100 LEADING NATIONAL ADVERTISERS

Procter & Gamble surges past General Motors to grab top spot as Leaders' advertising slows to $101.31 bil amid heavy M&A activity

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Procter & Gamble Co. rode the acquisition of Gillette Co. to become the nation's largest advertiser in 2005, spending $4.61 billion in all forms of advertising and promotion to outdistance runner-up General Motors Corp. at $4.35 billion.

The heady spending by the two ad juggernauts-marking the first time the $4 billion ad barrier has been cracked-claimed almost 9% of the 100 National Advertisers' total U.S. spending of $101.31 billion in 2005, up only 1.3%, according to Advertising Age's 51st annual 100 Leading National Advertisers Report.

That narrow nudge in overall spending-even lower than the 2.6% gain recorded in 2002 when the top 100 led national spending out of the recession-was a byproduct of the odd-year ad cycle that lacked an Olympics or a major U.S. election, heavy industry consolidation among some of the nation's biggest marketers and the shifting of ad dollars from traditional media into less expensive new media and below-the-line forms of advertising.

The top 100 felt the impact of these issues even more so than other U.S. advertisers, whose overall spending grew an estimated 3.7%. The top 100's 1.3% ad uptick broke down into 0.9% growth in media and a 1.7% advance in unmeasured forms of advertising that includes direct marketing, sales and trade promotions, event and sports marketing, and the like. The top 100 as a result fell to 37.4% of the nation's ad total in 2005 from 37.9% in 2004.

As anticipated, a turnabout occurred in national ad expenditures in first quarter 2006, a period enhanced by the Winter Olympics. Media in the quarter grew 5% over the prior-year period, according to TNS Media Intelligence. Political advertising in congressional races during the summer and fall is expected to hold media growth to that pace for the full year, according to various industry prognostications.

P&G advertising was a "casualty" of the heavy merger activity affecting the top 100 in 2005. Marketers typically cut back on ad spending when faced with heavy costs of mergers. Indeed, P&G advertising dropped 3.7% as it spent a good part of 2005 working Gillette, ranked No. 41 in 2004's top 100, into its marketing plans.

Other high-profile M&A activity: No. 4 Verizon Communications bought MCI; SBC Communications Corp. bought AT&T Corp. and renamed itself (No. 5) AT&T; Sprint Corp. and Nextel Communications merged to form No. 16 Sprint Nextel Corp.; No. 19 Viacom became a repository of the cable and entertainment operations of the old Viacom but with newly acquired DreamWorks SKG; and No. 23 Federated Department Stores acquired May Department Stores.

Ad Age methodology accentuates this merger miasma in advertising by consolidating for two consecutive full-year periods the ad spending associated with megabrands that remain with the acquirer.

P&G's big brands lose ad volume

Three of P&G's top five megabrands registered heavy declines in measured media in 2005, led by Crest, down 14%; Gillette razors and blades, down 9.4%; and Gillette's Oral B, down 15%. Olay, P&G's top megabrand in ad spending, and Pantene continued to grow, up 34% and 5.9% in ad spending, respectively, among these five. In its next spending tier, P&G took huge media chunks out of Clairol, down 45.4%, and Mr. Clean, down 43.2%.

GM grew 7.1% in total advertising, though cut media for top megabrand Chevrolet by 3.4% to $876.6 million.

No top 100 category registered growth of more than 3% except for financial, up 12.8%, thanks to 43% growth at No. 33 American Express Co., whose charge cards were issued by banks in 2005, their first full year in that venue, and 36.4% growth for No. 82 JP Morgan Chase & Co., which ramped up brand spending after folding Bank One into its operations in 2004.

The entertainment & media segment grew only 1.1% to $12.55 billion in total advertising among seven Leaders, $4.85 billion of that in media, down 2.5%. These Leaders accounted for 83% of U.S. market share among the top 10 studios (see chart above).

The nine-Leader automotive category hit $15.04 billion in collective ad spending, up 0.1%, to account for 15% of the top 100 total. Needless to say, the category played a major part in the ad swings of a number of media.

Spot TV among all advertisers fell 8.9% to $17.12 billion, largely from lacking the biennial wave of political advertising. Yet, among the top 100, spot TV plunged 17.1% to $5.34 billion, and 17.7% from the auto category. Those nine Leaders accounted for 40% of the top 100 spot TV.

Part of that dropoff can be written off to a shift in spending responsibility from manufacturer to dealer who presumably knows best which models to move in a local market and what competitors are doing price-wise. No. 6 Ford Motor Co. handled national buys for a handful of key models in 2005, leaving the rest to dealers. No. 10 DaimlerChrysler is following suit this year.

Auto discounts buoy dailies

The industry's need to move models out of the showrooms also boosted auto's newspaper tally 15.6%, while newspapers for all advertisers grew only 1.5% to $25.54 billion. The nine Leaders, spending just short of $1 billion in newspapers, used the medium to push incentives in 2005, from GM's heavy summer discounts to the copycat responses from Ford and DaimlerChrysler.

No doubt some monies from traditional media were diverted into other hotter media such as cable TV networks, up 14.9% from the auto category and 11% from all advertisers, and internet, up 21.3% from autos vs. 13.3% from all advertisers.

Even more sluggish than autos among the top 100 categories were telecom, down 3.6% in total ad spending; food, down 0.6%; and drugs, down 0.5%. The ad slowdown in drugs, the second-largest category at $13.79 billion in advertising, was the result of pharma's need to self-regulate in 2005, thereby staving off government efforts to regulate advertising. Consumer groups have held advertising responsible for the increased cost of drugs and with pressuring doctors to over-prescribe them.
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