Banning Liquor Surrogate Advertising

Details

Themes : Advertising and Promotion
Period : 1999-2002
Organization : Archies Greetings
Pub Date : 2002
Countries : India
Industry : Advertising

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Case Code : MKTG024
Case Length : 13 Pages
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The Debate Contd...

However, some analysts were of the opinion that the ban could turn out to be advantageous for domestic players. According to a WTO agreement signed in March 2001, MNCs had unrestricted license to sell their products. After the ban, these MNCs would not have access to the quickest and most effective form of advertising - the TV. Thus MNCs who had recently entered the Indian industry were expected to face difficulties in building their brands. The ban would also affect the entry decisions of MNCs that were planning to enter the Indian liquor industry.

Moreover, some analysts argued that the ban would not affect the established domestic players severely. It would only affect new launches and new brand building activities of these companies. Players who already had very strong brands (E.g. McDowell No. 1, KingFisher, Hayward's and Royal Challenge) would not be affected by the ban.

Apart from reducing foreign competition, the ban was also expected to improve margins for these players, as these companies had already spent heavily on advertising and other promotional activities. (Refer Table II).

On an average, liquor companies spent about 10-12% of sales revenue on advertising, including direct consumer promotions programs; sponsorships; and print and electronic media advertisements. On TV alone, companies reportedly spent about 3-4% of sales revenue. This meant that after the ban, companies could save 3-4% sales or gain in margins. For instance, McDowell's operating margins ranged between 5-7% and after the ban, were expected to increase by 50%.

The smaller companies in the domestic market also seemed to have an advantage. Industry watchers felt that since distribution and reach would become more vital after the ban, smaller companies might be acquired by the larger ones for their distribution network, if not for their brands.

The restrictions on the liquor industry were viewed by many critics as attempts by the government to disassociate itself from the social evils associated with alcohol consumption. However, some critics observed that while the government imposed many restrictions on the liquor company; it also earned a significant portion of its revenues (Rs 200 billion in 2000 for the whole country) through levies on liquor sales.

The issue of surrogate advertising involved even media companies, as they had to forego substantial revenues as a result of the ban. According to broadcasters, the government should put in place a 'reasonable' policy, which somehow struck a balance between the social and monetary aspects of the business of alcohol.

What Lies Ahead?

In August 2002, broadcasting industry sources revealed plans to put in place measures for self-regulation and monitoring, even before the I&B Ministry took concrete steps in this regard. The broadcasters who were members of the IBF, announced that they would come up with an advertising code specific to surrogate advertising.

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