Contents Introduction:.................................................................................................................................... Introduction: .................................................................................................................................... 2 Meaning....................................................................................................................................... Meaning ....................................................................................................................................... 3 Types of advertising:....................................................................................................................... advertising:....................................................................................................................... 4 Print Advertising ......................................................................................................................... 4 Outdoor Advertising.................................................................................................................... Advertising.................................................................................................................... 4 Broadcast advertising .................................................................................................................. 5 Covert Advertising ...................................................................................................................... 6 Surrogate Advertising ................................................................................................................. 6 Public Service Advertising.......................................................................................................... Advertising .......................................................................................................... 7 Celebrity Advertising: ................................................................................................................. 7 History of Advertising in India:-..................................................................................................... India:-..................................................................................................... 8 India Advertising Industry: An Analysis ........................................................................................ 9 Top Advertising Companies of India:....................................................................................... India: ....................................................................................... 10 Characteristics of Indian advertising industry:.......................................................................... industry:.......................................................................... 12 SWOT Analysis: ........................................................................................................................... 13 PESTL analysis of advertising industry:....................................................................................... industry:....................................................................................... 14 Michael Porter‘s Five Force Analysis: ......................................................................................... 17
Bargaining Power of Suppliers ................................................................................................. 18 Bargaining Power of Buyers ..................................................................................................... 19 Threat of New Entrants ............................................................................................................. 22 Threat of Substitutes.................................................................................................................. Substitutes.................................................................................................................. 24 Rivalry Among Competitors ..................................................................................................... 26 ROGER‘S MODEL ...................................................................................................................... 29
SIGAA model for advertising industry:........................................................................................ industry: ........................................................................................ 30 Shockvertising: The future of Indian advertising ind ustry? ......................................................... 30 Conclusion: ................................................................................................................................... 32 References:.................................................................................................................................... References: .................................................................................................................................... 33
Introduction:
Advertising is a form of communication whose purpose is to inform potential customers about products and services and how to obtain and use them. Many advertisements are also designed to generate increased consumption of those products and services through the creation and reinforcement of brand image and brand loyalty. For these purposes advertisements often contain both factual information and persuasive messages. Every major medium is used to deliver these messages, including: television, radio, movies, magazines, newspapers, video games, the Internet (see Internet advertising), advertising), and billboards. Advertising is often placed by an advertising agency on behalf of a company. Advertising, in its non-commercial guise, is a powerful educational tool capable of reaching and motivating large audiences. "Advertising justifies its existence when used in the public interest it is much too powerful a tool to use solely for commercial purposes." - Attributed to Howard Gossage by David Ogilvy Advertisements can also be seen on the seats of grocery carts, on the walls of an airport walkway, on the sides of buses, heard in telephone hold messages and in-store public address systems. Advertisements are usually placed anywhere an audience can easily and/or frequently access visuals and/or audio and print organizations which frequently spend large sums of money on advertising but do not strictly sell a product or service to the general public include: political parties, interest groups, religion-supporting organizations, and militaries looking for new
Introduction:
Advertising is a form of communication whose purpose is to inform potential customers about products and services and how to obtain and use them. Many advertisements are also designed to generate increased consumption of those products and services through the creation and reinforcement of brand image and brand loyalty. For these purposes advertisements often contain both factual information and persuasive messages. Every major medium is used to deliver these messages, including: television, radio, movies, magazines, newspapers, video games, the Internet (see Internet advertising), advertising), and billboards. Advertising is often placed by an advertising agency on behalf of a company. Advertising, in its non-commercial guise, is a powerful educational tool capable of reaching and motivating large audiences. "Advertising justifies its existence when used in the public interest it is much too powerful a tool to use solely for commercial purposes." - Attributed to Howard Gossage by David Ogilvy Advertisements can also be seen on the seats of grocery carts, on the walls of an airport walkway, on the sides of buses, heard in telephone hold messages and in-store public address systems. Advertisements are usually placed anywhere an audience can easily and/or frequently access visuals and/or audio and print organizations which frequently spend large sums of money on advertising but do not strictly sell a product or service to the general public include: political parties, interest groups, religion-supporting organizations, and militaries looking for new
recruits. Additionally, some non-profit organizations are not typical advertising clients and rely upon free channels, such as public service announcements. Advertising spending has increased dramatically in recent years. In the United States alone in 2006, spending on advertising reached $155 billion, reported TNS Media Intelligence Intelligence.. [1] That same year, according to a report titled Global Entertainment and Media Outlook: 2006-2010[2] issued by global accounting firm. PricewaterhouseCoopers, worldwide advertising spending was $385 billion. The accounting firm's report projected worldwide advertisement spending to exceed half-a-trillion dollars by 2010. While advertising can be seen as necessary for economic growth, it is not without social costs. Unsolicited Commercial Email and other forms of spam have become so prevalent as to have become a major nuisance to users of these services, as well as being a financial burden on internet service providers providers..[3] Advertising is increasingly invading public spaces, such as schools, which some critics argue is a form of child exploitation.
Meaning - Advertising is the promotion of a company‘s products and services carried out primarily to drive sales of the products and services but also to build a brand identity and communicate changes or new product /services to the customers. Advertising has become an essential element of the corporate world and hence the companies allot a considerable amount of revenues as their advertising budget. There are several reasons for advertising some of which are as follows:
Increasing the sales of the product/service
Creating and maintaining a brand identity or brand image.
Communicating a change in the existing product line.
Introduction of a new product or service.
Increasing the buzz-value of the brand or the company.
Thus, several reasons for advertising and similarly there exist various media which can be effectively used for advertising. Based on these criteria there can be several branches of advertising.
