Procter & Gamble's billion-dollar ad budget is getting a haircut. Although the consumer products conglomerate's $18.1 billion net sales in 3Q ending March 31 were "largely in-line with expectations," P&G is "improving its marketing spend more efficiently and effectively to deliver more with less," says company CFO Jon Moeller.
Non-media ad spend is one of the consumer-goods giant’s most significant opportunities to reduce costs, says Moeller, by examining what it spends on fees and production costs for advertising media, PR, package design and development of in-store materials.
"We plan to significantly simplify and reduce the number of agency relationships and the costs associated with the current complexity and inefficiency, while upgrading agency capabilities to improve creative quality and communication effectiveness," says Moeller.
"We see an opportunity for up to half a billion dollars in costs savings in this area along with stronger communications with consumers across all touchpoints. These efficiencies are enabling us to maintain strong media [presence] despite the cost pressure we are facing from foreign exchange and to reinvest in all of our marketing mix to improve our positions to support new innovations,” he added.
P&G also continues to shift its dollars to digital media channels, including social, search and mobile. More than 30% of its working media is now digital.
By category, P&G reported mixed results. Beauty, Hair and Personal Care segment organic sales decreased 3%, while Grooming organic sales increased 9% due to higher pricing across all regions on blades & razors. Hair Care organic sales were down, due mainly to increased competitive promotional activity in the U.S. and inventory reductions in China.
Meanwhile, North American Fabric Care consumption was up two points on the quarter, where both Tide and Gain gained market share. Gains in Deodorants, Cosmetics and Salon Hair Care categories were more than offset by sales declines mainly from the Prestige Fragrance and mass Skin Care categories.
Baby, Feminine and Family Care segment organic sales increased two percent behind pricing and mix in Baby Care and Feminine Care, including the benefits from the Always Discreet entry into the adult incontinence category and continued strong growth of Pampers Swaddlers in North America.
"This quarter the productivity progress was offset by foreign exchange. As we have done before, we’ll offset foreign exchange over time through a combination of pricing, mix enhancement and cost reduction," says Moeller. "We are focused on the significant opportunities in our control, including brand initiatives and product innovation, business and brand portfolio simplification, overhead savings and major supply chain productivity initiatives, to improve results in 2015 and beyond.”