Promising ... but not quite stable

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.