Category ad spending fell 29% collectively to $54.4 million during the industry's critical fourth quarter from a year ago, according to Taylor Nelson Sofres' CMR. Those cuts came despite well-publicized campaigns from Omnicom Group siblings BBDO Worldwide, New York, for Duracell, and TBWA/Chiat Day, Playa del Rey, Calif., for Energizer.
Shift in spending
The shift from media advertising to trade promotion comes despite a vow last June by James Kilts, chairman-CEO of category leader Gillette Co., to do the opposite. A spokeswoman for Gillette's Duracell did not dispute that the brand has cut ad spending while increasing promotion. But she added that, companywide, Gillette increased ad spending 17% last quarter to $137 million, while corporate ad spending as a percent of sales rose to 7.9% from 7.2% a year ago. She said Duracell has stepped up promotion in response to steep deals started in 1999 by its rivals.
In a conference call
"That $40 million plus much more went into this promotional war. ... That's not something we are particularly proud of endorsing," he said.
Duracell led spending declines with a 38% cut to $16 million in measured media. As a result, the leader was outspent almost 2 to 1 by No. 2 Energizer, though the bunny also got a 31% haircut to $30.7 million. Distant No. 3 player and value brand Rayovac, which made the least noise with ads, actually increased fourth-quarter ad spending 33% to $7.7 million.
While hard to quantify, category price promotion is rising both in frequency and depth, said Andrew Shore, analyst with Deutsche Bank Securities. Last spring, he predicted Duracell would cut prices to gain share on its more-vulnerable, battery-dependent rivals. Gillette denied that and publicized a $100 million marketing effort, including the first ad support in four years for the Duracell Copper Top base brand.
But following fourth-quarter ad cuts, Duracell spent so much on price promotion last quarter -- the industry's off season -- that it lost $1 million on sales of $322 million. Despite a 6% gain in unit volume, dollar sales fell 3%. Foreign-currency effects caused two of the nine-point spread, as promotion combined with a sales shift to the lower-priced Copper Top from the premium Ultra caused the rest, the company said.
Rayovac Corp. and Energizer Holdings both increased profits last quarter on ad and other cost cuts despite dollar sales declines. Rayovac said it increased trade promotion spending only 1%, while Energizer said it spent smarter, but not necessarily more.
Big three promise new ads
Rayovac's Mr. Jones and other category players are girding for more ad-sapping promotions, though all three players promise new ads later this year.
Energizer President Patrick Mannix said on a conference call the brand will break an execution this month in its "Do You Have the Bunny Inside?" campaign. But he said Energizer has cut spending by combining efforts for the base Energizer Max with superpremium e2.
Duracell, now off air, will have new TV ads this year, the spokeswoman said, though she wouldn't say when or how much.
Mr. Jones projected a slight rise in ad outlays from last year behind Rayovac Maximum Plus alkaline batteries, though Rayovac last quarter cut what little off-season media spending it does by $1.5 million to almost nothing. Despite shipping Maximum Plus to retailers last month, Rayovac won't likely start TV ads from Condon & Root, Barrington, Ill., until the fourth quarter, when 40% of batteries are sold, said John Daggett, director of creative services for Rayovac.
No Michael Jordan
For the first time in seven years, Rayovac won't use Mr. Jordan, but Mr. Daggett said the move was motivated by Rayovac's desire to focus on the product and Mr. Jordan's previously stated interest in scaling back endorsements.