Diageo increases squeeze on agencies as it drives marketing spend efficiencies

Diageo is aiming to become more “stringent and demanding” when reviewing agency fees as it looks to drive improved returns from lower marketing spend.

The company’s interim results for the six months ending 31 December 2015 show that net sales for Diageo UK were up 3%, while global net sales rose 1.8%.

Diageo is eager to achieve better returns while lowering its marketing spend, and the alcoholic beverages owner revealed it spent £806m on marketing for the period. This represents a 5% decrease from the £846m it spent on advertising in the first half of 2015.

The company’s CFO Kathryn Mikells believes that all the company’s spend needs to be return driven and that a bigger focus on agility is required.

She explained: “In the half, procurement efficiencies amounted to £38m with every region contributing to savings. For example, we renegotiated media costs in North America, Europe, Brazil, Mexico and Australia.

“We are driving efficiencies at how we spend money on point of sale material and we have become more stringent and demanding when reviewing production cost and agency fees.”

Capitalising on Johnnie Walker

To drive more growth in 2016, Mikells says that the company needs to focus on its biggest growth opportunities, such as the Johnnie Walker brand.

In September last year it launched a new global campaign, targeting younger drinkers by focusing on joy and becoming less corporate as a brand. It also evolved the brand’s iconic tagline from ‘Keep Walking’ to ‘Joy Will Take You Further’.

While Mikells says it is still early days, the campaign is already building equity. To recruit new consumers into the brand, the brand will also become more focused in its second half on ‘mentoring’ consumers.

“For Johnnie Walker our ‘Mentor programme’ has always been the most effective tool to build saliency and recruit new consumers into Johnnie Walker and remind returning consumers how great this brand is,” Mikells said.

“We continue to mentor through traditional events where consumers come to us but we are now adding mentoring where we go to consumers. In the first half we executed 600 events in the US reaching 41,000 consumers, but now we are scaling up our mentoring activity exponentially. Globally, we are aiming to immerse over 1 million consumers face to face by the end of this fiscal.”

Wider cost-cutting measures

Diageo isn’t the only major brand to become more cost-focused. Last week, Unilever revealed that it would be adopting zero-based budgeting in a bid to expand its efficiency drive. In practical terms, this means that the company’s marketing teams will have to justify spending on all new brand activity rather than budgets being based on the previous year’s spend.

P&G, meanwhile, announced in April last year that it would be culling the number of agencies it works with worldwide as it looks to cut its marketing costs by up to $500m.

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