P&G poised to rewrite ad agency pay policies

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Procter & Gamble Co. will make adjustments to its agency compensation policy, and more could follow as the package goods giant prepares to examine a number of issues, possibly even its strict conflict policy.

Among P&G agencies, compensation already is a hot issue because of the consolidation of $1.2 billion in TV buying and planning at MacManus Group's TeleVest, New York.

Agency executives expect P&G's 13% to 15% commissions to be cut by at least 1 or 2 percentage points in coming weeks.

`A WRENCHING THING'

"The loss of media planning is going to be a wrenching thing for agencies," said a former P&G agency executive.

One current P&G shop executive added: "Agencies are not thrilled. They are expecting a significant impact."

Over the longer term, agencies anticipate a second compensation adjustment, with P&G expected to look at proposals including a fee-plus-incentive arrangement.

P&G spokeswoman confirmed the compensation considerations, but noted "there are two things happening. They are not part of a single process, but both have implications for the agency process."

The first is purely related to the AOR shift. "Now that we have consolidated to a single agency of record [for TV], it makes sense ... to compensate the agency of record now doing that work," she said.

DIFFERENT NEEDS

The other significant aspect of future changes is the marketer's strong belief that consumers increasingly are drawing a distinction between buying for a predictable need and shopping for something special.

P&G foresees an explosion in direct home-delivery of consumer goods.

Last week, P&G North America President Wolfgang C. Berndt told the Advertising Women of New York that time-starved consumers are looking to buy basic products as "quickly and easily and simply as possible, in the store, on the Web, whatever."

Mr. Berndt's speech is viewed as an indicator of the company's commitment to addressing direct home-delivery of products such as toothpaste and toilet paper.

P&G is testing programs with three such services: the Boston-area-based Homeruns and Streamline; and Peapod, with service in Chicago; Boston; Columbus, Ohio; San Francisco/San Jose; and Houston, Dallas and Austin, Texas.

Peapod generated $58.7 million in 1997 sales and has a client list that also includes Kraft Foods, Frito-Lay, Gillette Co. and Colgate-Palmolive.

Andersen Consulting forecasts that home delivery of basic products will be an $85 billion business within 10 years, or more than 20% of the $400 billion in annual food-store sales, with a 20% to 25% household penetration.

`NO SACRED COWS'

Related to this, as part of P&G's Agency Relationship Renewal plan set up in November, is a goal to "work closely with each agency to look at how we can work together" to deliver brand-building advertising in a variety of media in the future.

"There are no sacred cows," said the P&G spokeswoman, adding "the question has to be asked if there is a reward for developing direct-to-consumer or interactive messages, or is there a bias built in" favoring more traditional media?

It is this plan that could lead to a re-examination of the marketer's strict client-conflict policy for its agency, in addition to commission-based compensation.

Contributing: Laura Petrecca, Chuck Ross

Copyright February 1998, Crain Communications Inc.

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