Procter & Gamble’s (P&G) annual marketing spend continues to be a source of discussion at the company as it looks to increase in both the efficiency and effectiveness of its outlays. But, under the microscope now is promotional advertising, which bosses at the FMCG giant are concerned is being wasted in some key areas.
Speaking on an earnings call today (25 October) following its first quarter financial update, P&G’s chief financial officer Jon Moeller said that he wants to “increase the continuity of marketing spend and sampling activity” over the coming fiscal year, especially over the third and fourth quarters when it will be launching a number of new products.
The FMCG business is emerging from the colossal $12.5bn deal with Coty earlier this month, which saw it shed 41 beauty brands, including Clairol and Wella to focus on core brands such as Tide, Pampers and Gillette. By having a more streamlined range, the business hopes to revive sales, which remained largely flat at $16.52bn in the three months to September but beat the average estimate of $16.4bn.
Diverting marketing dollars
However, when it comes the marketing mix for these core-brands, in-store promotional activity is a source of concern as both P&G and its retail partners – such as Tesco, Asda, Sainsbury’s etc – feel that it can be “market dilutive”.
“There are many cases where promotional spending is a very effective use of our funds and we’ll continue to support that spend,” said Moeller.
“But there are other instances where we and our retail partners would be better off redirecting that spend to other parts of the marketing mix, focusing on how to drive market growth in categories and drive basket size and shopping trips for retail partners. It’s about working together in a joint context to identify marketing activities that are market and profit dilutive and ways to redivert those funds.”
It’s a contentious issue in the world of retail. Last week, Kraft Heinz’s president for Europe Matt Hill warned “there is a danger that in the drive for efficiency and strict merchandising policies” supermarkets will look like “libraries” with “perfectly manicured selves” that “leave shoppers on autopilot”.
His belief is that restricting in-store creative opportunities could hamper product innovation – as marketers have no way of inspiring people at the most important part of the shopping journey.
But, the bombardment of price-focused promotional activity has fallen flat in recent years and supermarkets claim that customers are more positive than ever about the in-store experience as a result of culling this kind of marketing.
One area P&G will potentially direct money saved on in-store marketing is sampling. Moeller admitted that the company underestimated the power this has on a customer’s affinity with brand in the longer term.
“If you can sample consumers at point of market entry with superior products and categories where brand loyalty is higher the relatively modest investment can result in a lifetime benefit. it’s not an investment endeavour we see immediate returns in,” continued Moeller.
“It’s why unfortunately we got into the practice of reducing that investment. But it’s an area of spending that should be last we cut. Building users for a lifetime of consumption. We’re happy with efforts to date but it’s an area of return we’ll be monitoring for several years to come.”
Another thorny issue is that of pricing post-Brexit, but it is one that Moeller refused to be drawn on.
In the wake of Unilever’s well-documented attempt to raise prices for some if its most well-known brands, it’s little wonder that he simply said the pricing strategy in the UK continued to be "very challenging and highly promotional".
The move away from promotional activity, then, is clearly a key pillar in trying to minimise the effects it’s seeing from the UK’s decision.