P&G plans cost savings

27 February 2012

CINCINNATI: Procter & Gamble intends to reduce its marketing spend while continuing to emphasise product innovation, the FMCG firm's chief executive has suggested.

Bob McDonald said that the company would make around $10bn of savings over the next four years, including a $1bn reduction in marketing expenditure.

"We're not looking to make dramatic cuts in the support of our brands," he added. "Even delivering a modest level of [marketing budget] efficiency each year can amount to nearly a billion of savings vs. just letting these costs grow at the same rate of sales."

As part of this effort to reduce expenditure, McDonald indicated that P&G would focus on delivering mobile and online advertising, which costs less than campaigns for traditional media such as TV.

P&G's marketing spend reached $13.7bn last year, equivalent to 16.5% of overall sales. Core adspend reached $9.3bn over the same period, or 11.3% of the total.

This represents an increase from 2006, when marketing and ad expenditures reached just 15.5% and 10.9% of total sales respectively.

P&G is also continuing its long-term strategy of integrating both internal and external innovation into its NPD activities.

Speaking last week, McDonald indicated that the firm was also to pursue a policy of "discontinuous innovation". This refers to a focus on radical change or the creation of entirely new consumer categories and products, rather than delivering incremental improvements to existing products.

Cincinnati.com reports that the FMCG firm is using facilities such as the Envision Center, a "virtual reality space" that re-creates in-store environments for specific retailers, to overhaul some of its product lines.

This proprietary technology is housed within the company's Beckett Ridge Innovation Center, located near P&G's US headquarters, and has contributed towards the development of products such as Tide Pods, an extension of the firm's core Tide laundry brand.

The company is also continuing to employ its Connect + Develop co-creation programme, set up in 2000 with the aim of gathering 50% of ideas from outside sources.

P&G spends around $2bn on R&D activities, and McDonald said earlier this year that the firm now generates around 80% of its innovations with "some kind of external partner".

Cutting-edge marketing techniques are being recognised by the free-to-enter Warc Prize for Innovation, entries for which close on February 29. For further details about the Prize criteria and entry process, visit warc.com/prize.

Data sourced from Ad Age/Cincinnati.com; additional content by Warc staff