If GDP growth falls till 2%, overall AdEx could shrink by 0-5%: Madison Media

• Madison Media’s ‘Marketing just went Viral’ talks about the potential impact of Covid-19 on advertising and marketing.
• The report states that if the GDP growth falls till 2%, the overall AdEx could shrink by 0-5%.
• The report also gives some advice to marketers about how to navigate the Covid-19 outbreak.

In a report titled ‘Marketing just went Viral’, Madison Media has said that while it is still premature to revise AdEx estimates, if the GDP growth falls till 2%, the overall AdEx could shrink by 0-5%.

Compiled by Vikram Sakhuja, Partner and Group CEO Madison Media & OOH, the report talks about the possible impact of the COVID-19 outbreak on the world of advertising. It also has some advices for marketers around how to navigate the uncertain times.

The economic impact of the virus

S&P had lowered India's 2020 growth forecast from 5.7% to 5.2%. This was before the Covid-19. Ruchir Sharma, a renowned economist pegged the economic impact of Covid-19 as worse than the 2008 financial meltdown and similar to 'The Great Depression of 1930'. He expects World Economy to shrink by 1% and China after a contracted Q1 to grow at 2%. He feels India would be lucky to grow at 2%.
Sakhuja in the report said that they have observed broadly that consumption de-growth rate is much higher than GDP de-growth rate. If so, a 3% drop in GDP (from 5% to 2%) could imply a very dramatic drop in consumption! This is affected by a combination of supply chain issues, less cash in hand and overall negative sentiment. This could lead to some significant reductions in sales, which will be sectoral.

Categories which will bear the direct brunt are the ones involving social contact. Thus Airlines, Railways, Tourism, Restaurants, Retail, Auto and Live Sport & Entertainment will become casualties.

FMCG grew 1% during January 2020, down from 2.4% in the previous year. Urban growth at 0.2%, dragged down the entire segment even as hinterland consumption remained the same at 1.8% (Source: Kantar Worldpanel). “We don't expect Covid-19 to have an incremental adverse effect on FMCG. Here, supply chain issues rather than consumer headwinds are the factor to watch out for,” stated the report.
Financial markets are worried that retail loans will have higher defaults. Most financial Institutions could go slow on disbursement of retail loans. This is expected to have negative impact on sales of durables and mobile phones - categories that were fuelled by easy availability of 'Zero Interest EMI’s!’

Real estate and jewellery too would be impacted by sentiment with consumers postponing high value purchases. This assumes that the Covid-19 situation can be brought under control within 4-6 weeks.

Consumer behaviour during virus in terms of Media, Purchase and Sentiment

TV ratings will go up as people are staying home. The BARC report for the period March 8-14 captured two and a half days of the virus taking hold. The first of the WFH started from Monday, March 16 2020. Even before people were forced to be at home, HSM TV viewership had gone up 4% v/s the earlier week in HSM, and 8% for TN, AP. Within HSM, across TGs, clear increases in viewership in Hindi News, Hindi Movies, Kids, Hindi GEC 2 & English Niche. There was some drop in viewership in Hindi mainline GEC & Sports (expectedly). No significant change in FTA viewership.
As the lockdown continues, there’s expected to be a significant increase in TV viewership. However there is a ban on fresh serial production, GEC channels will run out of fresh programming and have started reruns. This may depress high viewership and may cancel some gains of more viewers watching more TV. It will be 3 weeks before we see BARC impact of re-runs. Most channels will be willing to protect CPRPs in case Ratings fall in this period. Digital viewing will also go up. In the week of March 9-15 v/s March 2-8 top 40 online news sites recorded a 23% growth v/s March 2-8 and 31% growth v/s January 6-12. OTT and YouTube will also increase. With increased supply on biddable platforms CPMs will come down.

OOH and cinema will fall. Apart from reduced footfalls there are also some cities like Mumbai which came out with a ruling to display only Coronavirus sites that will contract supply.

Most events have been cancelled which will have a devastating impact on this sector. Over and above, the visible impact of IPL, another Rs 3,000 crore worth of events are facing cancellation.
E-commerce will go up, especially for daily essentials. People may avoid shopping for stuff touched by hand. During this period, consumers can be expected to be less distracted and more mindful of messages and more open to promotions. They will buy what they need rather than desire, and given the uncertainty, will have a tendency to hold on to their money.

Talking about payments to media, the report said that Madison has proactively sensitized IBF and INS on delays in payments on 60th day in March. While Media will be understanding, delays needs to be the exception, with good reason provided.

Impact on AdEx
In its report that it had released in February, Madison had predicted that AdEx in 2020 could increase from 67600 to 74650 (+10.4%) - with a 5% growth in traditional and 28% growth in Digital. However, this was before the Covid-19 outbreak and the media agency said there is a need to review it now.

Speaking about the impact of the current situation on AdEx, the report said, “In a state of steady GDP growth (6-8%), AdEx grows about double GDP. When GDP falls, the AdEx falls much more than GDP fall in the next year. Conversely when GDP growth picks up, AdEx growth picks up even more. When we had projected a 10.4% AdEx growth in PMAR 2020, we had assumed a GDP growth of 4-5% till September and 7% beyond that. It is reasonably certain that GDP growth will be lower. If the GDP growth does fall till 2%, we may see an overall shrinking of AdEx by 0-5%.”

How sector-wise AdEx will shape up


Advice for advertisers

• Invest in staying close to the consumer. Employ listening tools to capture category and brand sentiment.
• The silver lining of this pandemic is that consumers are open to advertising. If you have messages that are relevant for consumers, you should air them. Do not be opportunistic, building trust is more important than short term sales.
• We should aim to get audience assurances on TV deals, and with increased Online Supply of Biddable inventory, CPMs will be low. From an efficiency standpoint it's a good time to advertise.
• Good time for moment marketing. Contextual placement and intelligent re-targeting can work.
• If P&L pressures are forcing a cut in budget, then make active trade-offs rather than merely scaling down plans pro-rata.
• Invest in promoting sales on e-commerce.
• Marketing messaging needs to be authentic, topical, one that builds trust and reassures. In the times of Covid, marketing needs to be controlled and not viral.