‘More digital’: what global supply chain pressures mean for P&G’s ad spend
In the face of pressure on its global supply chains, P&G is taking drastic measures to offset increased costs, including ramping up the price of products across its portfolio. It will also impact its significant advertising spend. Though it assured its level of investment won’t change, what channels it prioritizes will.
On its first quarter earnings call, P&G said inflation and higher costs for producing and shipping goods had impacted profits. Though it beat Wall Street expectations – with revenue up 5% to $20.34bn, topping expectations of $19.91bn – it warned supply chain pressures would weigh heavy on its performance in the year ahead.
P&G has beaten expectations
It’s already raised prices in some product categories, such as baby care, but confirmed more were on the way in its beauty, oral care and grooming categories as it battles rising commodity costs.
These headwinds will also impact its advertising and marketing strategy for the foreseeable.
P&G is the biggest FMCG ad spender in the world, and while other brands cut or halted spend through the pandemic, it maintained its investment into brands. In the year to June 2021, spend was up 12% to $8.2bn (£6bn). And in this first quarter, marketing spend was up another $130m dollars.
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On a call with analysts, chief financial officer Andre Schulten justified the ongoing costs by saying consumers were turning to “trusted brands” and premium products, and with hefty marketing efforts it has been able to capitalize on that shift in behavior and cement its “superior” positioning to ensure its products are still favored as prices creep up post-pandemic.
That strategy won’t change; Schulten plans to continue to invest in marketing and promotions.
“As long as we create good ROI we will continue to invest,” he said.
But what will be shaken up is where that investment is going.
P&G has been on a mission for some time to overhaul its media buying, agency roster and creative output in the name of making its ad dollars work harder.
And in the face of increased costs this year, it’s once again looking to make its annual spend more “efficient", which for P&G means moving larger swathes of its budget to digital channels.
"We estimate there are still significant opportunities to optimise in the ability to reach consumers and decrease our cost as our digital reach increases. We have significant opportunities still in our supply chain to optimise and leverage the digitization we have been investing in over the past few years," added Schulten.
“We’ll continue to drive efficiency as we bring more media spend into our optimized targeting pool. We’ll increase the percentage of digital media and optimize our own algorithms to target messaging to consumers.”
Vice chairman and incoming chief executive Jon Moeller stressed: "This is a time to step forward, not back. We’re not pulling investment, we are getting smarter."
The savings it makes from this “optimization” drive will be reinvested into marketing and into the P&L to offset supply chain pressures.
Moeller continued : “The more efficient and effective we can make our spend be, the more attractive it becomes to make those investments. In an odd way, efficiency breeds effectiveness and effectiveness breeds spending and that drives the market."
He said: “None of that guarantees the future but all of that puts us in a better position than we would have been historically.”