• by David Goetzl  @dgoetzl, November 1, 2006

The advertising budget of the world's biggest advertiser is in flux. During a third quarter earnings briefing with Wall Street analysts, A.G. Lafley, chairman-CEO of Procter & Gamble Co., said the packaged goods giant is "reallocating investments from parts of the communication plan that aren't working as hard for us, to parts of the communication plan that are working harder."

Lafley offered no details, but P&G is said to be reducing television spending in favor of Internet and direct marketing initiatives.

"We are getting real traction from marketing ROI and market mix modeling work," he said.

Lafley also suggested spending could ramp up behind the already heavily promoted Gillette Fusion razor, with the main goal to persuade consumers to upgrade from previous generations such as the Mach 3.

"We still have a lot of opportunity in the U.S. to drive trial," he said.

Overall, he said the company has three goals as it evaluates where its marketing dollars will go: improving brand equity, and increasing consumer trial and repeat use. In the process, he said some businesses could wring more efficiency out of their ad and marketing outlays. Synergies with new acquisition Gillette can help.

P&G reported net sales growth for the quarter of 27% to $18.70 billion, powered by the acquisition of Gillette. (One sore spot: Intake on Duracell due to a lack of hurricanes this summer, where batteries would be needed during blackouts and for cleanup.)

Lafley said he is "pretty optimistic" about the business in North America after mid-single digit, "broad-based" growth in the recent quarter. He offered a muted outlook for October, saying it would be a "decent month."

He said the company is experiencing growth in sales to its two biggest retail customers: Wal-Mart and Target. One of the reasons for the Gillette acquisition was to give P&G more leverage with the top retailers.

Lafley said, however, the strategy is to "work with retailers for joint value to grow the pie together."