Types of advertising: Print Advertising – Newspapers, Magazines, Brochures, Fliers
The print media have always been a popular advertising medium. Advertising products via newspapers or magazines is a common practice. In addition to this, the print media also offers options like promotional brochures and fliers for advertising purposes. Often the newspapers and the magazines sell the advertising space according to the area occupied by the advertisement, the position of the advertisement (front page/middle page), as well as the readership of the publications. For instance an advertisement in a relatively new and less popular newspaper would cost far less than placing an advertisement in a popular newspaper with a high readership. The prices of print ads also depend on the supplement in which they appear, for example an advertisement in the glossy supplement costs way higher than that in the newspaper supplement.
Outdoor Advertising – Billboards, Kiosks, Tradeshows and Events
Outdoor advertising is also a very popular form of advertising, which makes use of several tools and techniques to attract the customers outdoors. The most common examples of outdoor advertising are billboards, kiosks, and also several events and tradeshows organized by the company. The billboard advertising is very popular however has to be really terse and catchy in order to grab the attention of the passersby. The kiosks not only provide an easy outlet for the company products but also make for an effective advertising tool to promote the com pany‘s products. Organizing several events or sponsoring those makes for an excellent advertising opportunity. The company can organize trade fairs, or even exhibitions for advertising their products. If not this, the company can organize several events that are closely associated with their field. For instance a company that manufactures sports utilities can sponsor a sports tournament to advertise its products.
Broadcast advertising – Television, Radio and the Internet
Broadcast advertising is a very popular advertising medium that constitutes of several branches like television, radio or the Internet. Television advertisements have been very popular ever since they have been introduced. The cost of television advertising often depends on the duration of the advertisement, the time of broadcast (prime time/peak time), and of course the popularity of the television channel on which the advertisement is going to be broadcasted. The radio might have lost its charm owing to the new age media however the radio remains to be the choice of small-scale advertisers. The radio jingles have been very popular advertising media and have a large impact on the audience, which is evident in the fact that many people still remember and enjoy the popular radio jingles.
Covert Advertising – Advertising in Movies Covert advertising is a unique kind of advertising in which a product or a particular brand is incorporated in some entertainment and media channels like movies, television shows or even sports. There is no commercial in the entertainment but the brand or the product is subtly (or sometimes evidently) showcased in the entertainment show. Some of the famous examples for this sort of advertising have to be the appearance of brand Nokia which is displayed on Tom Cruise‘s phone in the movie Minority Report, or the use of Cadillac cars in the movie Matrix
Reloaded.
Surrogate Advertising – Advertising Indirectly
Surrogate advertising is prominently seen in cases where advertising a particular product is banned by law. Advertisement for products like cigarettes or alcohol which are injurious to heath are prohibited by law in several countries and hence these companies have to come up with several other products that might have the same brand name and indirectly remind people of the cigarettes or beer bottles of the same brand. Common examples include Fosters and Kingfisher beer brands, which are often seen to promote their brand with the help of surrogate advertising.
Public Service Advertising – Advertising for Social Causes
Public service advertising is a technique that makes use of advertising as an effective communication medium to convey socially relevant messaged about important matters and social welfare causes like AIDS, energy conservation, political integrity, deforestation, illiteracy, poverty and so on. David Ogilvy who is considered to be one of the pioneers of advertising and marketing concepts had reportedly encouraged the use of advertising field for a social cause. Ogilvy once said, "Advertising justifies its existence when used in the public interest - it is much too powerful a tool to use solely for commercial purposes.‖ Today public service advertising has
been increasingly used in a non-commercial fashion in several countries across the world in order to promote various social causes. In USA, the radio and television stations are granted on the basis of a fixed amount of Public service advertisements aired by the channel.
Celebrity Advertising:
Although the audience is getting smarter and smarter and the modern day consumer getting immune to the exaggerated claims made in a majority of advertisements, there exist a section of advertisers that still bank upon celebrities and their popularity for advertising their products. Using celebrities for advertising involves signing up celebrities for advertising campaigns, which consist of all sorts of advertising including, television ads or even print advertisements. The features of advertising are
1. the fact that it is ‗a paid form‘ of presentation emphasis‘s that advertising space or time must be purchased 2. its ―non personal‖ nature emphasis‘s the fact that it is not a direct or personalized presentation to one individual but to the masses 3. ―presentation‖ signifies the format in which advertisement communicate 4. ―promotion ―indicates the objective of advertising and 5. Identified sponsor refers to the identification of the brand or the advertiser that is communicating Today advertising has become an integral part of our social and economic structure. An increasing number of companies are spending millions of dollars on advertising in India every year.
History of Advertising in India:The first advertising agencies in India began in the early 1900s, mostly serving to place newspaper ads for clients. Soon, foreign agencies such as DJ Keymer and LA Stronach entered the market. J Walter Thompson (JWT), one of the biggest players in the market today, entered India in 1926. Post independence, advertising agencies began offering clients larger teams with distinct client servicing and creative resources. Media planning and buying however grew into important functions only recently, since earlier, there were fewer media outlets and print media tended to have fixed card rates. It was after 1990 that advertising agencies went through some fundamental changes.
With the explosion of television channels, ad agencies realized that media planning and buying needed to be treated as a separate discipline. Clients too questioned the standard 15% commission on media bought, which most ad agencies levied. This led to the creation of media houses distinct from ad agencies. Clients began to pay ad agencies a fee for their creative efforts, unrelated to the amount of media space or spots purchased. Another major change was the rapid consolidation of agencies, as most were bought out by large conglomerates. Today, two of the largest global marketing communication groups, WPP and Interpublic own most of the major advertising agencies, between them. WPP Group holds JWT, Ogilvy & Mather (O&M), Contract, Bates, Rediffusion DY&R and other smaller agencies besides large media agencies such as MindShare and Meritus under its GroupM umbrella. Interpublic Group holds Lowe, McCann, Enterprise Nexus and FCB besides media agencies such as Initiative and Universal McCann. Omnicon group, a third global giant, which holds agencies such as BBDO, DDB and TBWA does not yet have a large presence in India, but has announced plans to aggressively expand in the Indian market. Many of these agencies also have their associated PR agencies, notably JWT's IPAN and WPP's Ogilvy Public Relations. Unlike the advertising industry, PR in India has not yet seen these levels of consolidation. The largest agencies such as Ad factors PR, Perfect Relations, Genesis and Vaishnavi, are still largely locally owned and not yet part of conglomerates. Instead, most of these agencies have established loose partnerships with international agencies, to undertake global work for their clients.
