Commentary
P&G Has Saved $1 Billion In Adland Costs Over 4 Years
- by Richard Whitman , Columnist, January 23, 2019
Procter & Gamble was a market-pleaser today.
The company’s stock got a nearly 5% boost after it posted results for the October-December quarter, which saw organic sales grow by 4%.
On a call with analysts, P&G CFO Jon Moeller disclosed the firm has saved a whopping $1 billion in ad agency fees and ad production costs over the last four years.
The company isn’t done streamlining its ad costs. Moeller told analysts: “We see more savings potential in these areas along with more efficiency in media delivery.”
So if you want to work for P&G Adlanders, be prepared to toe the line — and be as efficient as humanly possible.
That’s not unreasonable, right?
After all, working for P&G really says something about you. You may not get paid for a couple of months after you do the work, but hey, it’s P&G. And terms could be worse. Some cpg firms don’t want to pay for 120 days.
It’s a jungle out there.
In times past agencies would gladly lose money handling accounts like P&G so they could use such assignments to impress other might be clients. I wonder if that's still true ---or has fee squeezing made such business so unprofitable that it is shunned by some shops?
It will be interesting as time goes on to see if there's any correlation between the money they're saving and the performance of their brands.
I was curious as well - and came across this site that summarized their earnings report: https://www.macrotrends.net/stocks/charts/PG/procter-gamble/revenue So in short, if 2015 was the start of their penny pinching with agencies, 2016 was a 7.7% decline in revenue. 2016 was then a 0.37% rev decline. 2017 was a 2.73% increase, and their 2018 most recent stat was showing another 2.57% increase.
I'll assume that they knew the revenue decreases were coming which is why they started the expense cutting starting with agencies in 2015 - so the first year or two of declines probably had nothing to do with their changes so much as it did everything at once. However, I have to imagine they gained a lot of efficiencies by making agencies more accountable - but you're right - it will be interesting to see if the efficiencies are a long term improvement for them, or if they're actually cutting out so much that they'll have a long term fall off. Not knowing how they're calculating that $1B makes it difficult to say if it will be efficient or just cutting out things that are going to hurt them in the long run.
Thanks for that info. And you're right, with just a couple of years worth, it's difficult to make a judgement one way or the other. That's something I think would need at least five years worth of data, maybe more.
Frankly, it's hard to see how a "savings" of about $250 million per year---if that's a real number---would make a long lasting positive change in the profitability of a company that spends at the rate P&G does on advertising, media and promotional activities. A short term, spike, perhaps, but long term---I'm dubious.