Drop in smartphone sales to hit ad spends?

India emerged as a mobile-first consumer economy thanks to the massive digitisation underway in the country driven in part due to COVID-19 pandemic. Cheaper data tariffs, the exponential growth of entertainment on mobiles and a variety of smartphones led to the emergence of ‘mobile-first’ users in the country.

However, things may be heading south as the sale of mobile phones in India has been declining gradually. According to a report by global technology research firm Canalys, smartphone shipments in India have dropped by 20% in the first quarter of 2023 with about 30 million shipments, year-on-year.

The drop in mobile phone sales has been visible for quite some time. A 27 per cent and 6 per cent decline was observed in the third and last quarter of 2022 (festive period in India), respectively, compared to the same quarter in 2021, the Canalys data reflects.

Earlier, International Data Corporation’s (IDC) Worldwide Quarterly Mobile Phone Tracker had stated that the Indian smartphone market exited 2022 with 144 million shipments (the lowest since 2019), with a 10% decline YoY (year-over-year). According to IDC, dwindling consumer demand due to high inflation remained a challenge throughout the year. The average selling price hit a record US$224, rising 18% YoY in 2022.

Besides, 5G adoption has not picked up the way it was believed to be. By offering ultra-high data transfer speed and low latency, the 5G technology has been expected to revolutionize the digital marketing domain like never before. Many advertisers had planned to offer AR, VR and web3 features to leverage 5G. Their plans have been put on the back burner.

This development has ringed alarm bells among advertisers. After all, the massive growth in app downloads and average time spent on mobile has given a huge fillip to mobile advertising during the pandemic, so much so that mobile advertising accounted for 60% of the digital ad spend, as per an InMobi report (2021).

Ministry of Information and Broadcasting secretary Apurva Chandra said last November that India had over 1.2 billion mobile phone users, of which 600 million are smartphone users.

(Source: Canalys, Smartphone shipments in India Q1, 2023)

The drop in mobile phone sales is being linked to significantly dampened consumer demand, inflation, and economic uncertainties, which have added to the woes of the advertising sector that is already struggling with dwindling ad spends this year on account of multiple reasons, including global economic concerns.

“A GroupM report released early this year had predicted 15 per cent higher ad spends in 2023 compared to last year, touching Rs 1.46 lakh crore. The report said that the growth would be largely driven by digital with 56 per cent share in total. The degrowth of smartphones suggests that the industry may not meet the projections,” an advertising executive said.

Canalys data also indicates that the cheap handsets, mainly China-made, have been affected the most, while high-end sets such as iPhone and OnePlus have picked up, Sanyam Chaurasia, technology market analyst at Canalys tells e4m. “The brands that have brick-and-mortar stores apart from online channels have gained in the post-pandemic period, compared to those which don’t have their own stores,” Chaurasia added.

As for Amit Garg, AGM - Marketing, OTC Healthcare supplements, Dabur India, “Such a huge decline in mobile phone demand is surely a cause of concern. It will impact the digital universe, which is second to TV now, in terms of marketing spends. Mobile marketing offers a real-time comparison and tool to connect and understand consumer behaviour. Banner ads, videos and AR marketing, and influencer marketing largely gain traction on mobile platforms.”

“Inflation has affected the consumption pattern, especially in tier 2 and tier 3 cities, as most people have postponed their discretionary spending,” Garg points out.

Mayank Shah, Senior Category Head, Parle Products, feels that there is no reason to be worried as of now.

“If phone sales continue to decline in the coming months, then it would be a cause of concern for advertisers. As far as our understanding of cellphone marketing is concerned, it seems first-time consumers are still growing, but people who wanted to upgrade or replace their phones have decided to postpone the plan due to inflation,” Shah explains.

He further says that there would be no impact on the allocation of funds for mobile advertisements. “As long as data consumption is growing, we are not worried about digital ad spend. It seems 5G adoption would take time. As of now, operators have not been able to offer seamless data. It's available only in pockets. Nevertheless, the 4G network is quite good.”

Mobile data traffic in India jumped 3.2 times in the last five years, reaching over 14 exabytes per month, according to Nokia's annual Mobile Broadband Index (MBiT) report. The report also revealed that pan-India mobile data usage per month also grew from 4.5 exabytes in 2018 to 14.4 exabytes in 2022.

Ankit Desai, Head - Media, Digital Marketing and Brand PR (India and Global Centre of Excellence), Marico, echoes the sentiments. “A one-quarter of drop in sales should not in itself be cause for concern. Especially since we don’t see a corresponding drop in telecom subscription numbers. The drop could be due to a variety of factors ranging from inflation-led drop in disposable incomes to a longer phone upgrade cycle given the increasingly better quality of devices and batteries,” Desai opines.

He noted that at this stage there shouldn’t be a cause for concern from an advertising point of view.

Industry experts also pin hope on a good monsoon that will revive the rural economy and demand.

Garg and Shah hope mobile sales and 5G will pick up soon because inflation has already come down and monsoon is likely to be good, which will kickstart demands in Bharat once again.