At the end of last week, John Moeller, P&G’s CFO, dropped a bombshell at the company’s latest quarterly earnings meeting: The company is set to cut $500 million from “agency fees and production”.
This incredible number sent shockwaves through the industry, and more than a few marketers were asked by their CFOs, “Where’s our $500 million?”.
Now of course, P&G invests $9 billion in marketing annually—more than any other company—but achieving savings of this magnitude is still going to be a challenge, given the tight leashes the FMCG giant has already put its agencies and suppliers on over the past decade.
One of the ways to drive these savings will be focusing on fewer brands. CEO A.G. Lafley, having built up the massive structure through to 2009, has now returned to dismantle it. P&G intends to reduce its portfolio down from 100 active brands to around 65 through an active programme of selling and reviewing overall investment. But these efforts alone won’t drive such savings.
So what does this mean for Asia? The company outstripped all marketing companies over the last two decades in terms of growth, particularly in China, where Olay, Pampers and Crest have become household names. P&G also over-invested in India to close the massive gap with Hindustan Unilever, and established a massive presence in Singapore, which is now the global lead for a number of brands.
We see three key trends that this announcement will have:
P&G Agencies in Asia will have to integrate better—or else. One of the big things raised in the Thursday announcement was that “digital and creative will have to merge together, as they are both media”. P&G has been using more digital agencies in Asia outside its roster of Saatchi & Saatchi, Grey, Publicis and Leo Burnett, and the onus will surely come back to WPP and Publicis Groupe to find a more ‘integrated’ solution. This mission is not unique to P&G.
Media agencies will be on notice. As we write this, there are global and US reviews in play for Coca-Cola, L’Oréal, Visa and Unilever, and several more are set to be announced shortly. The pressure for transparency and value, nowhere more critical than in Asia, will likely force P&G to join this list in coming months.
Marketers will need to curate, not create. Many FMCG companies in Asia have yet to streamline their creative developments into true centres of excellence. While P&G has been a leader at this, it is going to have to push harder to create more work that travels further.
$500 million is no small target. This will take a fresh approach to marketing, and we are sure other marketers in the region will take notice and follow.
Greg Paull is principal at R3.