Unilever plots big cuts to marketing but says effectiveness is not at risk

FMCG giant plans to cut the number of ads created by 30%, frequency of ads shown in emerging markets by 10% and creative agencies by half as the move to zero-based budgeting revealed areas where marketing can become more efficient.

unilever

Unilever is planning to double efficiency savings from its brand and marketing investment from €1bn by 2019 to €2bn after finding ways to make its marketing more efficient following a move to zero-based budgeting (ZBB).

Speaking on an investor call this morning, Unilever’s CFO Graeme Pitkethly said ZBB has given Unilever “much greater visibility” on exactly where marketing and brand investment is going.

“This has been a great process to challenge the status quo,” he explained. “We have identified better ways of doing things and now we are going to actually do them.”

As part of the efficiency move, Unilever will cut the number of ads its creates by 30% after finding that it was creating more assets than it aired and that it often stopped campaigns too soon in favour of “shiny new toys” or “new messaging”.

“[We found that assets we do show] rarely if ever reach the point where they are no longer effective,” Pitkethly explained. “This will not compromise the impact of our brand communications. Rather we will show the best and most effective ads for longer and not stop them just to use a shiny new toy.”

In emerging markets, Unilever found that it was “saturating” consumers by showing ads too frequently, leading to diminished returns and “poor ROI all round”. It will now reduce frequency by 10%.

And it plans to cut the number of creative agencies it works with globally by half after finding that it worked with a “whopping” 3,000 agencies. Pitkethly claimed this would be good for both Unilever and the agencies, offering it more buying power and agencies bigger deals and more scale.

The success of ZBB

Unilever’s CEO Paul Polman said the success it has seen with implementing ZBB in the business has been an “integral part” of its strategy of investing for growth, providing fuel for that growth as well as driving margin improvement.

He listed a number of ways it has helped the business, from “unlocking” faster global roll-outs to “unleashing local innovations faster” and offering faster response times to consumer and channel needs.

This will not compromise the impact of our brand communications. Rather we will show the best and most effective ads for longer.

Graeme Pitkethly, Unilever

Such is the success that ZBB is now being extended to Unilever’s supply chain. Pitkethly said the company has identified savings including 15% in warehousing, 10% in transport and 10% in repacking products for promotions all spotted by using ZBB.

“We have seen many savings from the ZBB programme, from synergies in procurement to ROI of our marketing spend,” he explained.

The future of the spreads business

The moves in marketing and the ZBB programme are part of a wider strategic review of the Unilever business brought about by KraftHeinz’s surprise attempt to buy the company. While Unilever turned down the offer, it left shareholders questioning if they were getting a good deal or if growth could be faster.

READ MORE: Mark Ritson – Unilever resisting takeover is a win for responsible business

Polman said Unilever had turned “a crisis into an opportunity” and that the review had left the brand “highly energised” and his team “ready to take Unilever to the next level”.

“We are making clear that we see opportunities to accelerate our value in the short term, as well as staying true to our long-term goals,” he said.

With that in mind, Unilever is planning to rid itself of its ailing spreads business. While it is a €3bn business with major brands including Flora, it has struggled for growth particularly in developed markets.

Unilever hopes it will be able to find a buyer for the business, but if not it will be demerged.

Unilever will also combine its food and refreshment divisions to create one unit that it hopes will be “leaner, more focused and better able to compete with the fast changing competitive set”.

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