Marketers Must Adhere to Single Ad-Spending Standard

An Ad Age Editorial

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When Procter & Gamble Co. recently said it would increase ad spending, it wasn't kidding. It boosted spending not only for 2007, but also for 2006, 2005, 2003, 2002 and 2001.

This isn't new spending, of course. It's a new definition, found in restated P&G financial statements going back 11 years. And while P&G has been among the most forthright and conservative companies in how it defines and reports ad spending, the fact that it's changed definitions twice in six years is a sign of what's wrong with public accounting for ad expenditures.

Investors have come to watch ad spending closely for marketing-intensive companies such as P&G, and rightly so. P&G's ad spending has been highly correlated with organic sales growth. Regardless of whether the ad spending causes the growth or vice versa, it's an important number for investors to know. A high and stable or rising ad-to-sales ratio is one sign of a healthy company that doesn't need to cut marketing to make quarterly earnings numbers.

But P&G and its competitors are all over the board on how they account for ad spending, according to Sanford C. Bernstein. At the most conservative end, Kimberly-Clark Corp.'s ad spending number is almost entirely media. Colgate-Palmolive Co., on the other hand, piles almost anything marketing-related into its number, about 15% of which comes from sales calls on dentists, according to Bernstein.

P&G's latest restatement came from taking out something many investors probably never suspected was there -- marketer salaries -- and adding something that probably should have been there all along -- in-store advertising paid to third-party vendors (not retailers).

U.S. public companies have been required since 1993 to disclose ad costs if the expense is material. But marketers aren't required to follow any common definition or even use the same definition year after year. That makes the numbers largely meaningless.

The American Institute of Certified Public Accountants and the Financial Accounting Standards Board, which regulate such matters, may have weightier issues to tackle. But investors in marketing-intensive industries deserve ad spending numbers that count.

In an increasingly complex marketing world, the ad-spending number should be comprehensive to catch true marketing outlays wherever they occur.
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