Many ad firms may go bust next year

JAKARTA (JP): Many advertising companies, particularly small and medium operations, may be forced to close their doors in the recession forecast for next year, an analyst has warned.

Executive secretary of the Institute for National Development Studies, Umar Juoro, said Saturday ad firms could collapse due to a likely slump in orders amid the economic downturn.

But he said those companies which could adjust to changing consumer trends might be able to ride out the tough times.

The drop of more than 50 percent in the rupiah's value since July may cause advertisers to cut their advertising budgets, he said at a seminar on prospects for the advertising industry.

Advertising firms would be simultaneously pressed by high bank interest rates due to the tight monetary policy, he said.

Big companies could survive through establishing affiliations with foreign firms, he said.

"Currently, the government is still protective toward local advertising companies, but if the sector gets more liberalized, large companies must form alliance with foreign companies in order to survive."

Umar predicted that total advertising spending next year would not reach set targets.

He said revenue growth might also decrease from 19 percent last year to between 10 percent to 15 percent, but the growth would still be double the economic growth expected next year.

"The industry will not die," he said.

He added that domestic consumption would boost the country's high economic growth prior to onset of the predicted crisis.

"Recession would not drastically cut consumption, but it would made consumers more value-aware," he said.

Umar said total ad spending last year reached Rp 3.8 trillion (US$950 million), and was projected to reach Rp 4.5 trillion this year.

Next year, ad spending was expected to hit Rp 5.3 trillion, 39 percent below the expected target of Rp 8 trillion, he said.

He said problems besetting the property and finance sectors contributed to the decline.

Ad spending by property firms made up about 15 percent of the total this year, but it would fall to no more than 7 percent next year, he said.

The exception in retaining its market share would be low-cost housing, he said.

He believed that lower purchasing power resulting from this year's financial crisis would propel domestic consumers to be more value-conscious.

It would in turn force local advertising firms to cater to the middle and lower market segments, he said.

"The marketing trend for next year would be towards mass marketing, which mostly contains of middle to lower market segment, products for upper segment would be in short demand."

Middle and small advertising firms must promote their understanding of the local market needs to their clients, he said.

This required that ad campaigns be more functional instead of focused on shaping an image, and also able to tap into the public's aspirations, he said.

For the next two to three years, price would become the most important factor in marketing products, he said. Consumers would spend their money on products and services which gave them the most value for money.

Advertisers must be able to convince companies that consumers' interests had shifted, and make their campaigns more realistic, he said.

Advertisements should represent the value of the products instead of the image received from them, he said. (das)

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