Procter & Gamble Co. is the U.S.'s largest ad spender—and now it's embarking on a major review of how it measures the impact of that $5 billion-plus annual outlay.
The move comes only two years after adopting a new system for measuring return on marketing investment and amid investor pressure for the world's biggest advertiser to get more bang for its marketing bucks.
Two years ago, P&G consolidated marketing-mix-modeling efforts with Nielsen and brought on DemandTec, an IBM company that worked with Nielsen to deliver monthly ROI reports supplementing the annual or quarterly analyses the company used in the past. P&G scrapped DemandTec after getting readings that varied widely month to month and sometimes didn't gibe with analyses by Nielsen and others, according to people familiar with the matter. (P&G and Nielsen declined to comment.)
The U.S.-focused review looks to try something beyond the marketing-mix modeling P&G and many others have for years used to judge marketing efficacy. According to people familiar with the matter, P&G has been talking to MarketShare Partners, ThinkVine and Marketing Evolution, all of which at least in part use approaches other than marketing-mix modeling.
The effort aims to better capture impact of digital media—including social and search—and explain sales trends P&G's models sometimes can't. The idea is to start relatively small—with five brands—then expand to as many as 20 before rolling out any system companywide.
The impact could be huge. P&G spent $2.8 billion last year in U.S. measured media, according to Kantar Media, but ROI models also cover broader spending, including another $3 billion to $4 billion in trade and consumer promotion.
While P&G's measured spending fell 5% last year, according to Kantar, the company plans to hike spending this quarter and through the balance of the fiscal year ending June 30, Chairman-CEO Bob McDonald said last month. Globally, P&G's reported $9.4 billion in ad spending last year, which was up 25% in three years.
But P&G's organic sales growth continued to lag behind Unilever, L'Oreal and Colgate-Palmolive Co. last quarter. Hedge-fund manager and P&G investor Bill Ackman said at an investor conference earlier this month that Mr. McDonald may need to go if P&G's results, including the top line, don't improve within three quarters.
Sanford C. Bernstein analyst Ali Dibadj said P&G is under pressure to improve the impact of its marketing spending because investors are questioning whether it can improve its top-line growth. "The question is no longer can they cut costs ... but as they're spending more and more money, it doesn't look like they're helping the top line."
But P&G Chief Financial Officer Jon Moeller at a Goldman Sachs conference May 14 pointed to steady improvement in market-share trends in the U.S. and globally in recent quarters and predicted better things still from coming product launches.
Leading the ROI review is Patrick McGraw, P&G's director of consumer and market knowledge. He also directed the effort two years ago to consolidate work with Nielsen and DemandTec, according to people familiar with the matter.
Marketing-mix modeling has always had critics, but is getting increased scrutiny. CBS Chief Research Officer David Poltrack has been leading a Council for Research Excellence examination of issues surrounding use of the models and plans to push the Advertising Research Foundation, which he chairs, to launch a quality inquiry into the models.
A P&G spokesman said the company "anticipates some industry analysis on marketing-mix models in the coming weeks" from the CRE and ARF, and after that "we'll consider if there's anything we would say publicly." But he declined to comment on relationships with individual suppliers.