Three lessons from P&G’s frugality

P&G is on a mission to slash and burn wasted ad spend and agency overheads. The world’s biggest advertiser has reportedly reduced ad agency and production costs by $750m. Digital spending has taken the brunt of the cuts. Speaking at an Incorporated Society of British Advertisers conference last week, P&G’s chief brand officer, Marc Pritchard, inset, said the company had made savings of 20pc to 50pc with big digital players, reinvesting the savings in media that delivered better results. Pritchard has also been outspoken about digital media’s lack of transparency, calling out the crappy supply chain, unreliable measurement, hidden rebates and monumental levels of bot fraud.

So what can we learn from P&G’s drive for marketing efficiency? I think there are three lessons for other less monumental businesses in the media advertising ecosystem: continuously reassess; pay only for what matters; and understand the different strengths of each channel. It’s easy to laud P&G as a champion of right-headedness in a mad media world. The counter argument is, of course, the company should never have indulged in such massive inefficiencies.

But new-found thrift and vocal opposition to issues like digital ad fraud and agency overheads, not to mention P&G’s gargantuan size, mark it out as noteworthy.

Let’s start with continuous reassessment. We all know that the pace of technological change and the tendency of the marketing industry to be enthralled by shiny new baubles, means consumer habits around media consumption are in flux. And their attitude towards marketing too. So P&G is right to take a brutally honest assessment of its media spend. That said, bigger companies are more likely to be wasteful, and there’s no one bigger than P&G.

The FMCG giant has reportedly reduced ad agency and production costs by $750m and expects to be able to save another $400m. And it’s culling the number of agencies it works with too. By the end of this year, P&G will be working with 4,700 fewer agencies than in 2014.

But how to decide on what activities, or which agency to cut? P&G has been ruthless about ensuring that it’s paying for the stuff that matters: creativity. P&G clearly values the contribution of creative talent, and is prepared to pay top dollar for it.

It’s moving to more flexible arrangements with their roster of agencies and creative talent, and at the same time, increasing local relevance, speed, and quality.

There’s a direct challenge to agencies here. Pritchard has pointed out that creatives account for less than half of all agency resources, and are surrounded by needless layers of management, buildings and overheads. The intimation? P&G ain’t gonna pay for agencies’ excess fat. More media planning and purchasing is being brought in-house.

“If entrepreneurs can buy digital media, why can’t the brand team on Tide, Dawn and Crest be entrepreneurs and do the same? They can and they will,” Pritchard has said.

But the most interesting lesson from P&G’s economy drive is the need to understand what different platforms can do for a brand.

This is most interesting in relation to digital advertising.

P&G’s move to a platform-agnostic approach to quality highlights the fact that the digital advertising has evolved into a system that’s fit for flipping out low-value messages.

But hey, they’re targeted, and that’s all that matters, right? Wrong.

Great brands aren’t built on the back of efficiently targeted messages. Buying a billboard is a social signal that the brand in question is worthy of mass appeal. Buying a Facebook ad isn’t.

Rory Sutherland, the executive creative director of OgilvyOne in the UK, put it neatly in a column for The Spectator: “Many billions of pounds of advertising expenditure have been shifted from conventional media, most notably newspapers, and moved into digital media in a quest for targeted efficiency.

“If advertising simply works by the conveyance of messages, this would be a sensible thing to do. However, it is beginning to become apparent that not all, perhaps not even most, advertising works this way.

“It seems that a large part of advertising creates trust and conviction in its audience precisely because it is perceived to be costly. It is the corporate equivalent of a luxury good.” That’s not to say that targeted ads don’t have a place. They do. But not in isolation. By themselves, digital display ads often behave like an unwanted ex stalking you around the internet. Sure they may have been desirable once, but now it’s just creepy. And who wants to be that brand?