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P&G to cut agency costs further

News, 28 April 2016

CINCINNATI: Procter & Gamble (P&G), the FMCG giant, plans to cut its agency-related marketing costs to $1.5bn next year, the company's chief financial officer has announced.

Speaking to analysts as P&G released results for its third fiscal quarter, Jon Moeller said marketing spend was cut by $370m last year and another $200m of savings are earmarked for this year.

"After two strong years of savings, we will enter next year still spending $1.5bn in agency-related marketing costs — still more room to improve," Moeller said in comments reported by the Wall Street Journal.

"We'll continue to look for efficiencies in working media with better advertising targeting and earned media campaigns with engaging content," he added.

P&G previously spent around $2bn a year on agency fees before announcing last year that it would cut the number of agencies it works with by 40% as it shifts more marketing investment into digital, social and video platforms.

That strategy looks set to continue, although P&G is still set to increase its overall advertising expenditure slightly over the coming year.

"We delivered another strong quarter of productivity improvement and cost savings, and we increased investments in innovation, advertising and selling capacity to enhance our long-term prospects for faster, sustainable top-line growth and value creation," Moeller said.

Total revenue at P&G fell nearly 7% year-on-year to $15.8bn, although profits rose 28% to $2.8bn. Meanwhile, P&G's organic sales – a metric that excludes acquisitions, divestments and currency movements – increased 1% over the quarter.

The company also reported that its prospects are improving in China, P&G's second largest market outside the US, where sales declined 4% in the third quarter compared with previous declines of 8%.

P&G's premium skincare brand, SK-II, delivered 20% sales growth in China, but the company is continuing to encounter difficulties in China's fast-growing market for baby-care products.

Data sourced from Wall Street Journal, Cincinnati.com; additional content by Warc staff