India Advertising Industry: An Analysis This report starts with a historical overview of the Indian advertising industry and examines how advertising spend has undergone a change over the years. It looks at the trends and key drivers and their impact on the industry. A summary of the issues faced by the advertising industry has also been included. The report conducts a detailed external and internal study of the Indian advertising industry within the SWOT, PEST and PORTER framework.
It also studies the competitive landscape including the top three agencies- JWT, O&M, and Lowe‘s. Since the agencies are not listed and do not disclose their financial information, the
report has alternatively covered a summary of their operations and competitive strategies. The report concludes with an outline of the industry. The Indian advertising industry has been evolving at a fast pace over the past few years owing to the proliferation of means of communication and the emergence of new distribution channels. Currently India has a low advertising spend as compared to other economies. Creativity leakage is a major issue confronting the industry. However, the television advertising is expected to register high rates of growth, as India is expected to become Asia‘s leading cable market.
As per industry estimates, the total advertisement spend in India was approximately INR 118 billion. However, at 0.50 percent, India continues to have one of the lowest 'Advertising spend to GDP' ratios amongst peer economies. This underscores the significant potential India has yet to achieve vis-à-vis advertising budgets. However, this is set to change. A growing middle-class will spur the increasing tide of consumerism and a growing lineup of global brands will continue to be attracted by this expanding market. Consequently it is expected that the 'ad spend to GDP' ratio will increase steadily over the next four years. In the Indian context, there is further potential for television to increase its ad share. It is expected that over the next three years, both print and television will each command around 43 percent of the market, with the balance 14 percent being split between radio, outdoors and others.
Top Advertising Companies of India: Ogilvy and Mather:
This is one of the leading advertising companies in India. This organization believes that devotion to the brand defines the profile of their company. This company has offices across the globe. The objective of the company is to build brands. It is a subsidiary of WPP Group plc. The head quarter of the company is in New York.
J Walter Thompson India:
One of the most popular companies in the advertising industry is J Walter Thompson India. Their objective is to make advertising a part of the life of the consumers. This is also world's best advertising brand with about 200 offices in 90 countries. This company is the first one to introduce pioneer careers in ad for women, sex-appeal ads and also produced the first ever sponsored -TV program. Mudra Communication Pvt. Ltd:
This is one of the renowned advertising companies of India. This advertising organization was founded in the year 1980 at Mumbai. Recently the Ad Company declared the addition of public relations, rural marketing, events etc. The head office of the company is in Bombay Area. FCB-Ulka Advertising Ltd:
One of the best companies in India in the advertising arena is FCB-Ulka Advertising Ltd. In US, this advertising company ranks third and tenth in the world having about 188 offices in 102 countries. Their aim is to reflect the needs of the brand and not the personality of the brand. It has about 500 professionals and no prima donnas. Rediffusion-DY&R:
This Advertising Company of India has made a benchmark in the field of creativity. India's 5th largest advertising company is Rediffusion. This advertising agency offers a wide array of integrated pr services for external and internal communications. The primary strength of the company lies in the media relations. McCann-Erickson India Ltd:
The prominent name among the best advertising companies of India is McCann-Erickson India Ltd. They define work in relation to the impact that advertising has on the lives of masses. The testimony of the company in which it firmly believes is the campaign of Coca -cola-'Thanda Matlab Coca Cola'.
RK Swamy/BBDO Advertising Ltd:
It maintained the record of remaining consistently among the top ten advertising agencies in India. Established in 1973, this advertising reached great heights. This is also India's No.1 research company in the market sector and is fully run by Indians. Brand Equity is an integral part of the company. Grey Worldwide (I) Pvt. Ltd:
A significant name in India in the world of advertising agencies is Grey Worldwide (I) Pvt Ltd. The company is primarily based in Mumbai and has offices in Kolkata, Ahmedabad, Bangalore and New Delhi. It is a subsidiary of Grey Worldwide. The company specializes in advertising and marketing services. Leo Burnett India Pvt. Ltd:
It has a significant presence in about 96 offices in 10 countries. This advertising agency was awarded the 'Worldwide Agency of the Year' in 2004.They are proficient in explaining how a single image is worth thousand words and can break the barriers of language but not at the cost of the ad's emotional power. Contract Advertising India Ltd:
This advertising company of India is one of the leading advertising agencies in India. It is oneto-one customer lifecycle management advertising agency. It was founded in 1992 and is situated in Mumbai. It offers a wide range of services like online marketing and strategy and many others.
Characteristics of Indian advertising industry:
It is both capital intensive and labor intensive.
It has a medium complexity where are there are not much regulations and no complex operational processes.
It has large number of stakeholders that includes companies who contract with agencies, animation centers, film industry people, models, set makers, painters, garment industries etc.
There are a variety of consumer behaviors towards an advertisement. And the agencies have to assess the consumer behavior according to the product or the fame of the company they contract with.
Technology is emerging as the main asset of an advertising industry. As the innovations in digital and graphic formats play a major role in capturing the eyeballs.
In advertising industry there is a need for high degree of sensitivity to quality as the main purpose of companies to invest in advertising is to make people aware and interested in their brands. This is possible only when the quality of advertising is good and when the customer is able to match it with his requirements, lifestyle etc.
The level of competition in this industry is high with so many small players in the market though dominated by MNCs.
