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P&G axes agency fees by $500m

News, 27 April 2015

CINCINNATI: Procter & Gamble (P&G), the world's largest advertiser, plans to cut its non-media marketing costs by as much as $500m, the company's chief financial officer has announced.

Speaking to analysts during an earnings call last Thursday, Jon Moeller said the FMCG multinational regards the amount it spends on agency fees as a "significant opportunity" for cutting costs.

He said: "We plan to significantly simplify and reduce the number of agency relationships and the cost associated with the current complexity and inefficiency, while upgrading the agency capability to improve creative quality and communication effectiveness.

"We've seen opportunity for up to £0.5bn in cost savings in this area, along with stronger communication to consumers across all touch points."

In its bid to deliver "more with less", P&G is shifting more advertising to digital media, social, video and mobile, but Moeller emphasised that does not mean digital advertising will replace traditional media. They complement each other, he said.

However, he said non-media savings could be found from "fees, production costs for agencies we use for advertising, media, public relations, package design and development of in-store materials".

P&G's announcement came as it reported worse-than-expected third quarter results with net income falling to $2.15bn compared with $2.61bn a year earlier.

The company is in the midst of exiting 100 brands as it aims to focus on 65 leading core brands, covering just seven categories.

Moeller said these brands would play to P&G's core strengths of consumer understanding, innovation and branding and enable more resources to be devoted to the biggest opportunities.

To date, P&G has made divestitures of more than 40 brands, he said, or about 40% of its overall target. These include some household names, such as Duracell batteries and Camay soap.

Data sourced from Seeking Alpha, Reuters; additional content by Warc staff