Procter & Gamble, one of the world’s largest FMCG brands, recommitted to increasing its advertising and marketing spend following a strong quarter for the company. P&G saw significant volume growth in its core markets of the US and Europe during the final quarter of the year, which were up four percent and three percent respectively despite substantial price rises. And on an earnings call following the results, executives waved off suggestions that it might cut the amount of profit it reinvests in marketing activity.
P&G kept its levels of ad spend high throughout the pandemic, at a time when many others were cutting their budgets. Since then, it’s continued to up its marketing spend as sales have grown.
On the earnings call, the brand wasn’t explicit about how much it raised ad spend over the previous quarter, but CFO Andre Schulten referenced “increased marketing investments” during the period. And when Barclays analyst Lauren Lieberman questioned whether there may be “an excessive amount of reinvestment” in areas like marketing, CEO Jon Moeller recommitted to the company’s strategy.
“If you look at the amount of innovation that’s coming to market, both currently and in the future, and if you look at the opportunity to fully penetrate households with that innovation in ways that delights them and improves their lives, now is not the time to be pulling back on investments in marketing or commercialization efforts of that innovation,” he said. “And that’s where the majority of the incremental spend has come from and will come from.”
Saving on ads, to spend more on ads
While P&G has been happy to keep marketing spend high, that doesn’t mean it’s not been scrutinising ad spend.
The company has put a lot of focus on efficiency in its advertising. “We continue to be a constructive disruptor of brand building, in-housing more of the media planning and placement activity, using our proprietary tools and consumer data to increase effectiveness and efficiency of our communication,” said Moeller.
P&G said these efforts have proven fruitful, increasing productivity by avoiding excess frequency and reducing waste while increasing reach. And Moeller said there’s still room for improvement. “[P&G continues] to see through the addition of many tools and data sets that we can increase the effectiveness of that advertising, increase the return rates of that advertising as you see in our bottom line, while increasing reach,” he said.
But while P&G has achieved significant efficiency savings through this focus, it’s chosen to use those savings as a reason to increase marketing spend, rather than reduce it.
And the company says it’s seeing results. Wells Fargo analyst Chris Carey questioned which factors were significant in driving volume growth, referencing increased advertising, promotional activity, or consumers adjusting to raised prices.
CFO Andre Schulten responded that pricing is a factor, but reaffirmed the impact of advertising. “What drives [volume growth], is strong innovation, innovation that is focused on growing the market, and strong communication of that innovation in a very targeted way, leveraging our capability to be very detailed and very intentional on who we talk to, at what point in time, with what messaging.”