SWOT Analysis: STRENGTHS:
1. Media And Entertainment is one of the most booming sectors in India due to its vast customer reach. The various segments of the Media And Entertainment industry like television and film industry have a large customer base. 2. The growing middle class with higher disposable income has become the strength of the Media And Entertainment industry. 3. Change in the lifestyle and spending patterns of the Indian masses on entertainment. Technological innovations like online distribution channels, web-stores, multi- and megaplexes are complementing the ongoing revolution and the growth of the sector. 4. Indian film industry is second largest in the world and the largest in terms of the films produced and tickets sold. 5. The low cost of production and high revenues ensure a good return on investment for Indian Media And Entertainment industry. WEAKNESSES:
1. The Media and Entertainment sector in India is highly fragmented. 2. Lack of cohesive production & distribution infrastructure, especially in the case of music industry. 3. The lack of efforts for media penetration in lower socio-economic classes, where the media penetration is low. OPPORTUNITIES:
1. The concept of crossover movies, such as Bend It Like Beckham has helped open up new doors to the crossover audience and offers immense potential for development. 2. The increasing interest of the global investors in the sector. 3. The media penetration is poor among the poorer sections of the society, offering opportunities for expansion in the area. 4. The nascent stage of the new distribution channels offers an opportunity for development. 5. Rapid de-regulation in the Industry 6. Rise in the viewership and the advertising expenditure. 7. Technological innovations like animations, multiplexes, etc and new distribution channels like mobiles and Internet have opened up the doors of new opportunities in the sector. THREATS:
1. Piracy, violation of intellectual property rights poses a major threat to the Media And Entertainment companies. 2. Lack of quality content has emerged as a major concern because of the 'Quick- buck' route being followed in the industry. 3. With technological innovations taking place so rapidly, the media sector is facing considerable uncertainty about success in the marketplace.
PESTL analysis of advertising industry: Political factors:
The Advertising Standards Council of India regulates the advertisement standards in India. It introduced code for self-regulations in advertisements on automotive vehicles,
food and beverages directed at children less than 13 years of age and in Hindi. Recently it introduced guidelines for advertising of educational institutions and programs.
Ban on surrogate advertising, ads which try to sell something else under the same brand name like tobacco and alcohol products, has been hitting the advertisement revenues.
With Conditional Access System for transmission of Television programmes, consumers would have the option to choose the channels they want to pay for and view rather than receiving the whole set of channels made available to them by the cable operator. This alters the volume of viewership distribution affecting the advertising agencies.
The recent growth in Direct To Home market motivated how to work on a niche programming.
The deregulation FM radio increased the media penetration helping in growth of advertising industry.
Economic factors:
Rural markets face the critical issues of Distribution, Understanding the rural consumer, Communication and Poor infrastructure. Media reach is a strong reason for the penetration of goods like cosmetics, mobile phones, etc., into the rural market which are mainly used by the urban people. Increasing awareness and knowledge on different products and brands accelerate the demand. So advertising had shown opportunities for income growth from the rural market.
The turnover of Indian Advertising Industry is less than 1% of the national GDP of India whereas the share of US ad industry in national GDP of USA is 2.3%. This indicates a tremendous growth potential for the Indian Advertising Industry. In contrast the growth in GDP is fuelling the advertisement spending.
Foreign Direct Investment in India: The liberalized investment administration, rapidly growing economy, good and strong macroeconomic policies, continuous de-licensing of industry sectors and the easing in business transactions has attracted multinational corporations to put investment in India.
Social Factors:
Advertising plays a big role in form information dissemination to the people of India, which of late due to globalization have developed a high infinite for information. The impact of intense media attention has brought about a more revolution in the social aspect and created a society
which is more enlightened and which appreciates the industry. Even though the Indians are known to be conservative and traditional they attitudes towards the media industry are very positive.
As in now-a-days we see that children and tweens play a major role in buying, they are the ones who are targeted more. We can say that tweens are emerging as the most influential consumers for advertising.
We know that the maximum revenue is generated from the metropolitan cities as they have high spending capacity. Basing on these segments the advertising strategies are made. But today‘s Non-metro cities in India are growing at a faster pace and so there is
some influence of these on advertising strategies. Technological factors:
Modern information technological advancement in media is making the industry players adapt faster to the new environments they are participating. The technological advancement taking place in industry is high and this calls for increased spending and research so as to be innovative in the industry.
Outdoor advertising is no more restricted to billboards. As the Indian consumer is bombarded with 1, 00,000 advertisements a day on more than 250 channels, outdoor advertising has shown promise to break the clutter of advertising on traditional mediums. Clutter in advertising, the need to be present at every touch-point, the relevance of OOH in local advertising and rural advertising have suddenly brought OOH to the attention of all brand marketers. Innovativeness, flexibility, impact and coverage that OOH can achieve are the feathers in cap of OOH media over other non-traditional medium. This high competition brought in many technological innovations in OOH advertising. As it is now into digital and graphic innovations like Televisions advertising in Malls, Banners, hoardings and on travel medium like buses, air planes etc.
There is a variety of opportunities for innovative, fast paced and collaborative mind. However, the biggest consumer of computer animation is advertisement industry. From low end title scrolls to high end visual effect for TV commercial, its animation all the way. This animation industry has become the driving force for creativity in advertising.
Launch of INSAT satellite systems by ISRO enabled the rapid expansion of TV and modern telecommunication facilities to even the remote areas and off-shore islands. Today, INSAT has become the largest domestic communication satellite system in the Asia-Pacific region with ten satellites in service. Recently, INSAT-4CR was launched on 2 September 2007 by GSLV-F04. This satellite is used by Airtel Digital TV and Sun Direct DTH to broadcast their DTH services.
Online advertising is penetrating into a large market with different ways mainly through social networking sites like face book, twitter etc. And another form of advertising shaping now-a-days is through bulk SMS, in other words mobile advertising. Aerial advertising is one of the new trends that are followed upon.
