PERSPECTIVE: Is Berndt memo a threat or promise for P&G agencies?

It’s Procter & Gamble memogate season again. ’Unless we fix our

fundamental growth issue, we have no way to hit our forecasts ... We

must operate in a crisis mode.’ Thus goes a confidential diktat - part

of which was leaked to the trade press last week - from P&G’s new head

of European operations, Wolfgang Berndt.

Another leaked P&G memo set off similar shock waves back in 1996 when it

was suggested that the world’s largest advertiser was, horror of

horrors, cutting its advertising expenditure. You could almost hear the

network bosses trembling. However, it turned out that P&G wants to

reduce the proportion of its revenues that it spends on advertising and

marketing support from one-quarter of net sales to one-fifth or less by

the end of the decade. Readers with a mathematical bent will realise

that whether this reduces the level of advertising depends on what

happens to sales.

However, it’s a given that P&G business in Europe is faltering, so let’s

suppose that the latest memo contains a warning for agencies. After all,

we already know something of its plans. P&G is to cut back on the brands

it supports and move budgets in the direction of those that offer the

best return. P&G is to move towards a fee remuneration system from the

commission-based system that has served agencies, and particularly big

P&G agencies, so well. Four years ago P&G was crowing over its claims

that Lever Brothers’ Persil Power could damage clothes, but today it is

still trialling a version of laundry detergent tablets which Unilever

has had on sale since May. So P&G needs to spot the things that turn

consumers on more quickly.

Cutting the non-media agency commission rate is one easy way to save

money. But there is another. I’ve heard convincing arguments that P&G’s

commercials production system - which guarantees a number of shooting

days a year for a handful of pet production companies and ensures that

P&G’s strict copy guidelines are followed to the letter - leads to P&G

paying above the market rate for mostly average commercials. In effect,

P&G has to guarantee turnover for these companies and, in doing so, it

has taken away the competitive pressure of the open production market in

which Unilever operates. The economic parallel is state control - if the

P&G system worked then Albania would be a world-class economy.

There is yet another way of reading the Berndt memo. Could it be the

posturing of a new manager anxious to stamp his authority on a company

notorious for quantifying and justifying every decision? Remember all

that stuff about how it’s easier to effect change when you’re new to a

job? After all, Proctoids are people too.

Have your say on channel 4 of CampaignLive, which can be found at:

www.campaignlive.com

This article was first published on Campaign