P&G: ‘more agency cuts are on the way’

P&G: caption

Proctor & Gamble's (P&G) cull of its advertising and production costs look set to continue after chief executive, David Taylor, warned that it sees “more saving potentials in these areas” in the coming years.

The comments were made during its fourth quarter earnings results (31 July), which revealed revenue was up 1% to $16.5bn, though it missed forecasts. In the face of rising costs, it said the price for its key brands including Pampers, Bounty and Charmin would rise come October.

That revenue was positive comes on the back of the continued slashing of agency costs, which began in 2014, as P&G sought to reduce the 6,000 it works with by nearly 40% and cut spending on agency and production services by $400m. By 2016, it was “pooling production” and “open-sourcing” its creative needs while the final act of the four-year cull saw it reduce its ad roster by 50%.

Numbers at a glance

  • Revenue: $16.50bn, less than $16.54bn forecast
  • Sales growth: 1%, less than the 2.3% predicted
  • Net income: $1.89bn, down 14.9% from $2.22bn YOY.
  • For 2019 eyeing sales growth of 2 to 3%
  • Share price dropped 0.5% on news

“We’ve delivered $1bn in savings from advertising agency fees and production costs in four years,” said Taylor. “We see more saving potentials in these areas.”

Now, the FMCG-giant has around 1,300 agencies on its books and those left will be cautious of the cuts to come.

It was recently reported that Publicis Communications, part of the Publicis Groupe, had been forced to restructure the production departments at three of its New York-based agencies. P&G was one of its biggest clients.

This has come in tandem with experiments in consolidating the agencies it is retaining on its roster. Earlier this year, chief marketing officer Marc Pritchard ruffled feathers after revealing the FMCG firm was trialing an agency model that brought talent from competing holding groups together under one roof.

The 'People First' operation is managed from P&G’s New York office and is being led by Andrea Diquez, chief executive of Publicis’ Saatchi & Saatchi, and combines Publicis talent with that of WPP and Omnicom to work on P&G's North American fabric care brands including Ariel, Tide and Gain.

Though little was said on the its success so far, or if it would be looking to trial the same model across other divisions of the P&G business, Taylor did state that it was “returning to one-stop shops and reuniting media and creative.”

“We’re implementing a fix-and-flow model, reducing the number of agencies on retainer and flowing creative resources in-and-out,” he said. “This has not only saved money but leads to better and faster work.”

Marketing spend: increase efficiency, reduce waste

While P&G’s agency and production spend is being squeezed, it is upping its media investment – 4% in the fourth quarter – as it looks to get fewer ads in front of more consumers.

The brand used China as an example of where this ‘media efficiency’ strategy has worked particularly well, a market where 30% of sales are e-commerce (compared to an average 7% globally) meaning it has access to much more first-party data.

“In China, 70% of our media is digital and 30% of sales are e-commerce," the company told analysts. "We have one of the largest data-management-platforms in the country, allowing us to effectively manage frequency [of ad output] and engage people when and where it matters. We’ve saved 30% in on digital spend in China while increasing reach by 60%.”

Skincare brand Olay has seen some of the biggest gains as a result. Where before its marketing was comprised of six different ads running at the same time for just two months, it now has one ad campaign which runs for much longer. Olay has since delivered its fifth consecutive quarter of double-digit growth in the region in tandem with media spend on the brand decreasing by 50% in two years.

P&G is trying to replicate these numbers in every market. Online sales globally have increased by 30% year on year (now accounting for $4.5bn of global sales) giving it more if its own data to work with.

It claimed that the number of consumers that see its ads is now up by 10%, and in trial activities this increases to 50%.

Transparency review nears completion

Hand-in-hand with reducing media waste through frequency capping has been eliminating waste in the “murky” supply chain, something the Ariel owner set out to do over a year ago through a four-step plan set out by Pritchard.

Among those steps was the advertiser’s demand that every media supplier - including publishers and measurement vendors – that it worked with would adopt MRC-accredited third-party verification. It also committed to substantial review of its agency contracts to ensure they were transparent enough for the brand.

“The entire industry stepped up, including Google and Facebook, to take action and the progress has been impressive,” said Taylor. “We’re about 90% complete in delivering the appropriate standards in measurement. These efforts cut waste by 20%.”

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