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Are car brands slowing down marketing to overcome the semiconductor shortage hurdle?

The global shortage of semiconductors has become an unexpected challenge for automakers around the world. Undersupply of this crucial component – due to a confluence of issues such as insufficient manufacturing unit capacity, the pandemic and strained socio-economic environments across the world – has slowed the process of producing new vehicles .

Every business faces a long list of backorders. In India alone, automakers are sitting on the books of 7 lakh of backorders in December 2021, according to the recent Economic Survey 2022.

Additionally, according to reports from the Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales in December 2021 declined by 13% on an annual basis. The country’s two-wheeler sales also fell to a 9-year low due to rising fuel prices and declining purchasing power in rural districts, thanks to rising inflation.

According to dentsuMB managing partner, Indrajeet Mookherjee, “This Covid-induced shortage of semiconductors has disrupted car sales across the globe and has also led to longer waiting times and lower production in India. Mass automakers that have higher volumes have felt the heat more with an average sales decline of 10% month-over-month, while high-end automakers that have secured supply are still able to increase their volume share.

Sharing more on the crisis, Grapes CEO Shradha Agarwal said, “Clearly, the shortage of semiconductors has had a huge impact on the industry. We’ve seen new launches take a hit over the past two years and it will take some time for the situation to normalize. »

Impact on AdEx

All of this has now affected the marketing spend and strategies of the country’s major automakers. The industry believes that brands are very careful about how much and where they spend their precious advertising dollars.

Initiative CEO Vaishali Verma said, “We work with many automotive brands and the past two years have been quite stressful for the industry. While the demand is there, due to production issues, the supply is limited. And that, coupled with accelerating inflation and rising crude oil and fuel prices, has also made the first five months of 2022 very bleak. We’ve seen the category slash their marketing budgets by at least 60-70%.

However, things slowly started to improve after Covid, in terms of AdEx from autoreaders.

Mookherjee notes, “There has been a Covid-induced decline in AdEx for automotive brands over the past 2 years. However, there has been a post-Covid upsurge. With the reopening of markets and dealerships, there has been a clear increase in demand for cars in urban households in the post-Covid world. Moreover, new entrants as well as existing players are driving the AdEx, especially in the SUV segment. The automotive sector is expected to contribute almost 7% to the overall AdEx, becoming the 3rd largest segment after FMCG and e-commerce in 2022.”

How have marketing strategies evolved?

Even though the situation around semiconductors remains uncertain, with the next two years expected to be slow, marketing strategies have surely evolved for the industry.

When it comes to the media pie, print, which has been a mass favorite for the auto industry, has slowly started to take a back seat as digital comes on top. Spending on television, on the other hand, remained largely flat.

“Overall, the automotive sector’s reliance on print is decreasing and digital is gaining ground. The presence of big-budget sporting events and consistent viewership mean television spending is stable. Cinema, Radio and OOH are seeing their spending decrease and these budgets are increasingly diverted to digital. In the online digital space, search for paid videos and social media are growing exponentially,” Mookerjee explained.

He added, “From a communications perspective, we’re in the middle of a big shift from advertising to experiences. With data at the center of everything, communication will be tailored to specific customer groups based on their needs and experiences. »

As for Agarwal, the industry resorts to spending more on seasonal/festive campaigns, “Print, radio and outdoor advertising are all seeing reduced advertising revenue. TV GRPs are on hiatus, with little additional growth. These brands therefore survive largely thanks to digital where the advertising rates are quite low and affordable, while offering better targeted reach.

Verma further stated that the industry is now making more “quick action” announcements instead of building a brand or intent. “The idea is to introduce more and more people to the product, get them to take a test drive and order a vehicle. Performance-driven campaigns take center stage. »

What the brands say

The country’s major auto brands, however, are only focusing on the positives of the times: increased demand, increased purchase intentions for several categories, and maintaining a strong production portfolio.

A spokesperson for Tata Motors told e4m: “Demand for our ‘New Forever’ range continues to be strong. The same was reflected in our sales for the month of May 2022, where we recorded our highest monthly sales of 43,341 units, since the start of the PV activity, registering a growth of 185% compared to the same period last year. All of our products are leaders in their respective segments, forming a portfolio rich in selections, from smart trim choices to powerful powertrain options, making us the only OEM to meet customers’ gasoline, diesel, CNG and electric vehicles. Additionally, while the semiconductor situation and supply-side challenges remain uncertain, we continue to monitor the situation closely, while remaining nimble, taking prudent action through our multi-pronged approach and by finding innovative solutions with our suppliers to relieve production capacity. These actions have helped us on an ongoing basis and have not let the shortage affect supply to any great extent. »

Maruti Suzuki Senior Executive Director – Marketing & Sales, Shashank Srivastava, in a previous interview with e4m had mentioned: “We have a good portfolio of vehicles, around 15 at present, which is the largest in the industry. Different models require different types of chips. We tried to adjust the production plan to keep pace with chip supplies. Production, which was around 40% last September, has now increased to 93%. It would take some time for things to get back to normal. And I can’t say how long that’s going to take due to invisibility in the global supply chain.

He further stated, “Advertising spending by the automotive industry would increase by 15-20% over the previous year. Last year, the automotive segment accounted for Rs 5,000 crore of AdEx, out of overall spend of Rs 57,000 crore on traditional media platforms, keeping digital aside. Half of it, or around Rs 2,500 crore, came from automakers alone.

Mercedes-Benz India Vice President – Sales and Marketing, Santosh Iyer, quips: “The global automotive industry continues to face disruptions and delays due to chip and container shortages. However, we are seeing a better than expected recovery. Despite the supply chain challenges, we expect 2022 to be one of our best years in India in terms of sales, as for the first time we have an order bank of over 5,000 cars. The continued strong demand for our new launches is evident in our recently launched C-Class, which had over 1,000 confirmed bookings even before its price announcement. We’ve sold every car available from us, and the waiting period ranges from two months for some models to two years for specialty cars such as the G-Class.”

Speaking of the impact on marketing plans, Iyer adds, “The shortage of vehicles has certainly impacted our marketing plans and we have shifted our focus from advertising to CRM. We have invested our resources in creating very luxurious and exclusive experiences for our customers and prospects, such as sending them to Paddock clubs for F1 races, creating unique AMG emotion circuits and many other experiences that the money can’t buy. We are taking this opportunity to build strong relationships and further reinforce our philosophy as the ultimate luxury brand. Marketing spend has also shifted from performance media campaigns to brand campaigns and customer experiences. »

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