Reach for the stars: That’s the lesson from Procter & Gamble’s quarterly earnings report on Wednesday.
The world’s biggest-spending advertiser, P&G, is spending less on marketing and forecasts a lower total for the next year. Its new measurement approach, which is oriented around the reach metric, is behind the lowered media spend.
Investors were concerned that its media budget in the next year is ticking down.
One investor summed up some of the dynamics P&G is dealing with, with the implication being that the company might want to spend more on marketing. For example, price increases have already happened, inventory levels are back to pre-COVID consistency (why advertise when shelves aren’t stocked?), market share growth is near zero and retailer private-label growth means P&G must spend more on in-store promotions to maintain share.
So why is P&G spending less and forecasting reductions in media?
For one thing, P&G did increase media spend by $1.2 billion over the past three years, so current year-over-year comparisons are coming off a very high point in a cycle, said CFO Andre Schulten.
“We are actively shifting our spending from linear non-targeted TV into programmatic and into digital spend that is a lot more targeted and a lot more precise in terms of delivering reach,” Schulten said. “It is difficult to describe media sufficiency in dollars.”
It’s a difficult explanation to make, even internally, according to CEO Jon Moeller.
“The question keeps being raised, which is perfectly fine, but it means we’re maybe not being as clear as we can,” he said.
In a recent meeting with the North America team, for instance, brand leaders had prepared marketing spend projections for next year based on category spend versus a year ago. “And I walked into the room and said, ‘This isn’t helpful,’” Moeller told investors.
Instead, he said the company will start by establishing each brand’s reach objectives, and only then calculate what kind of TV and digital exposure will be required to achieve the reach metric.
As spend shifts to programmatic and as P&G builds out its first-party data set, its brands will more effectively achieve the reach they want at lower overall costs than the company has historically spent on marketing. “That’s how we’ll measure media sufficiency,” Moeller said.
P&G has also brought more ad tech and marketing people in house, which distorted historical comparisons for media on its balance sheet, he said. In-house media capabilities mean parts of the budget that used to accrue directly to the ad budget (like ad tech and data services in the supply chain) are now found under the company’s overhead (e.g. new hires and employee costs).
“I’m sure it’s frustrating because you don’t have visibility to all of that,” Moeller said. “You just have visibility to the dollars, which I completely understand.”
