A Week in Retail &
Consumer
July 30 to August 03, 2012
Contents
Executive summary 2
Reaching the connected consumer: Best practices in advertising effectiveness
3-4
Tax and regulatory insights 5
1
Executive summary
Reaching the connected consumer: Best practices in advertising effectiveness
Today, social media, online channels, digitally-empowered consumers-are a few of the changes impacting companies’
advertising departments. At the same time, global
advertisers are consolidating ad budgets, shifting spending to emerging markets and dealing with major macro- economic changes. Harnessing the power of advertising budgets across global markets is more important than ever before.
In July 2012, PwC released a thought leadership, Reaching the connected consumer - Best practices in advertising effectiveness, describing how consumer goods companies can realign business models governing media spending to manage agency relationships, react quickly to a changing
Tax and regulatory insights This issue discusses a high court ruling where it was upheld that the proposed subvention assistance manage agency relationships, react quickly to a changing
marketplace and deliver high returns across brands, markets and platforms.
2 proposed subvention assistance
received from a holding company to recoup a subsidiary’s losses is not a revenue receipt taxable under the Income–tax Act, 1961 (the Act).
Best practices in advertising effectiveness
It is crucial for an advertising strategy (from messaging till media planning) to transform as times change. For global advertisers, now is the time to realign business models governing media spending or risks letting external forces shape them. Our team helps some of the world’s biggest brands to manage their global media spending and track advertisings’ return on investment (ROI). They have put together the following nine best practices in advertising effectiveness:
Find the right mix of traditional and digital advertising:
2
In recent times, advertising has drastically transformed due to the proliferation and fragmentation of delivery channels.
Smartphones, tablets and digital readers vie for consumer attention along with the Internet, television, radio and old-fashioned Forge a two-way relationship with agencies based on sharing risks and rewards:
1
Advertisers are increasingly viewing their agency relationship as a potential two-way partnership where fates of both brand and agency are inextricably linked, based on a campaign’s ROI. Sharing risks and rewards means that advertisers can reap the benefits as ad agencies are able to drive down costs and achieve operational efficiencies. Besides, agencies can improve their expense planning around accounts by establishing regional or global service centres, minimising use of expensive freelance talent and taking a closer look at the general administrative costs. The efficiencies gained can be reinvested to produce more high-value work. They can also reap benefits from changes made by their clients.
Source: PwC report: Reaching the connected consumer - Best practices in advertising effectiveness 3
Smartphones, tablets and digital readers vie for consumer attention along with the Internet, television, radio and old-fashioned ink-on-paper editions of newspapers and magazines. Unlike the past, there are no simple gold standards in advertising currencies today. With consumers spending more time on digital experiences, advertising enjoys an expanded value proposition. Those consumers can be reached more often and via more touchpoints. By applying analytics to browsing behaviours, advertisers and their agencies can identify specific individuals more likely to take the desired decision and also spread the word among their friends and contacts-digital and otherwise.
Broaden the array of measured metrics to address the quality—not just quantity—of consumer engagement:
3
Advertisers should take into account the total impact of various media such as print circulation, online visitors and mobile application visitors to arrive at a complete picture. The first step is to gain a fuller, more accurate picture when aggregating the various platforms of content. This enables the advertiser to identify overlapping areas where consumers view ads in more than one medium. This process serves a dual purpose by ensuring these individuals will not be counted multiple times and also by distinguishing them as being highly-engaged. This ‘de-duplicated’ data is often referred to as ‘audience reach’ and is critical for those planning advertising campaigns based on reach versus frequency. This data can inform future campaigns and help to better allocate marketing spend across the media.
Connect with—and respond to—consumers directly through social media:
4
Social media provides not just an advertising platform but also a feedback mechanism. Social networking sites such as Facebook and Twitter have enabled advertisers to form direct relationships with consumers. Two-thirds of the Internet users (worldwide) use social media and many of those users, especially young people, welcome conversations with their favourite brands.
Capitalising on these relationships can yield a host of benefits for consumer products companies. Brand owners can also use the fluid, free-form nature of social media as a collaborative testing environment for the commercial viability of new ideas.
Best practices in advertising effectiveness
Effectively manage agency relationships across geographies:
6
The drive for advertisers to improve bottom line performance and harness the power of their advertising investment has never been more critical. Moving to one unified planning system can help in tracking media spending by market and brand on a weekly basis, as well as provide the ability to shift spending quickly to markets and brands with the highest returns.
Don’t count out television , still the first platform among equals:
5
The television medium till now has proved to be resilient. The intensity of the viewing experience—enhanced by high-definition technology remains unequaled. According to PwC’s Global Entertainment and Media Outlook 2012, Asia-Pacific is the second- fastest growing market, with a projected CAGR of 8.1%.