Legal factors:
The media industry in India is hot highly regulated as such, but there are laws and regulations which are enforced for the industry to comply. However, in the recent past the government has become to lessen to laws so as not to hinder competition in the face of increasing global challenges from the external markets. Legislations such as anti-piracy laws have been enacted and the government tries to enforce the fully even though it is difficult
Michael Porter’s Five Force Analysis: Assessing Your Marketplace
The economic structure of an industry is not an accident. Its complexities are the result of longterm social trends and economic forces. But its effects on you as a business manager are immediate because it determines the competitive rules and strategies you are likely to use. Learning about that structure will provide essential insight for your business strategy. Michael Porter has identified five forces that are widely used to assess the structure of any industry. Porter‘s five forces are the:
Bargaining power of suppliers,
Bargaining power of buyers,
Threat of new entrants,
Threat of substitutes, and
Rivalry among competitors.
Together, the strength of the five forces determines the profit potential in an industry by influencing the prices, costs, and required investments of businesses — the elements of return on investment. Stronger forces are associated with a more challenging business environment. To identify the important structural features of your industry via the five forces, you conduct an industry analysis that answers the question, ―What are the ke y factors for competitive success?‖
Bargaining Power of Suppliers How Much Power Do Your Suppliers Have Over You?
Any business requires inputs — labor, parts, raw materials, and services. The cost of your inputs can have a significant effect on your company‘s profitability. Whether the strength of suppliers
represents a weak or a strong force hinges on the amount of bargaining power they can exert and, ultimately, on how they can influence the terms and conditions of transactions in their favor. Suppliers would prefer to sell to you at the highest price possible or provide you with no more services than necessary. If the force is weak, then you may be able to negotiate a favorable business deal for yourself. Conversely, if the force is strong, then you are in a weak position and may have to pay a higher price or accept a lower level of quality or service. Factors Affecting the Bargaining Power of Suppliers
Suppliers have the most power when:
The input(s) you require are available onl y from a small number of suppliers
The inputs you require are unique, making it costly to switch suppliers. This may be very costly to you, thus you will have less bargaining power with your supplier.
Your input purchases don‘t represent a significant portion of the supplier‘s business. If
the supplier does not depend on your business, you will have less power to negotiate. Of course the opposite is true as well.
Suppliers can sell directly to your customers, bypassing the need for your business.
It is difficult for you to switch to another supplier. For example, if you recently invested in a unique inventory and information management system to work effectively with your supplier, it would be expensive for you to switch suppliers.
You do not have a full understanding of your supplier‘s market. You are less able to negotiate if you have little information about market demand, prices, and supplier‘s costs.
Reducing the Bargaining Power of Suppliers Most businesses don‘t have the resources to produce their own inputs. If you are in this position,
then you might consider forming a partnership with your supplier. This can result in a more even distribution of power. For instance, Dell Computer uses partnering with its components suppliers as a key strategy to be the low-cost/high-quality leader in the market. This can be mutually beneficial for both supplier and buyer if they can:
Reduce inventory costs by providing just-in-time deliveries,
Enhance the value of goods and services supplied by making effective use of information about customer needs and preferences, and
Speed the adoption of new technologies.
Another option may be to increase your power by forming a buying group of small producers to buy as one large-volume customer. If you have the resources, you may choose to integrate back and produce your own inputs by purchasing one of your key suppliers or doing the production yourself. In advertising industry,
Since there are many suppliers who provide inputs like models, animation directors, people who provide inputs in placing hoardings, paintings, printing, costumes etc., the bargaining power of suppliers is low.
As there is a shortage of creative talent, the bargaining power of efficient suppliers is high.
In some cases it is costly to switch the animation directors, models etc, then the bargaining power of suppliers is high.
Bargaining Power of Buyers
How Much Negotiating Power Do Your Buyers Have?
The power of buyers describes the effect that your customers have on the profitability of your business. The transaction between the seller and the buyer creates value for both parties. But if buyers (who may be distributors, consumers, or other manufacturers) have more economic power, your ability to capture a high proportion of the value created will decrease, and you will earn lower profits. How Much Power Do Your Buyers Have Over You?
Buyers have the most power when they are large and purchase much of your output. If your business sells to a few large buyers, they will have significant leverage to negotiate lower prices and other favorable terms because the threat of losing an important buyer puts you in a weak position. Buyers also have power if they can play suppliers against each other. In the automotive supply industry, the large car manufacturers have significant power. There are only a few large buyers, and they buy in large quantities. But, when there are many smaller buyers, you will have greater control because each buyer is a small portion of your sales. Many small customers acting as a group can create a strong force. For instance, because of their size, health maintenance organizations (HMOs) can purchase health care from hospitals and doctors at much lower cost than can individual patients. Note that not all buyers will have the same degree of bargaining power with you or be as sensitive to price, quantity, or service. For example, apparel makers face significant buyer power when selling to large retailers like Wal-Mart or department stores, but face a much more favorable situation when selling to smaller specialty shops. Factors Influencing the Bargaining Power of Buyers
Buyers have more power when:
Your industry has many small companies supplying the product and buyers are few and large. For example, you may have little negotiating power if you and several competing companies are trying to sell similar products to one large buyer.
The products represent a relatively large expense for your customers. Customers may not price shop for a quart of oil, but they will price shop if purchasing a new vehicle.
Customers have access to and are able to evaluate market information. You have less room for negotiation if buyers know market demand, prices, and your costs.
Your product is not unique and can be purchased from other suppliers. If your brand is homogenous or similar to all of the others, buyers will base their decision mainly on price.
Customers could possibly make your product themselves. Anheuser-Busch, Coors, and Heinz are examples of companies that have integrated back into metal can manufacturing to fill the balance of their container needs.
Customers can easily, and with little cost, switch to another product. For example, IBM customers might switch to Gateway or Dell, but it may be inconvenient for them to consider Macintosh.
