Commentary
P&G Continues To Drive Change In Adland
- by Richard Whitman , Columnist, July 31, 2018
Procter & Gamble issued its quarterly earnings results today and Wall Street pushed the company’s stock up nearly 1%, apparently pleased with the CPG giant’s plan to raise prices.
But it was the discussion on the earnings call that was more interesting from an agency standpoint. It’s no secret that P&G has been on a mission to make its global advertising program more efficient in the past few years.
And the company seems to be succeeding, albeit with more work to do.
Company CEO David Taylor outlined some of the measures being taken and savings being achieved. Over the last four years, he said, the firm has slashed $1 billion in agency fees and production costs.
Spending has remained roughly flat at $7-plus billion.
Taylor said the company has achieved “the elimination of substantial waste in the media supply chain,” reducing media costs by 20%.
Waste has been curbed in part, Taylor noted, by reducing the frequency of ads that the company had been hitting some customers with — 10 or 20 times a month versus the three times that would do the job just as efficiently.
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Taylor also said the firm is focused on shifting dollars away from “wasteful mass marketing” to creating “one-to-one brand building enabled by data and technology.”
He cited China as an example of where the company is achieving optimal results, noting that 70% of the company’s ad budget there is digital and where 30% of sales are achieved via e-commerce.
The firm has invested hugely there in a data analytics platform, which has helped the Olay brand adjust its spending strategy to focus more on in-store marketing efforts. Media spending is down 50% for the brand there in the last two years. Olay China has achieved five years of double-digit revenue growth.
Taylor had more to say on the subject, including that agencies can expect further budget reductions going forward as the firm brings more media buying capability in house.
The upshot: P&G has achieved better quality and greater creative output and faster ad development cycle times, while saving money in the process.
If you’re an agency person, listen to Taylor’s comments on the call. P&G is driving change in your business.
I hope that Taylor realizes that "hitting" a potential customer three times is actually garnering only one or, maybe, two actual ad exposures. Is that really enough?Also, if "waste" has been reduced by "hitting" consumers less often shouldn't this result in a substantial reduction in total ad spend---yet the amount spent on media has remained the same. The only explanation would be a major hike in the CPMs that P&G is now paying---but, somehow, I doubt that. Strange?
"Wasteful mass marketing" is also the most efficient and effective marketing for a brand like P&G. But I guess they don't go in for that fact based stuff...
Ed:
Re your conjecture that if P&G's exposure policy "reduced waste," then it "should have resulted in a reductin in total ad spend." To test that conjecture, one would need to compare ad spend over time, in real terms (i.e., adjuusterd for changes in media prices) for the relevant product/brand, media mix, and market(s) served. Given the current sttae of advertising meaurement, there good reaons for doubting that the requesite data needed to make such an comparison, afterf the fact, are avaialable. An experimental test might be feasuble, but such would be an costly undertaking to design and execute.
Alvin, if P&G spends $7billion on media, its reach as a corporation is 99.9% and there is a lot of frequency. OK, now they are saying that they have substantially reduced excess frequency, yet they are spending the same amount of money. The only way this works, mathematically, is if they are buying many fewer ad placements for the same dollars spent previously as their reach will still be 99.9%. In other words, they are paying much more per time a person is reached.
I think what Taylor was referring to was frequency capping in the company's digital media buys, not all of its spending. So the way one would analyze that, trend-wise would be to look at their spending by medium, not in total. Still, if their digital reach was, say 75% this year and last, and they substantially reduced frequency, I would still have to conclude that they were paying much more, now, for each digital exposure.
Ed, agree that the numbers as stated hear are a bit suspicious, but it wouldn't shock me if P&G is paying higher CPMs, at least in digital. Marc Pritchard spoke at the ANA media conference in March and hit on many of these points, talking about mass marketing as "mass clutter" and P&G's strategy to create "mass reach with one-to-one precision. (see my blog post summarizing the speech: https://go.forrester.com/blogs/marc-pritchard-disrupt-mass-marketing/ ) He also talked about how P&G was slashing use or programmatic (or putting in place a very restrictive white list) which would eliminate a lot of the low cost crap inventory. And presumably, the analytics let's them understand when a high CPM is so effective that it is worth it -- more akin to a direct marketing approach where you are willing to pay a premium for a list if the response rate is suffiently higher that the cost per response is still within your allowable range.