Procter & Gamble will slash $1.5 billion from its marketing budget over the next five years, the CPG giant said during its Q1 earnings call Wednesday.
At least $1 billion will come from media, specifically by lowering rates and getting rid of supply chain waste, said Chief Financial Officer Jon Moeller.
P&G wants to save another half-billion dollars by reducing agency fees and ad production costs. And it hopes to save half a billion dollars in sales from more efficient in-store materials and direct-to-consumer and sampling programs.
“We're working to lead the effort on media transparency, eliminating costs in the media supply chain created by poor standards adoption, too many players grading their own homework, too many hidden touches, too many holes, where criminals can rip us off and unsafe places for our brands to have ads,” Moeller told investors. “We're letting our spending talk.”
He didn’t say how or where P&G will lower media rates and attack supply chain inefficiencies. But the CPG giant has reduced costs by cutting its agency roster in half – from 6,000 to 3,000 agencies – over the past three years.
“We're applying a body-of-evidence assessment to advertising quality,” Moeller said. “Campaigns must drive awareness, household penetration and share growth for at least one full year, and be determined by a panel of objective experts to be effective advertising.”
Moeller’s statements echo those Chief Brand Officer Marc Pritchard has made along the industry conference circuit this year.
At the IAB’s Annual Leadership meeting in January, Pritchard threatened to pull spend from media suppliers that don’t enable third-party measurement or viewability and eliminate fraud.
He followed up in March at the ANA Media conference demanding that walled gardens complete MRC viewability audits. And in April, he detailed a sweeping agency consolidation plan and urged agencies to simplify their structures at the 4As Transformation conference.
P&G’s marketing cuts are part of a broader five-year effort to reduce costs across the organization by $7 billion by driving efficiencies in areas like packaging materials, manufacturing expenses, transportation and supplier consolidation. In Q1, P&G saw organic revenue grow by just 1%.
CPG manufacturers are struggling to retain market share against ecommerce companies that better fit consumer shopping habits. To modernize, P&G will focus less on scale and more on market category adoption by putting a category sales leader in charge to oversee the entire marketing funnel by region for a product.
P&G will also double down on its ecommerce efforts, Moeller said. Organic online sales grew 30% in Q1 and now account for 5% of overall business at about $3 billion.
“Growth rates, not just from a growth standpoint but also from a share growth standpoint, are currently higher online than they are offline,” Moeller said.