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The Advertising Standards Council of India updates the Guidelines for Qualification of Brand Extension – Product or Service

The Advertising Standards Council of India updates the Guidelines for Qualification of Brand Extension – Product or Service

On 14th December 2023, the Advertising Standards Council of India (“ASCI”) updated the Guidelines for Qualification of Brand Extension – Product or Service (Brand Extension Guidelines”) for the restricted category of products or services that are prohibited from advertising by law. These amendments have been introduced to target the brand extensions of restricted categories of products and services in big-ticket sporting events and to prevent the misuse of brand extensions as surrogate advertisements.

By way of brief background, Chapter III of the ASCI Code for Self-Regulation (“ASCI Code”) prohibits indirect advertisement of products, advertising of which is prohibited/restricted under law or the ASCI Code (such as tobacco and alcohol), by circumventing such prohibition/restrictions and implying the advertisement to be for other products the advertisements for which are not prohibited/restricted. The ASCI Code provides certain parameters for assessing whether an advertisement is an indirect advertisement of a restricted product/service. One such parameter is to see whether the unrestricted product, which is the subject of the advertisement in question, is produced/distributed in reasonable quantities considering the scale of advertising, media used, and the markets targeted while advertising the unrestricted product. 

In furtherance of the above parameter, the ASCI introduced the Brand Extension Guidelines to evaluate the validity of the advertisements of unrestricted products/services. The Brand Extension Guidelines require the brand extensions to meet the specified thresholds of business, investment, or distribution for such extensions in order to be considered genuine by ASCI. Through this update, the ASCI has introduced additional criteria in these Brand Extension Guidelines.

Updates to the Brand Extension Guidelines are as follows:
  • Advertising budget to be commensurate with sales turnover – The updated Brand Extension Guidelines mandate that the advertising budget of genuine brand extensions should be in proportion to the sales turnover of the brand extension.
      • The advertisement budget would include the following:
        • Expenditure across all forms of media of the past 12 months,
        • Payments made to celebrities for brand endorsements on an annual basis, and
        • Annual average expenditure on advertising production for the brand in the previous 3 years.
      • The proportions have been capped at the following –
        • Not more than 200% of the sales turnover in the first 2 years of the launch of the brand extension,
        • Not more than 100% of the sales turnover in the third year,
        • Not more than 50% of the sales turnover in the fourth year, and
        • Not more than 30% of the sales turnover thereafter.
    ASCI mandates all the evidence, including the above-noted evidence, that supports the brand extension’s qualifications for advertising, to be certified by a reputed and independent CA firm.
  • Variants not to be treated as fresh extensions – Any variants (i.e. new products/services) launched under a brand extension are not to be treated as a fresh or new brand extension, and the original date of the first brand extension would apply to all such variants.
  • Non-compliance with the updated Brand Extension Guidelines – In the event the brand extension of the parent restricted brand does not meet the updated criteria, then ASCI will not consider such brand extension to be genuine and would treat such an extension as a surrogate advertisement.
Our Take

ASCI, as a self-regulatory body, has played a crucial role in governing advertisement content by introducing various guidelines from time to time that are aimed at addressing various issues pertaining to advertisements such as surrogate/indirect advertisements. While surrogate advertisements are generally prohibited, genuine brand extensions are acceptable as they are based on legitimate products or businesses and provide an opportunity for businesses to diversify and expand into newer markets.

ASCI’s Brand Extension Guidelines are aimed at protecting this genuineness of advertisements and accordingly provide for provisions that mandate certain thresholds for, inter alia, sales turnover of the product/service, fixed asset investments, outsourcing of manufacturing/procurement, to be met for a brand extension to be considered genuine.

Links

ASCI’s press release on the Guidelines for Qualification of Brand Extension – Product or Service – https://www.ascionline.in/wp-content/uploads/2023/12/PR.-ASCI-Fortifies-Brand-Extension-Guidelines-13.12.23.pdf

Guidelines for Qualification of Brand Extension – Product or Service – https://www.ascionline.in/wp-content/uploads/2023/12/Guidelines-for-Qualification-of-brand-extension-1.pdf

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