I’m sure there was some awkward shifting in seats at various PR firms yesterday when Procter & Gamble CFO Jon Moeller announced during the CPG behemoth’s Q3 earnings call that the company is looking to save $500m in costs around its agency relationships.
Moeller said: "We plan to significantly simplify and reduce the number of agency relationships and the costs associated with the current complexity and inefficiency, while upgrading agency capabilities to improve creative quality and communication effectiveness."
In other words: We’re going to spend a lot less and we want a lot more, across advertising, media, PR, and related production costs.
It’s no secret that CEO AG Lafley wasn’t particularly impressed with P&G’s marketing performance when he returned to the company a couple of years ago following the departure of Bob McDonald. His mission was to simplify the business, including divesting 100 non-core brands such as Duracell, and this marketing announcement is part of that process.
P&G’s major competitor Unilever has gone through a similar process in recent years. The theory is that if a large percentage of brands only represent a small cut of the overall pie when measured together, it is more sensible to divest them and concentrate your resources on the big earners and develop them into real super brands.
P&G has over 20 $1 billion-plus brands and it spends a lot of money on PR, but it’s still a tiny part of its overall spend on marketing. However, there’s no doubt the company’s roster of PR firms will be affected and probably are being already.
The CPG giant decided a few years ago to divide its agency support across three large holding companies: Omnicom, Publicis, and WPP.
For independent shops such as Marina Maher Communications this was a dilemma, as P&G represented a significant chunk of billings at the-then $25 million firm. MMC did a tour of the holding companies and settled on being acquired by Omnicom, which promised it would let the firm continue to operate independently.
Since then, MMC has grown its work with P&G and gone from strength to strength. In PRWeek’s Agency Business Report, out on Monday, we estimate MMC’s 2014 revenues at $40 million. It has taken work from other P&G roster agencies such as MSLGroup and DeVries.
I don’t expect P&G to rationalize the number of holding companies it works with – that would cause problems on the brand teams that are very loyal to certain agencies, and have longstanding and effective relationships with them.
P&G’s global brand officer Marc Pritchard has long been a proponent of a balanced mix of paid, earned, shared, and owned media and touts the value and ROI of smart PR work.
When we did a deep dive into Procter & Gamble in 2012 for its 175th anniversary, Pritchard told us: "Public relations and digital and social media are less expensive than traditional advertising, have a higher return on investment, and get people to engage with the brand on a more personal level."
Indeed, one point that surprised me in Moeller’s statement yesterday was a reference to the high cost of digital production as an area of potential efficiency.
P&G is clearly spending a lot more on digital and agency support for it, and there will no doubt have been an element of investment in new products and services around this, but as Pritchard notes above, it’s difficult to believe digital production is more expensive than the traditionally extortionate expense of old-fashioned broadcast advertising.
At the PRSA Foundation’s Paladin Dinner last night, former P&G global external relations officer Charlotte Otto was honored with this year’s Paladin Award. In her acceptance speech, Otto recalled the challenges of being the first woman to inhabit the hallowed wood-paneled corridors of P&G’s executive suite.
She proudly proclaimed the value of groundbreaking PR-based P&G campaigns such as Always/Like a Girl and the Thank You, Mom Olympics work. The former was PRWeek’s Campaign of the Year in the US and is shortlisted several times in PRWeek’s Global Awards, which will be presented in London next Tuesday night in.
It would be a real shame if such effective and groundbreaking work was curtailed by the marketing cuts that are looming at P&G. But it underlines once again that, while these accounts are the jewels in the crown of agencies’ client rosters, they are extremely tough and demanding to deliver against. And they’re only going to get more so.