‘Is more than half of this supplement an advertising expense?’ How much of the ‘advertising cost’ is for the product or service?

Ultimately, the consumer pays the “advertising costs.”

Commercials (CM) from sponsor companies are the main source of income for commercial broadcasters. For Fuji Television Network, a series of so-called “Fuji Television problems” have caused companies to withhold their own commercials and other sponsors to leave the network, shaking the very foundations of its management.

Commercials are always seen in commercial TV programs. For consumers, commercials are burned into their brains, and they are forced to be aware of them when purchasing products and services.

The cost of such advertising is factored into the price of the product or service, which is ultimately paid by the consumer. It would be interesting to know how much of the price is actually accounted for.

Advertising costs for “health foods,” which are often seen on BS/CS, can be found at ……

There is a company called “Pharma Foods” (Kyoto City) that engages in mail-order sales of health foods and other products. Its “advertising expenses” account for about 60% of its sales. In other words, approximately 60% of the product price can be thought of as advertising costs.

Tokyo Shoko Research (TSR), a credit research firm, surveyed 148,090 companies to determine trends in “advertising expenses” in FY 2011. These advertising expenses are the sum of “advertising” and “sales promotion” expenses. For companies that sell directly to retailers, the total amount of goods and services sold is roughly equivalent to net sales. On the other hand, if a company sells through a wholesaler, the total sales of goods and services is the company’s total sales plus distribution margins, etc. Here, however, total retail sales and total sales are not considered to be significantly different.

Regarding a company’s advertising expenses, “Even if the cost is high, it should be effective and generate a return. Familiarizing consumers with the company name and product name will increase name recognition,” says Yoshihiro Sakata of the TSR Information Department.

Advertisements and promotions of health food products are often seen on satellite broadcasting (BS/CS) and other media. With the exception of a few major companies, health food products are not all well-known. In addition to newspaper and Internet advertisements, it is necessary to get consumers to remember the company name and spread information about the product through television such as BS/CS to lead them to purchase the product.

In addition to “Farmer Foods,” there are several other companies with an advertising expense to sales ratio of around 50%, according to TSR. These are mostly Internet-related companies that are not well known to the general public, and improving their name recognition through advertising is seen as directly related to increasing the number of users.

Web-related companies tend to spend more on advertising

Atrae” (Minato-ku, Tokyo), which operates a recruiting media application that matches people with companies, has an advertising expense ratio of 54.8%. The company is involved in the planning, development, and operation of contingency-fee-based recruitment media, organizational capability improvement platforms, and business-version matching applications.

(Kamakura, Japan), which engages in web content creation and SNS marketing, had a 49.7% YoY growth rate. The company is developing its business in the areas of outsourced advertising-related content, games/entertainment, and e-sports.

Itochuro (Shinagawa-ku, Tokyo), which operates the tutoring school and prep school information portal site “Juku Navi,” had a 46.5% stake in the company. In addition to “Juku Navi,” the company operates a portal site for information on lessons, schools, and other subjects.

Jigen (Minato-ku, Tokyo), which plans and operates web media, had a 45.2% share of the market. The company operates a variety of platform businesses, including information and consulting for job offers and career changes, real estate rentals and sales, remodeling, hotels, airline tickets, and used car information.

Advertising Expense to Sales Ratio” averages 1.3%…Which companies have the highest ratio?

In FY2011, advertising expenses totaled approximately 2.9 trillion yen, an 11.6% increase over the previous year, according to TSR. In particular, TSR believes that pharmaceutical-related and Internet-related expenditures both expanded by around 50%, boosting overall advertising expenditures.

The ratio of advertising expenses to sales averaged 1.3% for the 87,490 companies that recorded advertising expenses in the fiscal year 2011, and TSR also found that advertising expenses are higher in industries where competition for customers is more intense. For example, about 70% of the wedding industry spent more than 5% on advertising, and nearly half of the esthetic and credit card industries spent more than 5%.

TSR has been surveying advertising expenditures since FY19, and until FY22, there was a downward trend, partly due to the stagnation of economic activity caused by the COVID-19 crisis. Advertising expenditures tend to increase as economic activity increases.

A list of major listed companies with the largest amounts of advertising expenditures in the survey of advertising expenditures for FY 2011 (see attached). The top company by far was pharmaceutical company Daiichi Sankyo (Chuo-ku, Tokyo), with 269 billion yen, or 22.2% of net sales. Pharmaceutical-related commercials are often seen on TV.

