Where is the E-com Ad Money being spent?

E-commerce players are on a media spending spree in metros and non-metros. What's behind the surge?

Another report released by the same agency, a month ago (titled 'This Year Next Year') expects the e-commerce category to grow the fastest in terms of ad-spends. K Vaitheeswaran, e-commerce consultant and founder of Indiaplaza, India's first e-commerce website, believes that the category ad spend, at Rs 1,200 crore now, is poised to grow at a CAGR of 20-30 per cent. That is a scorching pace even by T20 standards.

For long, e-commerce players advertised using just the digital media including banners on heavy traffic sites, search engine marketing, and search engine optimisation.

According to several published reports, in 2010, e-commerce brands earmarked a budget of Rs 10 lakh for ad spends. "But since 2009-10, there has been a systematic growth in the mass media spending from the e-commerce brands," says Vaitheeswaran. Anita Nayyar, CEO, Havas Media Group, India & South Asia adds that in calendar year 2013, ad spends of e-commerce players were between Rs 200 and Rs 300 crore. The next year was a revelation - in just October, 2014, the festive season - e-com brands spent nearly Rs 300 crore. That has set the tone.

The years 2013 and 2014 were watershed ones in terms of spending. Says Sam Balsara, chairman, Madison World, "Digital firms realised that they need to power their campaigns using traditional mass media with print and TV. They realised that they had wasted many years restricting their activity to Digital only."

Where is the money coming from? The answer to this is simple. It is raining investments. According to one report, nearly $4 billion worth of investments came to e-commerce players in 2014. Flipkart, as everyone knows, raised around $1 billion, Snapdeal got $627 million and Amazon invested $2 billion in its Indian arm.

Karthik Sharma, managing director, South Asia, Maxus, adds that with a growing economy, a young workforce, increasing consumption and stable political environment, India is slated for a positive growth story. "The mood is upbeat across various sectors and many FIIs are willing to pour money into India," says Sharma.

Moreover, e-commerce players are moving beyond SEO, SEM and banners to content, mobile and apps as well as television, print, radio and OOH. Interestingly, Vaitheeswaran points out, in the last few years, overall digital spends by large offline players in FMCG, telecom and auto increased from 5 per cent to 25 per cent of the overall pie. For online players, spends have gone exactly the other way. "Earlier, 100 per cent of their spend was online and now around 80 per cent of their spend is offline," he adds.

Manav Sethi, head, marketing and digital products, Askme, agrees and is intrigued that though his audience is digitally savvy, the brand has to spend on traditional advertising to acquire the consumer's mindspace. FreeCharge, an online coupon platform, recently acquired by Snapdeal, has been investing heavily on offline advertising since October, 2014.

The formula seems to be simple - create a world-class product and then go for advertising. FreeCharge has been around since 2010 but its initial focus was more on product creation and word of mouth advertising. The company advertised using digital and later experimented with The Viral Fever, a content creator, and then on offline mediums. Says Alok Goel, CEO, FreeCharge, "Creating a good product is necessary before advertising it. The consumer will latch on to the product only if he samples it and finds the same value he saw in the ad."

Television is still the most effective way of brand building in India because of sheer reach. Think back to the 'Flipkart Big App Shopping Days' campaign. It was heavily driven using television and print to target large audiences in metro and non-metros. Snapdeal recently launched its latest campaign led by TVC with the Bollywood actor Aamir Khan.

Askme carved aside 90 per cent of its launch budget for TV. The objective was to create salience and reach. Online players believe that Indians love to touch and feel a product before buying, which is not possible with e-com. So they go by the 'Seeing is believing' logic. When consumers see TV and print ads of e-com players, they tend to trust and act upon them.

Shoumyan Biswas, senior director, marketing, Flipkart, says, "Advertising has become a more engaging and communicative medium. Scripts and storylines of TVCs are dominated by real people and real-life experiences. But given the mass appeal of TV and print, traditional media continues to get a larger share of the budgets."

Another reason that Sandeep Komaravelly, senior VP, marketing, Snapdeal, highlights is that with the increasing size of business, the offline medium helps them to reach out to people who are not on the digital platform. For Snapdeal, TV takes up the highest share of the pie in offline advertising, though its budget for a medium changes from campaign to campaign.

