The reasons behind Unilever’s marketing cuts

The growing influence of zero-based budgeting and appetite for proving  effectiveness means more FMCG companies will follow Unilever’s lead.

marketing cuts

Unilever’s plans to double efficiency savings from its brand and marketing investment from €1bn to €2bn by 2019 have left ad land reeling.

As part of the drive, the company will cut the number of ads its creates by 30%, and the frequency it shows ads in emergency markets by 10%. It also plans to cut the number of creative agencies it works with globally by half after finding that it works with a “whopping” 3,000 agencies.

Unilever’s strategy is very similar to rival Procter & Gamble (P&G), which has cut its agency roster by 50% over the past three years and pledged to produce far fewer, but “much better”, advertising and marketing campaigns.

So far, P&G claims to have saved $620m (£496.7m), which has been reinvested in media and sampling. Unilever also plans to reinvest two-thirds of the money it saves.

With these decisions, the rest of the industry is sitting up and taking note. As two of the world’s biggest advertisers, they are sure to set an example. And where they lead, others will soon follow.

Pressure on marketing budgets

The moves to “increase efficiency savings” should come as little surprise given the wider economic picture. Growth has been slow in the developed world for some time but now emerging market growth is decelerating too. There are also concerns over economic stability given the UK vote to leave the EU and the war in Syria.

FMCG companies have looked to counteract that by taking a harder look a how they spend money. Zero-based budgeting (ZBB) is increasingly being used by consumer goods companies as they look to ensure they are correctly allocating spend based on current needs, not previous activity.

That has been key to Unilever’s strategic review. The company says it identified a number of ways it could make its budget more effective using ZBB and is now simply acting on them.

“Initially, the ZBB approach was applied to fixed assets – quick cost reduction wins could be achieved from downsizing offices, or rationalising production centres, but now the pressure is moving to other significant cost areas, such as advertising and marketing,” David Turner, global food and drink analyst at Mintel explains.

Proof that FMCG giants are under ever more pressure is also demonstrated by Unilever, Mondelez and P&G all moving away from promotional spending. Instead, they are looking at other parts of the marketing mix to stronger communicate brand benefits.

The data seems to back this up. Nielsen Homescan figures for all store formats for the 52 weeks ending 8 October 2016 show that “spend on offer” for FMCG brands was 40%, down from 42% in 2015 and 44% in 2014.

Focusing on effectiveness rather than ‘shiny new things’

P&G’s Marc Pritchard has called on the industry to clean up the digital advertising ecosystem.

Besides a more stringent view on budgets, there is also a growing focus among FMCG giants on proving the effectiveness of their ads. Effectiveness has always been important, but it is now critical as budgets come under review and spend has to be accounted for.

P&G in particular has been vocal about its past failings. Last year, chief brand officer Marc Pritchard admitted P&G took targeting on Facebook “too far” and he followed this up with a rallying cry in January to the rest of the industry to clean up the digital advertising ecosystem in order to ensure it is efficient. He said the brand had previously not addressed this issue because it is an “unsexy” topic and it was distracted by “shiny new things”.

READ MORE: Ritson: P&G’s Marc Pritchard has made the biggest marketing speech for 20 years

Unilever agrees, with its CFO Graeme Pitkethly saying: “[We found that assets we do show] rarely if ever reach the point where they are no longer effective. 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.”

Companies are committed to growing their brand equity, but they also need reassurance the budgets they spend deliver the best return for their money.

David Turner, Mintel

This seems to signify a wider shift in thinking among brands, where ads are focused around quality instead of quantity and the long-term impact is more important that the short-term.

“This isn’t to say companies are not committed to growing their brand equity, more that they need reassurance the budgets they spend deliver the best return for their money. In other words, it’s a focus on eliminating waste or inefficiency, and re-investing in media that offers the best return,” Turner says.

​“Unilever want to ensure they get full value before making new ads – and that their advertising frequency offers optimal efficiency. This also puts pressure on media metrics to be accurate and credible, hence Pritchard’s criticism of the digital media world.”

There is another issue as well. The complex marketing landscape has led brands to use thousands of different agencies for different tasks, but that makes measuring effectiveness difficult.

Fergus Jarvis, partner at strategy consultancy OC&C, explains: “When you have complex landscape where different agencies are helping you spend marketing dollars in different channels, it’s hard to tally that up and look at how effective that marketing is. Companies ask themselves how they can compare TV to mobile, especially if they use different agencies and contracts. It makes sense to put a cleaner, simpler structure in place.”

Telling a clearer brand story

The ad landscape is incredibly cluttered, filled with content that has little or no impact on business results or people’s lives. In a bid to cut through, brands are now increasingly looking towards consistent brand messaging that works no matter the medium.

“Too often marketers want to drive ‘new news’ – constantly changing the messaging before it’s been given a chance to sink in with consumers, let alone wear out,” says Yolande Battell, client partner at digital agency Jellyfish.

“For a company like Unilever, reducing down from 3,000 creative agencies can only be a good thing in not only driving efficiencies, but in also getting to a well executed, consistent brand story.”

Of course, the news is not good for agency world. Shares in WPP fell after Unilever’s announcement last week over concerns about its revenues given the FMCG company is one of its biggest clients. Pitkethly tried to claim the move would be good for agencies, giving those that remain on its roster the chance to have a deeper relationship Unilever.

Yet OC&C’s Jarvis believes it proves that agencies have failed their clients on a number of levels. Its most recent CMO Agenda study showed that many senior marketers feel “let down” by agencies, as they have not helped them navigate through the “rapidly changing digital ecosystem”, or make the right decisions in terms of how and where they’re spending their marketing dollars.

“While some of that might be unjustified, it is nonetheless a common perception among marketers. When you look at digital spend, you see some brands bringing the teams back in house and circumventing agencies full stop. They’ve lost that trust,” says Jarvis.

“In terms of what the agencies do about that, there’s something about agencies moving back towards more of an advisory role and making the process of buying much more transparent than it is today.”

As more FMCG brands struggle with lower growth rates, increased competition and weak consumer spending, there is no doubt the trend of taking a hardline approach to budgeting is here to stay.

As Mintel’s Turner concludes: “We can expect more companies to focus on how they use their media – tighter budgets with harder return on investment rates are likely to be an increasing theme in the industry.”

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