Promising ... but not quite stable
The Indonesian advertising market has developed very rapidly during the last few years thanks to a continued increase in advertising expenditure (adex) for consumer goods. Pradeep Harikrishnan, the research advisor of Initiative media specialist, highlighted many important aspects of future growth in the country's ad industry in a recent interview with The Jakarta Post. Below is an excerpt of the interview.
Question: According to a survey, Indonesia's adex grew by nearly 35 percent in 2004; one of highest in Asia. Do you think this high growth will be sustainable in 2005?.
Answer: Initiative estimates the real growth in 2004 as 30 percent, which is one of the highest in the region. This is the actual increase in advertising expenditure after accounting for inflation in the rates and taking into account the discounts offered to advertisers. A major factor that contributed to the high growth in 2004 was the spending on election campaigns by political parties. The adex growth in Indonesia is primarily driven by the relatively low cost of advertising on TV. TV accounts for three-fourths of advertising spending in the country and registered almost a 40 percent growth in terms of volume (number of spots on air).
In 2005, the growth is expected to be lower, with no spending on elections campaigns. Fast Moving Consumer Goods (FMCG) -- such as toiletries, cosmetics, branded food, beverages and home care -- which is the prime driver of advertising expenditure in the country, may not increase its advertising spending significantly compared to last year.
On the other hand, the automotive industry, telecom services, pharmaceuticals and consumer durables are all business sectors that will contribute significantly to growth in 2005.
With such a high growth, like China, Indonesia, is considered one of the most promising ad markets in Asia. Do you agree with this statement?.
Not really, because the advertising growth in China has been driven by strong economic growth being sustained year after year. Foreign investment in China is, by far, the highest in the region and with the entry of global brands, the advertising industry in China has seen high growth in terms of services and media expenditure. In Indonesia, growth has been driven by internal consumption of products and services, which is sustainable only while there is income growth. If disposable income drops due to any reason, the spending will stop and so will the advertising.
So while the Indonesian market appears promising now, it is not as stable as China. It is volatile and unless foreign investment and spending on global brands increase, the situation will be quite unpredictable.
TV media remains dominant despite the clutter problem. Do you think its dominance will continue in the future?
TV is dominant in Indonesia for a number of reasons. The reach of the print media is low and fragmented. There are no national newspapers or magazines and for a country with such high literacy rates (80 percent), readership of newspapers and magazines is low. Radio is very fragmented and the fact that effectiveness on radio is much below TV is well known. So the increasing reliance on TV (which is the only medium that provides national coverage) has fueled the high clutter situation.
TV will continue to dominate the advertising business, at least in the foreseeable future. However, the way TV is used for advertising will change. We see an increasing use of sponsorship and built-in advertising (where the brand is part of the program). Also with the entry of new regional channels and the increasing reach of satellite channels, the supply situation (for advertising space on TV) will increase resulting in rationalization of the clutter. Right now we have a limited number of channels and hence demand exceeds supply, especially in prime time.
What is the fate of the print media, radio and outdoor advertising in your opinion?
The dominance of TV will not undermine the value of other media like print, radio and outdoor. Each will have a bigger role to play in future provided they are used in a manner that is suitable for the product category and takes into account the relationship consumers have with the medium. For example we know from our research that while TV creates brand awareness quickly, it does not provide detailed information sought by consumers.
Also consumers prefer to get the details through newspapers or magazines, which have higher credibility than TV, for many products. The trust in print media can be utilized for brand building but fails to deliver if it is used for creating large scale brand awareness. So using the right media at the right time for the right purpose will always be better than using TV alone. Outdoor does help in creating a larger than life image for brands or a sense of ubiquity.