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Procter & Gamble cuts agency fees harder, but sales grow faster

Ad Age 23 Apr 2019 06:54

Procter & Gamble Co. keeps squeezing agency and production costs harder, but while that may hurt agencies, it’s not hurting the giant marketer.

P&G today delivered its best quarterly top-line report in eight years with 5-percent organic sales growth on the same day consultancy Warc rated it the top advertiser in North America for creativity and effectiveness.

P&G last quarter grew organic sales ahead of analyst expectations and 4-percent growth the prior two quarters. But profit margins fell below expectations, hurt by commodity inflation, a stronger dollar and costs of integrating recently acquired Merck consumer brands.

P&G cut around $165 million—1 percent of salesin overhead plus agency and production costs last quarter. That was up from roughly $104 million in such cuts the prior quarter. P&G spent last quarter’s savings on media, with about $165 million in “marketing reinvestment.”

In a media call, Chief Financial Officer Jon Moeller said advertising as a percentage of sales still was “down slightly” in the quarter but that the marketing effort was still stronger.

In years past, “we had tons of spending in the marketplace that was a complete waste, because it was driving excess frequency," Moeller said. But he added that better data and analytics have let P&G redirect spending to reach more people rather than bombard the same ones.

A few years ago, Warc noted that an incipient trend where marketers cutting agency fees saw effectiveness awards dwindle. But P&G has defied any such trend. Now the firm, a unit of Cannes Lions-owner Ascential since last year, is honoring P&G as the top advertiser in North America for 2019, largely for award-winning creative work such as last year’s “It’s a Tide Ad” Super Bowl effort and 2017’s “The Talk” video on race relations, though the recognition also comes from a broader array of campaigns and effectiveness awards.

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