More change ahead for P&G's marcomms function

Top financial analysts say that if newly returned CEO AG Lafley is to reverse slowing revenue growth at the CPG giant he will need to make changes to both the company's marketing spend and strategy.

Top financial analysts tell PRWeek that if newly returned CEO of Procter & Gamble AG Lafley is to reverse slowing revenue growth at the CPG giant he will need to make changes to both the company's marketing spend and strategy.

Facing mounting pressure from analysts, P&G announced this week that CEO Bob McDonald would retire and his predecessor Lafley would return to the top spot, effective immediately. The news was apparently well received by investors: P&G's stock price jumped 4% immediately after the announcement.

Activist hedge fund manager Bill Ackman, the head of Pershing Square Capital Management, has been among the most outspoken critics of P&G, arguing that McDonald has been the wrong guy for the CEO job from the start and that the company has been spending too much on marketing.

Ali Dibadj, another analyst, at Sanford C. Bernstein, who has also been vocal in his disappointment over P&G's recent quarterly sales results, agrees Lafley needs to redirect what he calls the CPG's wayward marketing function.

“The company is likely spending the right amount of money on marketing,” asserts Dibadj, “but it is spending on endeavors that are too low in terms of returns. Almost every day, we hear via a press release of a P&G product being endorsed by a celebrity, but we see precious little in terms of results.

“In particular, the company has spent a significant amount of money on launching innovations that go nowhere – see four Pantene relaunches in almost as many years. The company has the right level of investment, but AG Lafley needs to figure out where to spend it.”

Procter & Gamble was the largest advertiser in the US last year, spending $2.8 billion, although that amount was down 5% on 2011, according to Kantar Media. It spent $9 billion globally. Last year represented the second straight year of media cutbacks for the consumer products company, which presumably has been cutting back on traditional advertising in favor of digital and social media as well as PR.

According to several media reports, P&G is in the midst of a major review of how it measures its marketing investments. Jerry Thomas, CEO of Decision Analyst, a marketing research and analytical consulting firm, and a former executive at Kraft Foods, suspects the company has been relying too much on internal measurement structures.

“They've internalized the function too much,” says Thomas. “If Lafley is going to put a spotlight on anything, it has to be on improved testing of advertising and communications.”

Paul Fox, director, external relations at Procter & Gamble, says the company is not currently granting media interviews. “It is too early for us to talk about specific actions,” he writes in an e-mail to PRWeek.

Still, the company has in the last year or so restructured parts of its marketing department. In May 2012, P&G reorganized its communications function, following the departure of global external relations officer Chris Hassall, who worked at the company for nearly three decades. P&G's global marketing and brand building officer Marc Pritchard was appointed leader of the revamped communications practice, which put brand PR, corporate communications, and consumer relations at the core of the division.

PR is one of the tools Erin Lash, senior equity analyst at Morningstar, says P&G will need to leverage as it looks to take advantage of its scale and brand reach. She says “as new products come to market it is essential P&G invests in advertising to tout these new offerings,” adding in a research note that this will help the business “to truly turn a corner.”

Lash adds that discord at the senior ranks likely hasn't helped internal communications either. In the same note, she noted that at P&G's analyst day late last year, “we sensed some tension between McDonald and CFO John Moeller, who essentially ran the show and even interrupted McDonald during the short question and answer session.” They were also surprised that vice-chairman of global operations, Werner Geissler, and vice-chairman of global business units, Dimitri Panayotopoulos, were not given speaking time.

Analysts concur that Lafley's re-hire may have as much to do with appeasing investors in the short term, as helping put in place a succession plan that can then be communicated to stakeholders, both internally and externally, who are worried about the future direction of the company.

“P&G, which tends to promote from within, may not have anyone to fill the top spot, since several senior executives have headed for the exits over the past several years,” writes Lash. “We expect Lafley…will only remain in the top spot until a permanent successor (most likely from outside the organization) is named.”

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