Sharma of Maxus adds that 60-70 per cent spends by the e-commerce players is on TV and the rest is split across different media. Huge spends happen on print, OOH and radio too. "The changing consumer mindset has pushed brands to experiment with innovative campaigns," adds Biswas. FreeCharge, however, stays away from radio, since managing and monitoring the campaign is not easy.

Till some time ago, ad-spend destinations for e-commerce brands skewed towards the top 10-12 cities, but now it is expanding to include the top 50 cities. Metro versus non-metros is no longer the differentiator- it is the product category that determines the media mix.

According to Komaravelly, 40 per cent of Snapdeal's business comes from the top 15 cities. But last year the brand released a set of 50 TVCs in several different languages for different geographies to reach out to a wider audience. He points out that radio, language and a mix of regional television channels work well in tier 2 and 3 cities.

Richa Kar, founder and CEO, Zivame, explains that her company is more focused on metros and big cities. Zivame is an online lingerie store. "For the non-metros, we talk about the convenience and the easy availability of already established brands. We target promotions accordingly, " adds Kar.

According to many e-commerce players, the brief to media agencies varies for each campaign as the objectives are different. The idea is to identify the maximum ROI driving channels at the optimised cost.

Komaravelly feels that being restricted to just one medium is not a good idea. Goel of FreeCharge gives a detailed brief to get customers. "We focus on mobile, and push for the usage and download of apps. We share our insights, and are deeply involved with agencies."

Kar of Zivame briefs agencies to create a need for the category, focus on high recall and target consumers pre-disposed to shopping online and are likely be early adopters of the category. Brands invest money on platforms where they believe most of their consumer is consuming content - be it mobile, TV, digital or OOH. Nayyar of Havas Media explains that the industry is getting hyper competitive. "The minute one player releases a campaign, another responds immediately. The challenge is to constantly innovate, keep the existing customer interested, attract new customers, create a buy-in and drive loyalty," adds Nayyar.

The game plan is to reach new customers and give both new and old another reason to buy in. The brief spells out the need to drive maximum frequency to deliver maximum reach and recall.

For any e-commerce player, digital ad spends are mandatory to maintain its position tactically. Says Kar of Zivame, "For us, social media (paid ads) is a strong marketing platform as it enables focussed targetting." That is true for both metros and non-metros. Online influencers like bloggers and media critics, digital campaigns have gained prominence in every media plan. Search for YouTube views, tweets and retweets are constantly going on.

Most players are putting a lot of muscle behind promoting apps and reaching out to the consumer in a more personalised manner. Sethi of Askme points out that though the app will be at the centre of the strategy, it will be TV that will promote the app. The players believe that with the increasing penetration of the smartphones, people are spending more time on their phones and an app brings more stickiness.

There have been several questions around the growth of e-commerce players. In one published report in 2014, it was mentioned that for every rupee of sale made, an e-com company loses between Rs 1.50 and Rs 2.50.

Secondly there is hardly any differentiation within the players in terms of platform, products, services, offers and vendors. In such a case, advertising becomes necessary to remain fresh in the minds of the consumer. If not, the traffic might shift to another one.

Vaitheeswaran points out that the top three players (Amazon, Flipkart, and Snapdeal) claim to have acquired huge audiences but in reality it is mostly the same. While Sharma feels that the reach and continuity of the advertising is a big challenge, Komaravelly thinks it is attaining efficiency - campaign after campaign. The biggest one though is the ultra competitive nature of various players and, therefore, the ability to predict media ROI even in the short term.

Vaitheeswaran and Mahesh Murthy, venture capitalist and founder, Pinstorm believe that this spending spree by e-commerce players will not last for more than 18 months. Explaining his views, Murthy says that, across the world, the winners in the online and e-commerce space have one commonality, which is negligible ad spends. He believes that ad spends by these players is the tacit admission of their product's failure. According to Murthy, great platforms get word of mouth and don't need any ad spends. It is the losers who spend money and not the winners.

Neglecting bottomlines ends in one way - bleeding. "These players cannot have such ridiculous spends because it is unnatural, untameable and unsustainable. It's temporary insanity and will go away," says Murthy. That is a prediction many will be watching out for intently. But, at the moment, there seems to be no letting up.

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