With the new draft guidelines of the surrogate advertising being prepped to be released soon, Storyboard18 gauges the impact it is likely to have on the alcohol-beverage industry.
The upcoming new set of regulations proposes prohibition against engaging in a surrogate advertisement, which extends to both celebrity endorsements and advertising “brand extensions” that share the characteristics of an alcohol brand.
Additionally, not only it includes heavy penalties for the violations but it also has included digital under its purview for the first time.
Companies that violate the guidelines could face fines of up to Rs 50 lakh and celebrities endorsing such ads risk face bans lasting 1-3 years. Further, celebrities used for brand extensions will have to be distinct from the celebrities considered for a restricted product.
As the upcoming guidelines offer a framework for compliance that brings much-needed clarity to the sector, experts tell us that celebrities must be vigilant and companies will need to ensure that the brand extensions they promote have legitimate market presence to avoid penalties and potential bans.
Read more: Govt’s new rules for surrogate ads to be released within next quarter: Exclusive
While alco-bev’s advertising expenditure (adex) remains not more than 2% of the overall country’s adex, it is one of the major categories that spend hefty when it comes to marquee properties like the Indian Premier League.
With stringent regulations coming in, one may see the companies reducing the advertising spends by 20-30% for the brand extensions.
“The new guidelines are likely to have a substantial impact on advertising expenditures by the alco-bev sector. Currently, the alco-bev industry spends a significant portion of its ad budget on surrogate advertising and brand extensions. With the stricter regulations and penalties introduced, companies might reduce their ad spends in these areas due to increased compliance costs and the risk of penalties,” notes Teja Chekuri, Managing Partner of the microbrewery Ironhill India.
Although it’s hard to estimate the current advertising spends and the strategies employed to deploy the spends because these are often well-guarded secrets but if they choose to cut back on surrogate ads or shift to more compliant forms of advertising – should that be made available, the ad spends could decrease substantially. “Industry stakeholders might see a reduction in ad expenditures by 20-30% or more,” he shares.
Meanwhile, media agencies may witness a pulling back of funds on advertising, and a change of strategy to perhaps an old-school sales strategy.
Karan Taurani, SVP, Elara Securities, notes that the companies will move away from major promotions activities and will shift spends toward below-the-line advertising like giving more margins to retailers, incentivising them, running promotions, and trade discount schemes, either for the customer or the trade.
Distinction in celebrity endorsements
Celebrities will need to exercise considerable caution when endorsing alco-bev brand extensions under the proposed new guidelines.
If the regulations go through, it could impose significant risks for celebrities, including the potential for a ban on endorsements, not to mention the negative PR that could follow. On the positive side, Chekuri adds, it could make celebrities a bit wary and hence they will perhaps keep a keen eye on the products they endorse, to avoid penalties and bans.
“One of the recommendations of the industry is that those celebrities used for genuine brand extensions will be distinct from the celebrities considered for a restricted product,” adds Nita Kapoor, outgoing CEO, International Spirits and Wines Association of India.
She says that the framework for genuine brand extensions include trademarks of the restricted product category that have/will diversify into various categories including FMCG, beverages, services with distinctive packaging, designs, and communications, that will follow the category conventions that the diversification is being done in. So, there would be no ambiguity for the end consumer between what is a genuine trademark vis-a-vis its restricted product.
“There have been additional self-regulations that the industry has offered and discussed with the committee that has been set up for this very purpose and the ambiguity of what is a surrogate versus and what is a genuine brand extension will hopefully be resolved very soon. At present, ASCI guidelines for genuine brand extension remain the guiding principle,” Kapoor shares.
It is to be noted that according to the 2022 the Central Consumer Protection Authority (CCPA) guidelines, if violated, the CCPA may impose a penalty under Section 21 of the Consumer Protection Act; it can impose a penalty of up to Rs 10 lakhs on the person found guilty of violating the guidelines. For subsequent violations, the penalty can go up to Rs 50 lakhs. The CCPA can also prohibit the endorser of a misleading advertisement from publishing any endorsement for up to 1 year. In case of repeated violations, the prohibition period can be extended up to 3 years.
However, due to the unclear definition of surrogate ads, brands often are seldom penalised.
In the proposed guidelines, while the level/extension of penalties remains unclear, the procedure to impose the penalty under Section 21, stays the same.
Swift rebound
While there may be a temporary adjustment in ad spends and adex contributions, this is merely a transition phase, points out a spokesperson from White Rivers Media.
“This new landscape challenges creative and media agencies to push boundaries within the regulatory framework, focusing on authentic storytelling and responsible advertising. It’s an opportunity to forge deeper, more meaningful connections with audiences while maintaining brand visibility and engagement,” he says.
In a nutshell, we’re entering an era of more thoughtful, impactful marketing that aligns with evolving societal expectations.
Mohit Hira, Co-founder, Myriad Communications, has an interesting point to make.
“I believe that any government which allows a product to be manufactured and sold but prevents it from being advertised and marketed openly is being hypocritical. Why is it legal for alcohol to be produced and sold and taxed if it cannot be promoted for responsible consumption?,” he remarks.
But having said this, any legal framework that is in place must be respected by all stakeholders – brand owners, advertising agencies and endorsers. As a result, creativity is constrained, agencies and celebrity influencers/brand ambassadors are hyper-cautious and will only do what’s legally safe. Consequently, lawyers gain more business whereas legitimate businesses suffer.
Read more: Crackdown on surrogate ads: Government to soon issue elaborated guidelines for advertisers
Agencies will need to spend more resources on checking every piece of creative work unless they implement tech-enabled tools that do a fine job of checking brand guideline violations without adding to people costs, Hira points out. It could impact spends in the short term as brands will want to hold back until they are clear about what’s possible and what’s not. But eventually, spends will bounce back because you can’t promote brands in the dark.
The industry has always been adaptable and experts foresee a swift rebound.