How P&G slashed 40% of its agencies (and plans to do more)
Procter & Gamble (P&G) has cut the number of agencies it works with by 40 per cent, allowing it to save around $300m on agency and production costs in 2015 versus the prior year.
The FMCG business is on a mission to do more for less with it’s marketing that has seen it look to weed out non-working costs from its mix.
These cuts have not been so apparent because most of them have been achieved by funnelling budgets from one channel to another. One area that has had an instant impact on P&G’s bottom line is it’s decision to trim the number of agencies it works with across the board,
In Brazil, the cull delivered a 50 per cent in spending, whereas in the US spend on its hair care brands was down 20 per cent after it parted ways a third of those agencies. In another beauty category, P&G whittled its spend down to one agency for digital marketing, cutting expenditure by more than 75 per cent.
“In total we reduced the number of agencies by abut 40 per cent and cut agency and production spend by about $300m versus the prior year. Tier 2, there’s more savings ahead of us, most of which will be reinvested in stronger advertising programs,” said chief financial officer Jon Moeller on an earnings call yesterday evening (30 July).
The bulk of these savings are being ploughed back into P&G’s media plans as it looks to cheaper, more targeted digital channels to offset the lower spend. Outgoing chief executive A.G Lafley, who is to be replaced by David Taylor in November, expects 10 per cent to 20 per cent increases in its media budgets over the next year, driven in part by its plan to buy most (70 per cent) of its online ads programmatically in the US as well as a review of its North America media business.
“We’re simply shutting down the unproductive non-working dollars and we’re converting it to working and we’re getting a heck of a lot more out of our digital mobile search and social programs depending on the market, depending on the category, depending on brand. But we’ve invested in sales,” Lafley said on the same call.
The changes are part of wider efforts to reseize the business following years of rapid expansion without the innovation to carve out sustainable revenues. Revenue plummeted 9.2 per cent in the June quarter, stunted by ongoing troubles in Russia and poor demand for its grooming products.
Revenue from Russia dropped 57 per cent in June, while organic sales from P&G’s grooming brands dipped 7 per cent in the quarter. Moeller blamed the latter on men shaving less in US, competition from online rivals and retailer’s destocking their products as well as being up against a strong quarter a year ago when sales jumped 6 per cent off the back of the launch of its Fusion ProGlide and Flexball products.