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Monday, Aug 08, 2005

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Ad spends of oil cos take a hit

Richa Mishra
Nithya Subramanian

New Delhi , Aug. 7

THE axe seems to have fallen on the advertising expenditure of oil companies mainly due to the huge losses suffered by them during the first quarter of the current fiscal and a directive from the Prime Minister's Office (PMO) to cut costs on corporate promotions.

While upstream companies can afford to cut their ad spends as they are not brand-driven, downstream companies, which are under pressure as a result of growing competition from both the private sector and multinational oil companies, are pressed to increase their budgets, an IOC official said.

"As the industry becomes more competitive and customer-driven, companies needed to focus like never before on marketing strategies," the official explained.

However, indications are that most of the players in the sector (upstream and downstream) such as GAIL (India) Ltd, Oil and Natural Gas Corporation (ONGC), and IOC and its subsidiaries are either cutting down their promotional expenses for fiscal 2005-06 or maintaining it at the same level as last year.

For instance, ONGC's expenditure on advertisement went down from Rs 43.77 crore in 2003-04 to Rs 26 crore in 2004-05. GAIL's expenses came down from Rs 26.65 crore in 2003-04 to about Rs 23.6 crore in 2004-05.

Compared to this, the expenses of the oil marketing companies saw an upward movement.

The advertisement expenses of IOC went up marginally from Rs 112.14 crore in 2003-04 to Rs 113 crore during 2004-05, while that of Bharat Petroleum Corporation went up from Rs 56.24 crore in 2003-04 to Rs 62.56 crore (2004-05). IBP's expenditure on advertising came down from Rs 5.48 crore in 2003-04 to Rs 2.46 crore (2004-05).

Hindustan Petroleum Corporation Ltd's expenses too came down from Rs 58.38 crore in 2003-04 to Rs 38.74 crore (2004-05).

The launch of premium grade petrol under the brand names of Speed, Premium, Power, and branded diesel such as Diesel Super and Turbo Jet and branded lubricants saw the oil marketing companies furiously advertising. Industry insiders also point out that besides the traditional mass media, these companies have been sponsoring various events, including sports.

Media analysts said that it is essential for oil companies to advertise to grow their market share especially in the large urban markets, build the image of the company, as most of them are listed on the stock markets, and also push other smaller profitable bi-products like lubricants.

According to Mr Atul Phadnis, Vice-President, TAM India (a media tracking agency), "Last year, there was a cut back in ad spends for LPG while the spends on lubricants increased marginally. However, the largest increase was visible in auto fuels and corporate campaigns."

While IOC sources maintained that advertising was important, ONGC said that as the company is not brand-driven, the advertising expenses are not much.

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