P&G switches ad agencies to cut costs, say experts

Change highlights broader upheaval in the industry

Procter & Gamble (P&G), the biggest advertiser in the world, announced on Monday that it was moving the bulk of its North American media buying and planning business to Omnicom from Publicis Groupe, in a sweeping change that underscores the broader upheaval in the ad industry.

Over the last year, a wave of companies, including Unilever and Coca-Cola, have questioned their ad spending as they looked to cut costs and overhaul their marketing strategy in an increasingly digital age. Many advertisers now rely on sophisticated data and technology to show tailored ads to specific groups of people, a practice that has shifted the way they think about buying and placing ads.

At the same time, advertisers have put increasing pressure on ad agencies to offer more services for less money, pitting them against one another in what many industry executives say amounts to a race to the bottom. Estimates by analysts and agencies put the amount of advertising spending under review this year at about $30 billion.

P&G, whose brands include Tide laundry detergent and Pampers diapers, said its decision was part of an effort to reach consumers as audiences have fragmented.

"The entire ecosystem of media and advertising is transforming," said Marc Pritchard, P&G's global brand officer. "We still want to get mass reach, but we also want to be able to do it with a greater degree of precision." That, he added, requires robust data and analytics and "better real-time planning and buying," with the overall goal of connecting with consumers with the right message at the right time.

But Brian Wieser, a media analyst at Pivotal Research, said a desire to cut spending was almost certainly behind the shift in strategy. "The cost-cutting element is one of the overwhelming factors around the review," he said. "They probably wanted more for less, and they're probably redefining what more is." During an earnings call with investors in April, Jon R Moeller, chief financial officer of P&G, said the company was planning to "significantly simplify and reduce the number of agencies, relationships and the cost associated with the current complexity and inefficiency." He estimated at the time that the resulting cost savings could be up to $500 million.

P&G spent $2.7 billion on advertising in the United States last year and $3.1 billion in 2013, according to Kantar Media. The company has also been aggressively cutting costs, saying last year that it would sell about 100 brands to focus on about 10 core product lines.

With the agency shift, P&G will hand over most of its North American account to Omnicom Media Group. Omnicom said that it would create a separate media agency unit, with P&G as its first client. A smaller piece of P&G's business will go to another agency, Carat, which is part of Dentsu Aegis.

Starcom Mediavest Group, Publicis's media agency, will retain the brands that P&G is divesting, including its battery brand Duracell, along with its fragrances, cosmetics and salon professional and hair colour lines. With the move, Publicis could lose $50 million to $100 million in annual revenues, according to people with knowledge of the matter.

In a statement, Starcom Mediavest Group said it was "proud of our partnership with P.&G. over the years," adding, "We wish P.&G. success as they embark on their next chapter in North America, and we look forward to continuing to serve as one of P.&G.'s largest agency partners globally, spanning 41 markets around the world."

Less than a week ago, Publicis announced a major restructuring and management overhaul as it looked to bolster its financial results.

©2015 The New York Times News Service