Something surprising happened when Procter & Gamble, giant consumer goods maker, Gillette’s, Crest paste and Pampers, cut $ 100 million in digital marketing costs in the second quarter: nothing changed.
“We have not seen a drop in growth [in terms of value or sales volume],” said John Mueller, the chief financial officer at P & G, saying: “What I’m saying is that the spending we’ve cut has been pretty inefficient.”
P & G’s downsizing targeted websites where their ads are likely to appear through computer programs that mimic the activity of real people browsing the web and those that show their brand next to spam. “We want real people to get our announcements,” a company spokesman said.
But P & G, which spent $ 7.1 billion on advertising last year, has a bigger target on the horizon. The company wants to cut its marketing budget by more than $ 2 billion over the next five years, part of a $ 10 billion cost-cutting program.
The planned cuts extend across the marketing supply chain, ranging from reducing agency fees to reduce the number of signs for their brands in stores.
It is not alone in that. From Unilever and Danone to Mundliz and Nestle, many of the world’s largest consumer goods companies, are cutting costs to boost profits amid the buoyant sales growth and pressure from their active investors.
The effect of these cuts extends outward. This week, advertising and media stocks fell after WPP, the world’s largest ad group, reported a slowdown in global advertising spending in the second quarter and lowered sales growth forecasts to zero to 1 percent this year.
This came in the wake of warnings issued by the American competition company Interpublic. Where weaker consumer spending groups led to a 1 percent drop in quarterly revenue growth. For the WPP group and its counterparts, the cuts made by its richest clients in terms of cash drain revenues while the advertising industry has been experiencing multiple storms for a while. Advertising spending slowed, especially in North America, where Magna Global, the global media buying agency, expects global growth of 3.7 percent to reach $ 505 billion this year, compared to 5.9 percent in 2016.
Technology companies such as Google and Facebook are growing stronger as advertising continues to migrate over the Internet – these companies absorb 72 cents of every new dollar spent on digital advertising in the United States last year, according to the eMarketer.
Agencies are also subject to scrutiny for accepting undisclosed refunds from media companies for ads you buy. The fierce competition has also prompted some ad groups to offer discounts on contract renewals and cut creative and media fees, further restricting growth.
WPP warned this week that “these practices cannot continue and will ultimately only lead to poor financial performance and greater integration, as interest comes from long-term profitable growth.” Our industry may be in danger of losing the plot. “