Procter & Gamble wants to cut a whopping $2 billion in marketing spending over five years, and for the first time is providing details on a broader $10 billion cost-cutting plan launched a year ago.
That marketing spending cut comes amid a fiscal third-quarter earnings report where the company missed on sales-growth expectations and lost market-share in developing markets despite hiking ad spending.
While the cost cuts were the biggest takeaway, P&G also outlined how it plans to become “irresistibly superior” in the eyes of consumers.
First, those massive cuts: They include $1 billion or more in media and around $500 million in agency fees, which comes on top of $600 million of cuts in prior years that reduced P&G’s spending there to around $1.4 billion annually. A spokeswoman said this doesn’t necessarily mean P&G’s spending on creative costs will fall under $1 billion a year, given growth that may otherwise occur.
P&G also outlined $12 billion to $13 billion in overall savings that are “risk adjusted” down to $10 billion in case some aren’t realized. And some savings in other areas – including $7 billion in material, packaging, production and transportations costs — will likely be reinvested in marketing. So there are many moving parts.
“We see over $2 billion in savings opportunities in marketing spending, with half or more coming from media rates or eliminating supply-chain waste,” said P&G Chief Financial Officer Jon Moeller on the company’s earnings call Wednesday. “We’re targeting up to half a billion more from reducing agency fees and ad-production costs. And we see about half a billion in sales from in-store materials, direct-to-consumer programs, and improved efficiencies in trial and sampling programs.”
As with agency fees, the company isn’t projecting exactly what media spending will be five years out – just that it can squeeze $1 billion or more out of the system. That will come at least partly through the tougher stand Chief Brand Officer Marc Pritchard outlined in January on reforming the digital media supply chain.
The cuts come with P&G in the midst of a comprehensive review of agency contracts and compensation, including reducing duplication of staffing and services on the client and agency sides.