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P&G Spends Less Yet Improves Its Ad Impressions

May 3, 2009  •  Post A Comment

Procter & Gamble Co. cut marketing spending more than $440 million globally last quarter, yet still increased media weight or impressions 5%, executives said last week, and the company is eyeing more cost concessions from media as the TV upfront nears.
It’s unclear how much of those cost efficiencies came from P&G’s biggest medium, TV, in its biggest market, the U.S. But Chairman-CEO A.G. Lafley said P&G is looking to get even deeper cuts in next month’s upfront negotiations, when TV networks look to sell up to 80% of their ad inventory for the year.
In all, marketing spending cuts by the world’s largest advertiser, including traditional advertising and shopper marketing, amounted to 2.4% of sales, a P&G spokesman said.
That means P&G’s marketing cuts last quarter amounted to about 5% of its reported advertising spending for the entire fiscal year that ended last June. If sustained for a full year, last quarter’s spending level likely would reduce the company’s ad-to-sales ratio to its lowest level in at least 15 years.
Yet because of sharply falling media rates around the world, the company actually increased media weight about 5%, P&G Chief Financial Officer Jon Moeller said on an earnings conference call Thursday.
“The media world has been a good world for buyers,” Mr. Lafley said, “and not just in the U.S. … In the near term [it] could be even a bit more of a buyer’s market. So what we’ve tried to do is take our market-mix modeling and our market ROI analysis and figure out how to spend a little less money and get a lot more delivery.”
Buying leverage as the biggest advertiser in most markets helps, he said. “We don’t look at it on a month-to-month, quarter-to-quarter basis necessarily, but our goal over time is to strengthen our brand equities, and part of that is delivering a consistent share of media voice.”
P&G’s organic sales for the quarter rose 1%, well below its long-term goal of 4% to 6% goal or even the modified 2%-3% range it now sees for the full fiscal year ending June 30. Its organic sales growth falls in the middle of the pack among household and personal-care competitors who have reported quarterly results so far, ranging from +8% for Colgate-Palmolive Co. and Reckitt Benckiser to -7% for Henkel, though the latter’s personal-care business was up 3% as overall results were dragged down by industrial adhesives.
All of P&G’s sales growth came from pricing, up 6%, as organic unit volume fell a surprisingly sharp 5%. Overall, sales were down 8% to $18.4 billion, with the effect of a stronger dollar and divestiture of P&G’s coffee business dragging results down nine percentage points. Net earnings fell 4% to $2.6 billion.
Results ranged from organic sales growth of 8% for the baby and family-care business, the only P&G unit not to see a volume decline, to a 4% organic sales growth decline on 9% volume decline for the grooming business, hit by weakness in the Braun business. P&G suffered from market contractions and retailers reducing inventories, particularly in Eastern European markets hit hard by recession, Mr. Lafley said. But Colgate-Palmolive Co. CEO Ian Cook said on his conference call Thursday that his company had seen volume increase in Eastern Europe.
Colgate, despite better top-line results, also made steep cuts in ad spending last quarter, amounting to about 2.1% of sales, or $74 million, citing a combination of better media rates and an adjustment to lower spending by competitors.
Mr. Cook, too, is looking for even more savings ahead. “We are taking advantage [of rate softness] on the media side,” he said, and we think there is more to come over the balance of the year.”
Colgate expects ad spending to rise over the course of this year, but P&G made no such prediction.
Mr. Lafley said the company may divest additional business units besides the pharmaceutical business, in which he said he’s seen “considerable interest” but may yet hold onto.
“There are a couple of other businesses, which I obviously cannot call out, that we’re looking at that may not be a good fit for us,” Mr. Lafley said. “And I’m not talking about small brands here. [But] at any given time, there are a couple of businesses that we’d like to get in or we’d like to take a bigger position in.”
At the same time, P&G is starting to restructure management along consumer and retail channel lines rather than category lines, starting with a focus on men’s, women’s, and salon and specialty sales in beauty and grooming, Mr. Lafley said, because it will increase focus on the consumer and speed innovation.
“Now, on top of that, it’s a dramatic simplification and reduction in the size of the management structure,” he said. “And certainly it’s an opportunity for our best-performing beauty and grooming leaders to get more responsibility and to grow faster.”

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