P&G to up ad spend but its agency cutting drive will continue with gusto
Procter and Gamble (P&G) is set to increase its advertising spend this year versus last, by mid to single digits, whilst simultaneously slashing its “agency related fees” as part of an ongoing cost cutting drive.
Its advertising spend predominantly covers media (i.e. how much its spending with publishers, broadcasters and other media owners) and sampling. This was upped by around $450m in the last quarter of its fiscal year, it revealed on a call with analysts today (2 August).
It will continue to invest in media, saying frequency and reach is now paramount, and added that ‘point of market entry’ (activity targeting first-time users of a product) and a “mobile back” strategy – in other words, mobile first – will also give it greater ability to drive awareness of its brands.
"The right way to build the company is to bring consumers into the category when they first have a need," said chief executive David Taylor.
His comments came during an earnings update for the fiscal year ended 30 June, where full year net sales dropped 8 per cent to $65.3bn.
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As a result, it still needs to “make cost cutting a part of our culture” which means its sizeable outgoings on agency costs – which have been earmarked over the last two years – will come under yet more scrutiny.
In 2014, it was spending some $2bn a year on agency fees. This has been reduced by around $600m “after two strong years of savings” but with $1.4bn a year still being spent this has left “room for improvement”.
As a result, reviews to across the board have become standard practice.
In the UK, the FMCG-giant is currently in talks with agencies over its £250m media account, handled by Starcom MediaVest and MediaCom. This follows a review of its colossal $2.7bn US media account which saw Omnicom Media Group take on the bulk of the business.
Meanwhile, in February , its so-called ‘Dish’ business (which includes Fairy) was consolidated with Publicis in another procurement led pitch.
However, despite the cuts to agency fees and the increased investment to media and sampling, P&G has been reserved in its estimations for sales growth this year.
It has predicted that organic sales will increase two per cent for the year ending June 2017, an improvement to the one per cent growth for the previous year but well below its previous results.
“We’re very committed to getting above the market growth and we recognise two per cent is not market growth,” said chief executive David Taylor. “We’re committed to four quarters of brand support [but] having said that we will not stop making key choices where businesses are not profitable.”
These “choices” have so far seen it shed its beauty brands to Coty and the Duracell brand to Berkshire Hathaway
Dollar Shave Club deals
Despite a seeming criticism at “internet businesses which can get people to trial” but not always repurchase, Taylor said that it can’t ignore the “vulnerable” position it may be left in as social and digital inevitably reduces the cost of competition.
This referred directly to the recent £1bn acquisition of Dollar Shave Club by Unilever, a deal which its rival has said will open it up into a whole new category and way of selling thanks to its well-established subscription model.
As such, it is open to investing in areas where it can drive category growth, not just sales.
“Our intent is to grow our business and we believe we needed to make the choices we made to streamline,” said Tayor. “But in no way to we feel encumbered by the past and M&A is a tool open to each president.”
China is a market of particular interest to P&G at the moment. Although there has been a rapid slowdown in consumers spending offline, online continues to accelerate and that’s been reflected in the fact that some categories in P&G’s portfolio (Taylor didn’t offer specifics) now have a greater online share than offline.
“Over the next 12 to 18 months we’ll see more innovation hitting that’s been designed specifically for China,” he added.