According to TSR, Rohto Pharmaceutical (Osaka, Japan) and Hisamitsu Pharmaceutical (Tosu City, Saga Prefecture) have advertising expense ratios of 19.1% and 16.0%, respectively. It is likely that many people purchase and use drugs from pharmaceutical companies they have seen in commercials when they are not feeling well.

Credit cards, toiletries, and industries with increased competition also have high advertising expenditures

On the list of major listed companies with high advertising expenditures, the second- and third-largest Internet-related companies are Rakuten Group (Setagaya-ku, Tokyo) and LINE Yahoo (Chiyoda-ku, Tokyo), which spent 72.5 billion yen and 54.2 billion yen, respectively. Advertising expense ratios were 8.4% and 14.3%, respectively. A similar company, “Mercari” (Minato-ku, Tokyo), has a high advertising expense ratio of 17.5%. (Minato-ku, Tokyo), an Internet-related company that plans, develops, and operates job information and other applications, has a higher rate at 30.6%.

Cosmetics and toiletries companies also appear on the list of major listed companies that spend heavily on advertising, with Kao Corporation (Chuo-ku, Tokyo) in fourth place with 51.6 billion yen and a 6.0% advertising spend ratio, Lion Corporation (Taito-ku, Tokyo) in seventh place with 32.2 billion yen and a 14.0% ratio, and Kosé Corporation (Chuo-ku, Tokyo) in eighth place with 28.2 billion yen and a 1% ratio.25.KOSÉ (Chuo-ku, Tokyo), in eighth place, had 28.2 billion yen, or 1.1% of the total. Similar companies include “Mandom” (Osaka, Japan), with an advertising expense ratio of 11.4%. In this industry, too, consumers’ product selection is likely to be greatly influenced by their memories of commercials, and competition among companies is intensifying, creating the appearance of a commercial war.

Credit Saison (Toshima-ku, Tokyo), ranked 9th on this list, spent 27.1 billion yen on advertising and had an advertising expense ratio of 9.6%. The credit card industry has the highest advertising expense ratio in the industry ranking at 11.9%. Mr. Sakata commented, “If you are not well known, people will not trust you. They may be supplementing their credibility with TV commercials,” he said. As a business for individuals, the credit card industry is seen as an industry with a high advertising expense ratio, along with the consumer finance industry.

Recently, there has been a move to form an economic zone by enclosing customers with points plus α. The credit card industry is competing fiercely with the credit card industry and the two-dimensional code payment system, “00pay,” which is available via smart phones. As a countermeasure, commercials are playing an increasingly important role in raising awareness.

According to TSR’s ranking of advertising expenditures by industry (see separate report), the job placement agency industry ranked first at 18.8%, cosmetics retailers at 18.5%, and Internet-related industries at 15.5%, etc. The credit card industry ranked seventh, and the travel industry ranked ninth at 11.8%. These industries are often seen in commercials on TV, in newspapers, and online. Competition for customers is fierce in the travel industry, and commercials have the effect of increasing consumer interest in travel.

In the job placement industry, for example, the advertising expense ratio of “En Japan” (Shinjuku-ku, Tokyo), a recruiting and staffing service provider, is as high as 38.0%.

The real estate industry, which sells condominiums, has a low advertising expense ratio of 1.1%, but if the advertising expense ratio is 1% for condominiums priced at 50 million yen and 100 million yen, for example, the advertising expense is 500,000 yen and 1 million yen, respectively, which means that consumers are bearing the cost.

The advertising expense ratio of major real estate companies is not so high, such as 1.1% for Sumitomo Real Estate (Shinjuku-ku, Tokyo) and 0.6% for Mitsui Fudosan (Chuo-ku, Tokyo). The real estate giants are also involved in a wide range of businesses, including regional redevelopment, shopping mall management, and commercial building leasing, and their sales are expanding beyond home sales. On the other hand, advertising expenses may be concentrated and allocated to condominium and other home sales. Advertising expenses may account for as little as 1% of the sales price of condominiums and other homes.

Consumers usually bear a considerable amount of advertising costs in the purchase of goods and services. On the other hand, advertising by companies is “the first step for consumers to make a choice, and it is indispensable for how to get them interested and triggered,” says Sakata.

The benefit to consumers is that they have more choices and can make comparisons.”

Although the cost of advertising is a burden for consumers, it is clear that companies and consumers are stimulating economic activity through advertising.