Reducing the Bargaining Power of Buyers
You can reduce the bargaining power of your customers by increasing their loyalty to your business through partnerships or loyalty programs, selling directly to consumers, or increasing the inherent or perceived value of a product by adding features or branding. In addition, if you can select the customers who have little knowledge of the market and have less power, you can enhance your profitability. In advertising industry,
Since there are many small advertising agencies, buyers (like big and small companies who spend in advertising) have many options and so the bargaining power of buyers is high.
As the big accounts rule over the agencies, the bargaining power of agencies become high.
Since in advertising the effect it makes on people counts, there are few companies which are unique. Then the bargaining power of buyers is low.
As there are some agencies that can make better ads with low costs, the buyers have the chance to switch to competitors. This makes your negotiating power with buyers low.
Threat of New Entrants How Easy Is It for Businesses to Enter Your Market?
You may have the market cornered with your product, but your success may inspire others to enter the business and challenge your position. The threat of new entrants is the possibility that new firms will enter the industry. New entrants bring a desire to gain market share and often have significant resources. Their presence may force prices down and put pressure on profits. Analyzing the threat of new entrants involves examining the barriers to entry and the expected reactions of existing firms to a new competitor. Barriers to entry are the costs and/or legal requirements needed to enter a market. These barriers protect the companies already in business by being a hurdle to those trying to enter the market. In addition to up-front barriers, a new competitor may inspire established companies to react with tactics to deter entry, such as lowering prices or forming partnerships. The chance of reaction is high in markets where firms have a history of retaliation, excess cash, are committed to the industry (see Rivalry Among Competitors), or the industry has slow growth. Unique Barriers
Entry barriers are unique for each industry and situation, and can change over time. Most barriers stem from irreversible resource commitments you must make in order to enter a market. For example, if the existing businesses have well established brand names and fully differentiated products, as a potential market entrant you will need to undertake an expensive marketing campaign to introduce your products. Barriers to entry are usually higher for companies involved in manufacturing than for companies that provide a service because there is often a significant expense in setting up a production facility. Another type of entry barrier is regulatory. To produce organic food there is a three-year wait before land may be certified. During the waiting period, producers must raise the crop as organic, but may not market it as organic until the three-year ―cleansing process‖ of the land is completed.
Overcoming barriers to entry may involve expending significant resources over an extended period of time. Industries based on patentable technology may require an especially long-term commitment, with years of research and testing, before products can be introduced and compete. Factors Affecting the Threat of New Entrants
The threat of new entrants is greatest when:
Processes are not protected by regulations or patents. In contrast, when licenses and permits are required to do business, such as with the liquor industry, existing firms enjoy some protection from new entrants.
Customers have little brand loyalty. Without strong brand loyalty, a potential competitor has to spend little to overcome the advertising and service programs of existing firms and is more likely to enter the industry.
Start-up costs are low for new businesses entering the industry. The less commitment needed in advertising, research and development, and capital assets, the greater the chance of new entrants to the industry.
The products provided are not unique. When the products are commodities and the assets used to produce them are common, firms are more willing to enter an industry because they know they can easily liquidate their inventory and assets if the venture fails.
Switching costs are low. In situations where customers do not face significant one-time costs from switching suppliers, it is more attractive for new firms to enter the industry and lure the customers away from their previous suppliers.
The production process is easily learned. Just as competitors may be scared away when the learning curve is steep, competitors will be attracted to an industry where the production process is easily learned.
Access to inputs is easy. Entry by new firms is easier when established firms do not have favorable access to raw materials, locations, or government subsidies.
Access to customers is easy. For instance, it may be easy to rent space to sell produce at a farmer‘s market, but nearly impossible to get shelf space in a grocery store. You are more likely to find new entrants in the food business using the farmer‘s market distribution
system over grocery stores.
Economies of scale are minimal. If there is little improvement in efficiency as scale (or size) increases, a firm entering a market won‘t be at a disadvantage if it doesn‘t produce
the large volume that an existing firm produces. Reducing the Threat of New Entrants
Enhancing your marketing/brand image, utilizing patents, and creating alliances with associated products can minimize the threat of new entrants. Important tactics you can follow include demonstrating your ability and desire to retaliate to potential entrants and setting a product price that deters entry. Because competitors may enter the industry if there are excess profits, setting a price that earns positive but not excessive profits could lessen the threat of new entry in your industry. In advertising industry,
As there is a dominance of top agencies in the industry, it acts as a barrier for a new entrant.
India is gaining popularity as an emerging market and there are opportunities for new players to enter.
The processes are not much regulated, though the patent regulations are high, there are good chances for a new entrant to enter into the business.
Though the start-up costs are not too high, access to inputs and buyers is the main asset that makes a good advertising agency, this makes the existing firms to enjoy protection from new entrants.
Though the process to in making ads is easy, there is a little improvement in efficiency of the company as size increases. This makes the new entrant to be very efficient than the existing agencies to enter into the market.
Threat of Substitutes What Products Could Your Customers Buy Instead of Yours?
