Unilever says the savings it has been making to its marketing have started to pay off, crediting its in-house production division Unilever Studios for creating more cost-effective digital campaigns.
The company released its results for the first of half of 2017 today (20 July), and claims to have delivered its savings “faster than expected”. It has made more than €1bn in savings in the first six months of the year, which it called “a strong start” to reaching its target of €6bn by 2019.
Meanwhile, its zero-based budgeting (ZBB) programme has delivered an additional €500m in savings for the first half of this year, against a three-year target of €2bn. And €300m of that has been in brand and marketing.
Its zero-based budgeting model has also been applied to its marketing division, which Unilever’s CFO Graeme Pitkethly says has looked to reduce waste while improving effectiveness.
ZBB is a way of budgeting that means marketers start with a clean slate each year, hence the “zero-base”. Rather than taking last year’s advertising spend as a benchmark for determining this year’s, ZBB assumes there is no spend and forces a CMO to justify how much budget they need for the current year. The idea is that it forces department heads and budget owners to rethink their assumptions about what will drive value for the coming year.
“It is clear to us, that in the past we were producing too many new pieces of advertising. More than 95% of our films were taken off air before they reached full effectiveness and that’s just pure waste. But we’ve been able to reduce agency fees by 17% in first half. With the cost of producing new films and assets, we [have also managed] to reduce the cost of an average film by 14%,” he said during a media call.
More than 95% of our films were taken off air before they reached full effectiveness and that’s just pure waste.
Graeme Pitkethly, Unilever
Unilever says it also honed in on its media planning, and pointed to South East Asia as an example. Pitkethly says the company had a tendency to “overexpose” people to its advertising, which is why it has reduced media spend in the region by 12%.
By making these changes to its advertising spend, Unilever’s margins have improved by 180 basis points during the first half of the year. Pitkethly told Marketing Week during the call that 130 of those points came from brand and marketing investment.
“A lot of this came from our productivity improvements that we’ve seen from zero-based budgeting, the ability to use our assets for longer, a bit less advertising production, reduction in the amount we spend on agencies, using a broader suite of agencies and off-sharing some of our advertising production,” he explained.
He added that most regions across the globe have “a lower cost location” [for producing advertising assets], and says South Africa has proved “particularly productive” for the company. Pitkethly also pointed to its in-house division Unilever Studios, which the company set up in September last year and allows it to produce digital work in a more cost-effective way.
“All of this is now starting to bear fruit,” he said.
In its results report, the company says it anticipates accelerating growth in the second half of the year driven by new innovations and “a step-up in brand and marketing investment”.
Despite the increase in marketing investment for the second half of the year, Pitkethly told Marketing Week that it its overall marketing investment will be “broadly the same” as 2016.