Procter & Gamble has hit out for the first time at press coverage of a leaked internal memo from its senior vice-president Robert Wehling to regional managers last year.
The full memo, exclusively revealed in Marketing Week (opposite), says it is planning to reduce long-term total marketing spend from 25 to 20 per cent of sales revenue. This includes reducing sales support, as well as media, commercial production and consumer promotion.
The memo says the aim of project is to tackle “some major problems” in its approach to marketing spend.
It says marketing spend is the biggest area of “cost dis-advantage” to private label. “We have to eliminate unproductive marketing support costs,” it comments.
The memo also says the project aims to achieve more effective marketing at a lower cost per dollar, but is not intended to reduce absolute market support spending below current levels.
Press reports stated that P&G aimed to slash ad spend on a global basis. And indeed, Register-MEAL reveals a five per cent drop in UK ad spend in the year to October 1995, to 167,011,000.
It is understood that press stories of an overall cut in advertising budgets by P&G and a shift to low-pricing strategy has depressed the share prices of P&G rival Unilever, as well as media groups such as Granada and P&G’s own agency networks such as Grey Advertising.
But P&G head of corporate communications Dick Johnson says that any reduction in the 1995 budget is not related to the memo. “This is not part of a strategic shift in marketing spend away from advertising,” he says. “Advertising is not going to be a victim, we expect it to grow.”
“Achieving efficiencies in the way we buy media is quite separate from introducing value-for-money pricing on selected over-promoted brands.” (See story opposite).
“What we are trying to do is achieve efficiencies in commercial production and media spending, not reduce our media presence.”
However, a number of cost- cutting measures will be handled through P&G’s Cincinnati headquarters, including reducing commercial production costs involving “pool policy” and “talent re-use” in TV and print media.
P&G has already embarked on a policy of developing non-TV media vehicles and encouraging brands and agencies to use them more.
For other brands, rather than stopping TV advertising, or reducing exposure on TV, the intention is to take advantage of TV’s vulnerable position to drive down costs. In key markets such as Germany, Holland, France and the UK, P&G has entered tough negotiations with media owners to reduce media costs.
The other area where P&G would expect to make economies is to follow the lead of other household product manufacturers in cutting agency commissions. Reckitt & Colman consolidated all advertising through McCann-Erickson (MW January 12), Colgate Palmolive consolidated through Young & Rubicam (MW January 12), and Johnson’s Wax centralised through FCB (MW January 19). In all instances, the companies are known to have negotiated lower commissions.