Products from one business can be replaced by products from another. If you produce a commodity product that is undifferentiated, customers can easily switch away from your product to a competitor‘s product with few consequences. In contrast, there may be a distinct penalty for
switching if your product is unique or essential for your customer‘s business. Substitute products
are those that can fulfill a similar need to the one your product fills. As an example, a family restaurant may prefer to buy the packaged poultry produced at your plant, but if given a better deal, they may go to another poultry supplier. If you grow free-range organically grown chickens, though, and you are selling to upscale restaurants, they may have few substitutes for the product that you are providing. Substitutes Can Come in Many Forms
Be aware that substitute products can come in many shapes and sizes, and do not always come from traditional competitors. Pork and chicken can substitute in consumer diets for beef or lamb. Aluminum beverage cans battle in the market against glass bottles and plastic containers. Cotton competes with polyester from the petroleum industry. Barnes and Noble retail bookstores compete with Internet retailer Amazon. Postal services compete with e-mail and fax machines. When developing a business plan, it is critical to assess the other options your customers have to satisfy their needs. To do this, look for products that serve the same function as yours. A threat exists if there are alternative products with lower prices or better performance or both. How Substitutes Affect the Marketplace Substitutes essentially place a price ceiling on products. Market analysts often talk about ―wheat capping corn.‖ This occurs because wheat and corn are substitutes in animal feed. If wheat prices
are low, corn prices will also be low, because, as corn prices rise, livestock feeders will quickly shift to wheat to keep ration costs low. This reduces the demand and ultimately the price of corn. It‘s more difficult for a firm to try to raise prices and make greater profits if there are close
substitutes and switching costs are low. But, in some cases, customers may be reluctant to switch to another product even if it offers an advantage. Customers may consider it inconvenient or even risky to change if they are accustomed to using a certain product in a certain way, or they are used to the way certain services are delivered. Factors Affecting the Threat of Substitution
Substitutes are a greater threat when:
Your product doesn‘t offer any real benefit compared to other products. What will hold your customers if they can get an identical product from your competitor?
It is easy for customers to switch. A grocer can easily switch from paper to plastic bags for its customers, but a bottler may have to reconfigure its equipment and retrain its workers if it switches from aluminum cans to plastic bottles.
Customers have little loyalty. When price is the customer‘s primary motivator, the threat
of substitutes is greater. Reducing the Threat of Substitutes
You can reduce the threat of substitutes by using tactics such as staying closely in tune with customer preferences and differentiating your product by branding. In some cases, the advertising required to differentiate is more than one firm can bear. In that case, collective advertising for an industry may be more effective. In advertising industry,
As there are few agencies who really add value to the companies in terms of sales, there are chances that they can substitute advertising expenditure with direct marketing.
Rivalry Among Competitors How Intense Is Your Competition?
Competition is the foundation of the free enterprise system, yet with small businesses even a little competition goes a long way. Because companies in an industry are mutually dependent, actions by one company usually invite competitive retaliation. An analysis of rivalry looks at the extent to which the value created in an industry will be dissipated through head-to-head competition. Intensity of Rivalry Among Competitors
Rivalry among competitors is often the strongest of the five competitive forces, but can vary widely among industries. If the competitive force is weak, companies may be able to raise prices,
provide less product for the price, and earn more profits. If competition is intense, it may be necessary to enhance product offerings to keep customers, and prices may fall below break-even levels. Rivalries can occur on various ―pla ying fields.‖ In some industries, rivalries are centered on price
competition — especially companies that sell commodities such as paper, gasoline, or plywood. In other industries, competition may be about offering customers the most attractive combination of performance features, introducing new products, offering more after-sale services or warranties, or creating a stronger brand image than competitors. In some cases the presence of more rivals can actually be a positive — for instance in a shopping area, where attracting customers may hinge on having enough stores and attractions to make it a worthwhile stop. Factors Influencing Rivalry Among Competitors
The most intense rivalries occur when:
One firm or a small number of firms have incentive to try and become the market leader. In some cases, an industry with two or three dominant firms may experience intense rivalry when these firms are battling to achieve market leader status. In other situations, when competitors with diverse strategies and relationships have different goals and the ―rules of the game‖ are not well established, rivalry will be more intense.
The market is growing slowly or shrinking. When the potential to sell products is stagnant or declining, existing firms are unable to grow their market without taking market away from competitors. In this situation rivalry is more likely.
There are high fixed costs of production. When a large percentage of the cost to produce products is independent of the number of units produced, businesses are pressured to produce larger volumes. This may tempt companies to drastically cut prices when there is excess capacity in the industry in order to sell greater volumes of product.
Products are perishable and need to be sold quickly. Sellers are more likely to price aggressively if they risk losing inventory due to spoilage or if storage costs are high.
Products are not unique or homogenous. Undifferentiated products (commodities) compete mainly on price, because consumers receive the same value from the products of
different firms. Because firms do not experience any insulation from price competition, there is more likely to be active rivalry.
Customers can easily switch between products. Intense rivalry is likely when customers in a given industry can easily switch to other suppliers. In these situations, the businesses in the industry will be vying for market share.
There are high costs for exiting the business. If liquidation would result in a loss, businesses that invested heavily in their facilities will try hard to pay for them and may resort to extreme methods of competition.
Reducing the Threat of Rivals
Threats of rivals can be reduced by employing a variety of tactics. To minimize price competition, distinguish your product from your competitors‘ by innovating or improving
features. Other tactics include focusing on a unique segment of the market, distributing your product in a novel channel, or trying to form stronger relationships and build customer loyalty. In advertising industry,
There is an immense competition as it has evolved as a concentrated market with MNCs as leading companies battling to achieve market leader status.
Advertising players setting up second agencies is making the competition even more tough.
As there are many players in the market, there is a rush of the players for capturing the neighboring markets.
Final Comment
Not all of these forces are equally important when assessing the overall attractiveness of an industry. In some industries, it is easy to gain entry, but very difficult to get out. Not surprisingly, these industries tend to be mediocre investments. A full-fledged industry analysis would require extensive research, talking with customers, suppliers, competitors, and industry experts. However, as a general overview, the five forces concept provides entrepreneurs with an excellent tool to examine the profit potential in a particular industry. Gaining an understanding of the way in which each of the five forces
influences your profitability will provide you with tactics for countering the strength of the forces.
ROGER’S MODEL This model is used specially to measure the success rate of new products or enhancement of old products. It is generally measured with a scale of different ratings. It is popularly known as RCCDC model which deals with Relative advantage, Compatibility, Complexity, Divisibility and Communicability. Our new advertising product is related to election campaign. It was during the time of 2009 elections. We followed some technical innovation in this campaign. There was a small video shoot with the contestant in each and every constituency in and around Hyderabad. There will be a video interview with the contestant. In that he will explain what all he is going to do in his tenure of 5 years. The interview will be copied into a DVD and multiple copies are written and distributed to the families in his particular constituency.
