For FMCG sector, AD-ons don’t add to share value

AHMEDABAD: If global sentiments have hit your company’s stocks, increase your marketing spend, say researchers at IIM, Ahmedabad and the Emory University of the United States.

Joint research conducted by a professor at the premier Indian B-school and a professor at Emory University has found that when companies in India make changes in their marketing expenses, which includes doling out discounts and rebates, it ostensibly results in enhancing shareholder value, which implies an increase in the stock price.

The trends are different in the US, where the expenses on advertising products result only in improving customer relations and the value of the brand. The study compares the impact of marketing as well as advertising expenditure of shareholder value in the US and India across industry sectors.

The research found that in India, while in most sectors advertising expenditure is directly related to share price, in the fast moving consumer goods (FMCG) segment it is not. “The expenses for setting up a distribution network and launching new products have a greater impact on the share price. So, for firms in the FMCG sector, advertising spend is inversely related to the share price,” says Arvind Sahay, professor of marketing, IIM-A who conducted the research.

The study says that for the Indian firms the effect of advertising expenditure is inversely related to share price for the automobile and FMCG sector.

For the auto sector, distribution expense and market share is more positively related to share price the reason states the paper is that a better distribution network is essential to make sure the availability of the product and to have a large share in the market to survive competition. The research conducted in India and the US includes firms from retail, automobile, cement, hardware, software, white goods, banks and the oil industry.

While in India the fast moving consumer goods sector was also covered, in the US the airline sector formed part of the research. For firms in US, the research says advertisement expenditure is inversely related to share price for telecom and airline sectors.

Both are a part of the services sector and while telecom is affected by economic conditions and the competition level and firms position in competitive environs, in the airline sector, customer satisfaction is a big issue and issues related to schedules and crew management also hold importance. The research included listed firms, such as HCL, Microsoft and HP.