Procter & Gamble Co. Chairman-CEO A.G. Lafley raised eyebrows on a recent earnings call, estimating the company spends up to 35% of its massive marketing budget on digital.
The number seemed baffling considering the packaged-goods industry leans heavily on TV and magazine ads and has long lagged the broader market in digital. Kantar Media shows P&G spent 6.8% of its $2.9 billion measured-media budget last year on online display advertising.
Yet a deeper look shows Mr. Lafley was likely on target and helps illuminate just how different digital is from the rest of the media world -- and how little of what marketers consider "digital spending" today involves media spending.
Speaking off the cuff, Mr. Lafley was responding to questions on how much P&G is spending and the bang it's getting for its bucks.
"We're pounding away on communication effectiveness, OK?" Mr. Lafley said. "Our digital, I think, is now up to 35% in the U.S. roughly. It goes up and down, 25% to 35%." He added that some brands are finding digital "incredibly effective" while others need to "get up the learning curve faster."
A P&G spokeswoman clarified that Mr. Lafley pegged U.S. digital marketing spending in a range of 25% to 35%, adding that the number includes spending on search, social, online video, mobile and "other costs."
Advertising Age's DataCenter estimates P&G's fiscal 2012 total U.S. ad spending at $4.8 billion, which would put the range outlined by Mr. Lafley at $1.2 billion to $1.7 billion. By comparison, the Interactive Advertising Bureau pegs total U.S. digital spending at $36.6 billion, estimating the entire CPG industry at 7% or $2.5 billion of that. But while the IAB's numbers include all forms of digital advertising, they don't include the range of production and agency costs, website development or digital content creation that takes place outside interactive publishers, which is likely part of Mr. Lafley's tally.
A recent Gartner survey sheds additional light on the $1.2 billion-plus in spending suggested by Mr. Lafley.
At most, the survey found, 30% of what marketers define as digital spending is on paid media, with the rest focused on so-called owned and earned media costs such as website operations and social-media marketing.
Even so, the figure suggests P&G is ahead of its peers. The estimated $1.2 billion to $1.7 billion in P&G digital spending comes out to 3.8% to 5.6% of its U.S. sales. That compares to 2.8% of sales spent on digital marketing reported by manufacturers in the survey.