Relative advantage – Other political parties could not communicate with the professional and employees as they would be busy with their work.
Compatability – This campaign is actually done by concentrating on very busy professional. So, they can definitely watch the video during their free time and come to know who are actually contesting in their constituency.
Complexity – Information gathering would be major complexity for this campaign. We cannot assume that everyone would watch the video. Professional photographer should be there and should be taken properly.
Divisibility – Segmenting the target voters. 1. Muslims - video in hindi 2. Hindus - video in telugu 3. Others - video in english or hindi
Communicability – Communication with the voter peacefully for more than ½ hour is a good move.
SIGAA model for advertising industry: In the SIGAA model we have taken DISTRICT special news paper as a niche market segment based on the geographical location. As the client company has a product that is used only in that particular area, and he wants to advertise in the whole district and his hometown. Size:- the size of the market is restricted to that particular district and he can concentrate that geographical location. Identifiability: he can identify his customers in and around the town. Say for example if he concentrates the villages in his native district he can definitely reach this niche market. Growth potential: There is a significant growth potential as the product is used in that region and he wants this information spread to the whole district creating a special interest. Growth potential increases here because he is exactly reaching the target customers. Accessibility: the degree to which a product, device, service, or environment is available to as many people as possible to that particular area. As it is a product consumed in that geographical location, the accessibility is high. absence of vulnerability: Is the niche market already being tapped? If so, is he competitive enough to break into the market and capture significant market share?
Shockvertising: The future of Indian advertising industry? They shock you; first they jolt you out of your senses and then successfully pin your attention down – if you have read the title of this post, you will know what I‘m talking about. The use of disconcerting images that often border on the offensive, to draw the consumer‘s
attention, known as shock advertising or shockvertising for short, is a well-known marketing ploy that has been around in the West for quite some time now. Leading the brat pack of brands resorting to such tactics to boost its sales is the Italian clothing line, Benetton, which has shown a remarkable penchant in the past for stirring up the pot with its controversial ads.
Imagine trying to eat at an outdoor restaurant with the image of a new-born baby covered in blood splashed across a billboard in front of you. Not exactly appetizing, is it? This was a famous 1991 Benetton ad (nicknamed ―the Benetton baby‖ ad) that registered around 800
complaints in Britain itself till Benetton had to apologize to Britons for hurting their sensibilities (we are not putting the picture here as it is too gross !). Now, the pertinent question here is: what has a newborn baby covered in mucous (with an umbilical cored sticking out) got to do with the mundane business of selling sweaters? Well, nothing. Apparently, the creative director of Benetton, Oliviero Toscani, doesn‘t want his company‘s name to be forgotten in a hurry, hence
the use of such compelling (& sometimes very offensive) images. Another controversial fashion ad that uses gruesome images comes from the stable of the New Zealand based clothing company, Superette. The brand‘s clothes are so chic that, supposedly, you would want to ―be caught dead in it‖. While one ad depicts a size zero model sprawled dead
on a staircase, the other shows a model impaled on an iron fence – both models wearing the brand‘s stylish clothes, of course. This kind of imparts a whole new meaning to the phrase ―Die in style‖ (which incidentally would have made a good [even if somewhat clichéd] tagline too).
But does shock translate to sales and to answer the original question, how far is too far? There are no easy answers. Cleverly executed shock ads, used once in a while, do tend to improve the sales of the company, but use it too often and the novelty of it fades. More often than not, the crass ones get banned and consumers may even boycott the brand altogether. India has so far not seen any such tasteless ads on its roadside hoardings, as the foreign brands are wary of upsetting the average Indian who is considered quite conservative; the new Reebok (Reetone) ads are the boldest that have been seen in recent times but surprisingly, Indians have accepted it docilely, with almost no protests or complaints coming from any quarter of the society. Furthermore, as the Indian consumer gets more and more jaded, there is always a chance that companies, indigenous or otherwise, might take to using provocative images to enhance its sales and to stand out from the crowd.
Conclusion: The Indian advertising industry is talking business today. It has evolved from being a smallscale business to a full-fledged industry. It has emerged as one of the major industries and tertiary sectors and has broadened its horizons be it the creative aspect, the capital employed or the number of personnel involved. Indian advertising industry in very little time has carved a
niche for itself and placed itself on the global map. Indian advertising industry with an estimated value of es13, 200-crore has made jaws drop and set eyeballs gazing with some astonishing pieces of work that it has given in the recent past. The creative minds that the Indian advertising industry incorporates have come up with some mind-boggling concepts and work that can be termed as masterpieces in the field of advertising. Advertising agencies in the country too have taken a leap. They have come a long way from being small and medium sized industries to becoming well known brands in the business. Mudra, Ogilvy and Mathew (O&M), Mccann Ericsonn, Rediffussion, Leo Burnett are some of the top agencies of the country. Indian economy is on a boom and the market is on a continuous trail of expansion. With the market gaining grounds Indian advertising has every reason to celebrate. Businesses are looking up to advertising as a tool to cash in on lucrative business opportunities. Growth in business has lead to a consecutive boom in the advertising industry as well. The Indian advertising today handles both national and international projects. This is primarily because of the reason that the industry offers a host of functions to its clients that include everything from start to finish that include client servicing, media planning, media buying, creative conceptualization, pre and post campaign analysis, market research, marketing, branding, and public relation services. Keeping in mind the current pace at which the Indian advertising industry is moving the industry is expected to witness a major boom in the times ahead. If the experts are to be believed then the industry in the coming times will form a major contribution to the GDP. With al this there is definitely no looking back for the Indian advertising industry that is all set to win accolades from the world over.
References: 1. Gerry Johnson, Kevan Scholes, Richard Whittington, (2009), ―Exploring Corporate Strategy‖, Pearson Education Ltd.
