Procter & Gamble restructures its media buying business to cut costs
The company has announced its decision to let two ad agencies handle its media buying strategy for North America – Omnicom Media Group and Carat agency, which are both New York based.
The move is part of the company’s ambition to cut costs as the business is set to emerge in a leaner form following the sale of 43 brands to Coty for $12.5bn – a deal that is expected to be finalized in the latter half of next year.
Omnicom gets the largest slice of business
Omnicom’s larger slice of the media management cake will account for the vast majority of P&G’s and US media-buying and planning spend as it entails most of its business in the consumer category.
Omnicom says it has successfully pitched for a media spend valued at approximately $2.7bn. In 2014 P&G spent approximately $4.6bn on advertising in the US, but with cost cutting measures in place and a leaner business model about to emerge, that figure is likely to be significantly less in 2016.
The company began reviewing its media buying strategy earlier this year, and the CFO has previously stated that he wants to reduce media buying and advertising related expenses by $500m, having already made significant cut backs in this area last year.
Some win, some lose
The Carat agency, which is a part of the Dentsu Aegis network, will support the rest of the P&G business categories, which is expected to represent a significantly smaller share of the media buying business in North America.
In an official statement a P&G spokesman said that the new media agency appointments represented a renewed focused on the quality of its media buying and advertising, as well as a consolidation of the operations that would mean greater efficiency.
The appointment of the two agencies is to the detriment of the France-based Publicis group, which has held the bulk of the US media buying business since 1997.
Fall in sales means less money to spend
In the last financial year the evidence has been clear that P&G spending was down, with selling and general expenses falling from $24.7bn to $23.5bn, on the back of sales sliding from $80.5bn to $76.3bn and profits down from $11.6bn to $7.1bn.
A big part of the lower spending has been the reduced campaigns for ads and promotion, with global advertising spend down to $8.3bn in the fiscal year, compared to $9bn in the previous year.
Historically this is a five year low and goes a long way to reflect just how much the company’s place on the global consumer market has been impacted in recent years, although out-going CEO A.G. Lafley has consistently underlined his commitment to advertising in the course of the last year.
