By Tunde Osho
Procter & Gamble is planning to cut its agency roster by another 50% as it looks to “reinvent” its relationship with agencies and automate and in-house more media planning, buying and distribution.
P&G has already cut the number of agencies it works with by 60%, from 6,000 to 2,500; a move it says has saved it $750m in agency and production costs. It now wants to cut agencies by another 50% and is targeting another $400m in savings.
CFO Jon Mueller says while the FMCG giant is “prepared to pay” for creative talent, there are other areas that it is not prepared to pay for and it will be looking to new models to improve local relevance, speed, quality and lower costs.
“We continue to reinvent our agency relationships, consolidating and upgrading P&G’s agency capabilities to deliver the best brand building creativity,” he said, speaking on a results call today (23 January).
“We need the contribution of creative talent and are prepared to pay for that. But we’ll move to more ‘fixed and flow’ arrangements, and more open sourcing of creative talent and production capability. We’ll automate more media planning, buying and distribution, bringing more of it in-house.”
The comments suggest P&G is looking to move to more flexible relationships with agencies where it has the basics and necessities covered through fixed contracts but can increase and decrease that depending on work that needs doing. That won’t do much to boost the confidence of the major agency holding groups, which are struggling for growth amid a focus on costs at FMCG firms, some of the biggest ad spenders and therefore their biggest clients.
Unilever, for example, is also looking to make cost savings of €2bn in overheads and brand and marketing investment, including cutting the number of creative agencies it works with globally by half to around 1,500. And the likes of Mars and Asda are reviewing their relationships with agencies and looking to consolidate.
Moeller also said its focus on media transparency is paying off, and that, as it improves, P&G is identifying further opportunities to improve efficiency. “As this improves, it’s clearer and clearer to us that there is more opportunity to eliminate waste by reducing excess frequency within and across channels, eliminating non-viewable ads, and stopping ads served to bots or adjacent to inappropriate content.”
Efforts so far have seen P&G eliminate waste and cut losses while also increasing reach by 10%. P&G plans to improve ad efficiency still further through more private marketplace deals with media companies and “precision media buying” fuelled by data and technology.
Last year, P&G said it had cut $140m in digital ad spend with no detrimental impact on sales. Sales in its second quarter were up 3% year on year to $17.4bn, while organic sales increased by 2%. Media spending was in-line with prior year levels.