The leading consumer products companies are finding innovative ways to integrate TV advertising with other media. Some advertisers are employing the traditional 30-second spot as a linchpin for other advertising platforms.
Be positioned to react quickly to marketplace changes when they occur:
7
One of the keys to get better value out of ad spending is to identify areas of saturation and underperformance in real time or as
Source: PwC report: Reaching the connected consumer - Best practices in advertising effectiveness 4 Invest advertising dollars not just in the brands, but in the company:
9
In recent years, institutional advertising has often been downplayed in favour of product or brand specific advertising as it is easier to relate to sales and effectiveness. Now, for many reasons, companies are shifting back, allocating advertising spending to create a brand for the company itself.
One of the biggest reasons for this is sustainability. Research suggests that today’s consumers, particularly younger ones, take a company’s commitment to the environment and other causes into consideration when making a purchase.
Establish a single global media planning system:
8
Moving to one unified planning system can help advertisers track media spending by market and brand on a weekly basis, as well as provide the ability to shift spending quickly to markets and brands with highest returns. One of the ways to achieve this will be to purchase a central global unit when possible and allocate it around the world. Such a process could reduce per unit media costs to unseen levels.
One of the keys to get better value out of ad spending is to identify areas of saturation and underperformance in real time or as close to it as possible. Saturation can lead to needless spending and possibly diminishing returns, if the consumer is hit with the message more than an optimal number of times. In the opposite case, a flagging campaign might need an infusion of additional cash. By establishing greater transparency and oversight of media spending, companies can make their agencies work harder for them. The more analytical tools a company has to draw on, the better it can assess which campaigns are essential and
expendable. The deeper the grasp that advertisers have on the media process, the more they can zero in on the exact result desired.
Tax and regulatory insights
The Delhi High Court, in the above ruling, upheld the proposition that subvention assistance received from holding company to recoup subsidiary’s losses is not a revenue receipt taxable under the Income–tax Act, 1961 (the Act).
Financial support in the form of subvention payment was provided to the taxpayer subsidiary company by its holding company based on the latter’s evaluation of the taxpayer’s business activity likely to incur substantial level of losses. The financial support was for restoration of the net worth of the company. Based on facts, the issue for consideration was whether the subvention assistance was taxable as a revenue receipt.
The assessing officer (AO) contended that the above subvention receipt (disbursement of incentive) is in the nature of a ‘casual receipt’ to assist the taxpayer in continuing its business operation which is taxable in India.
The Commissioner of Income Tax (Appeals) (CIT(A)) overturned the AO’s order and held in favour of the taxpayer. Since, the subvention payment was made by the holding company to recoup the financial health of the
Subvention from a holding company to recoup subsidiary’s losses is not taxable CIT vs Deutsche Post Bank Home Finance Ltd [TS-529-HC-2012(DEL)]
5 taxpayer. Since, the subvention payment was made by the holding company to recoup the financial health of the Indian subsidiary company, it is in the nature of ‘capital receipt’ and not chargeable to income-tax.
The Income-tax Appellate Tribunal (ITAT) also ruled in favour of the taxpayer and held that the subvention receipt was not in the nature of ‘income’. It was a voluntary payment arising out of personal relationship of parent and subsidiary company and not stemming from any business considerations.
The ITAT relied upon the Delhi High Court’s ruling in the case of Handicrafts and Handloom Export
Corporation of India (Handicraft decision) [TS-3-HC-1981(DEL)] which discussed the difference between the grants made by a government or from public funds to help supplement the general revenues or trading receipts and a case of a private party agreeing to make good the losses incurred by an taxpayer on account of a mutual relationship that subsists between them. The former is treated as a trading receipt while the latter is in the nature of gifts or voluntary payments motivated by personal relationship and not stemming from any business considerations. In the instant case, the amount was received by virtue of their relationship of the parent and subsidiary company. The ITAT held that the taxpayer received subvention money from its holding company (not a trader) to recoup the losses likely to be suffered by the taxpayer which is squarely covered by the Handicraft decision. Hence, it is not taxable.
The high court dismissed the appeal of the revenue and upheld the Delhi ITAT's ruling that subvention assistance is not taxable as a revenue receipt. It also observed that the purpose of rendering assistance to the subsidiary company was to meet substantial losses. Considering the above purpose and relying on the decision of the Handicraft case, it agreed with the ITAT’s ruling that the subvention receipt from the holding company for substantial losses was not taxable as income.
Contacts
Rohit Bhasin
Partner, PwC
Mobile—+91 9810191282 Direct—+91 0124 330 6016
6 Direct—+91 0124 330 6016
Email—[email protected]
Akash Gupt
Executive Director, PwC Mobile—+91 9811331613, Direct—+91 0124 330 6001 Email—[email protected]
pwc.com/india
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice.
You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, tothe extent permitted by law, PricewaterhouseCoopers Pvt. Ltd., its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2012 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.
