The savings plan costs Interpublic Group of Cos.' McCann-Erickson Worldwide and Lowe & Partners-SMS shops, both New York, as well as independent Genova, Hartwick & Juliano, Greenwich, Conn. All are dropped from Colgate's roster.
The beneficiaries: longtime agencies Young & Rubicam, New York, and Foote, Cone & Belding, Chicago, with Y&R adding an estimated $120 million globally to its current $200 million and FCB/Leber Katz Partners, New York, adding $30 million to its U.S. billings alone.
Colgate's plan to increase 1994 spending, including a 30% increase in the U.S., is being applauded by Wall Street analysts.
The company spent $88.8 million in measured media in 1993, according to Competitive Media Reporting, off 8.2% from the previous year.
"Colgate's U.S. business is in a shambles," said PaineWebber analyst Andrew Shore. "They have to ... move more to advertising and away from heavy promotion. About 50% of their business is now value pricing."
"They're not growing as much as they should be in the U.S. Their market shares in many categories, including toothpastes, were very weak in 1993," said JP Morgan analyst Heather Hay (See story above). "Fortunately they have had international to offset it [the U.S]. But, they have to be more aggressive here."
She said only 35.8% of Colgate's $7 billion in sales in 1992 and just 40.8% of its operating profits were generated domestically.
The old agency structure "was too costly and too wasteful," a Colgate spokesman said, noting that cutting waste has been a priority for Chairman Reuben Mark.
"There was waste on production and we paid too much for too many different campaigns," he said."
With the consolidation, Colgate is shifting from fixed-fee compensation to a variable, four-tiered pay-for-performance formula. It includes a fixed component, a sliding fee based on Colgate corporate performance, another sliding fee for each agency's global performance and a bonus for "extraordinary" work.
Colgate would not reveal specifics, which agencies said are still being negotiated. In the past, agencies said, compensation has been set at about 12%; a Colgate spokesman denied it. The realignment restores Colgate to a two-agency system for the first time since the early 1990s acquisitions of Murphy's Oil Soap, which brought on board Genova, and Mennen Co., which added McCann and Lowe. McCann also is a Unilever and L'Oreal agency, and that may have helped the Colgate decision.
Various agency network offices worldwide will be assigned campaigns, with the winner's adopted globally.
In the U.S., a lack of advertising strength and new-product activity has led at least one analyst to label Colgate "a second-tier" company.
In the declining $2.5 billion powdered detergent category, Procter & Gamble Co. and Dial Corp. each managed share gains in 1993 while Colgate's share dropped to 4.5% from 6.7%, Mr. Shore said. News wasn't any better in the antiperspirant/deodorant category, where Colgate's share dropped to 14% from 15.4%.
Some retail executives and analysts believe Colgate and P&G will try to introduce Triclosan-based toothpastes in the U.S. by yearend. The antibacterial agent marketed by Ciba-Geigy Corp. is commonly used in body-care products, but in the U.S. has not yet been approved by the Food & Drug Administration for oral care. Colgate already markets Triclosan-based Total toothpaste overseas.
The launch would be significant for Y&R, which with the realignment is Colgate's worldwide agency for all oral-care and personal-care advertising, including bar soaps. FCB takes responsibility for all household products and Mennen Co. brands.