little over Rs 3 lakhs per 10-second spot. Rumours about a similar programme on DD Metro, offering a far higher prize amount, are floating around. This may well fill up the coffers of the channels and the host. And, naturally, the cost of such advertising will be transferred to the consumer through price escalations. Isn't the v iewer-consumer being taken for a million-dollar ride?

- Priya Mani, Coimbatore.

Your question raises several very interesting matters concerning advertising and I would like to tackle them one by one.

First, the burning question as to whether advertising cost, like all other costs, is to be passed on to the consumer or is it to be considered an investment by the company in the brand, which, over time, increases the brand strength and its sales and mar ket share, resulting in economies of scale which either reduce the overall cost or increase the brand value to the consumer.

It is rare that in any business the advertising cost is taken into account in determining the brand's price, which normally covers both direct product and manufacturing costs. Unless it is a single product company, the brand contribution is expected to p rovide a surplus towards covering indirect (or overhead) costs.

If advertising expenditure is factored into the calculation of the brand's profitability it would be, in my view, nothing short of a short-term folly. This would be so if one expects the price to cover the advertising investment, particularly in the earl y stages of a brand launch. Advertising, in my view, should be considered a part of the brand investment as it both develops and strengthens the brand, in the long term. If this is so, then advertising is not a cost in the same manner as variable cost or attributable overheads, but a long-term investment in the brand on which the brand must receive a return.

However, having said that, two questions remain. First, irrespective of the level of investment, how can one ensure that the advertising is effective? For, if it is not, then the money spent on advertising is a wasted investment.

The second question is how should one invest and where, in terms of media purchase. It is in this context that one can ask the question as to whether a particular media vehicle such as KBC is worth the price being charged.

Let me try and answer the second question first and leave the answer on how to ensure advertising effectiveness for another day. For the purpose of this answer we should assume that we, the marketers, have created effective advertising and have decided on an advertising budget, given the needs and the ambition of the brand and the competitive environment. The question we must now answer is whether it is correct to invest in KBC, a programme that costs a million rupees for a 30-second spot.

At this price, KBC is an expensive programme, but nowhere near the most expensive in the world. A 60-second advertising spot on Super Bowl, the traditional American football final game of the year, could attract an advertising cost of $1.5 million. Howev er, it does provide a huge audience and an excellent viewing environment where one out of three adult Americans have their eyes glued to the television screen.

KBC attracts a large audience cutting across demographic and psychographic groups. If television is a mass media, which it is, then KBC gives a mass audience. There are advertisers who want this audience and find the price, vis-a-vis cheaper programmes, cost effective as the vast audience resembles the brand target.

Hence, a good media planner can tell an advertiser as to whether he/she is spending his/her money cost effectively given the advertising task. If this is so, in the case of a particular advertiser, the cost of advertising time may be considered a worthwh ile expenditure. If not, then the price may have to be reduced through negotiation, and this is done routinely as far as the satellite channels are concerned.

Indeed, the charter advertisers on this programme are fortunate as they pay a fraction of the current market price. Hence, good media buying and relevant media planning can actually go a long way in making the advertising rupee go further.

(The author is CEO, Quadra Advisory, a strategic marketing consultancy. Readers may send in their questions on marketing issues to The Editor, Business Line, 859, Anna Salai, Chennai-600002 or e-mail them to bleditor@thehindu.co.in)