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P&G reassesses promotions

News, 27 October 2016

CINCINNATI: Procter & Gamble is looking closely at its huge promotional budget amid concerns that promotions can be "market and profit dilutive", the FMCG giant's chief financial officer has said.

Speaking on a first quarter earnings call, Jon Moeller, Procter & Gamble CFO, reiterated the intention to back promotional spending – which earlier this year he put at £18bn – although he added some caveats.

"There are many cases where promotional spending is a very effective use of our funds and we'll continue to support that spend," said Moeller.

"But there are other instances where we and our retail partners would be better off redirecting that spend to other parts of the marketing mix, focusing on how to drive market growth in categories and drive basket size and shopping trips for our retail partners."

Both parties needed to work more closely together, he suggested, if they were to avoid "engaging in activities that are both market and profit dilutive to both sides of the partnership". Instead, they should look for ways "to redirect those funds in a way that can be more accretive to both sides of the partnership".

This is a difficult area for a global business like P&G operating in a multi-speed international economy. Tim Eales of IRI, writing in Admap earlier this year, noted how "Brand owners are finding it harder to predict how shoppers across the world will react to changes in pricing and promotional activity because sales levels and the speed of economic recovery in different countries vary so much".

And he questioned whether the current high levels of promotional activity seen in Western Europe were sustainable.

P&G appears inclined to put more money into sampling, which, Moeller acknowledged, was "not an investment endeavor that we typically see immediate returns in. That's why, unfortunately, we got into a practice of reducing that spending because it wasn't producing.

"But it's really the area of spending that should be the last that we cut because of its importance in building users for potentially a lifetime of consumption," he added.

"If you can sample consumers at point of market entry with superior products and categories where brand loyalty is higher, the relatively modest investment can result in a lifetime benefit."

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