J&J split could give consumer marketers badly needed freedom

Johnson & Johnson’s breakup—which will separate such consumer brands as Tylenol, Neutrogena and Listerine from the pharmaceutical and medical device businesses—will give some much-needed freedom to consumer marketers who long toiled in the shadows of a much bigger health care company, say company veterans. J&J announced the move on Friday to separate the J&J consumer business as a standalone publicly traded company, but that won’t be final for 18 to 24 months. That will leave time to determine, among other things, who will lead the consumer business and what it will be called. The pharma and device business, which will retain the Johnson & Johnson name, will be led by Joaquin Duato, set to take over from Alex Gorsky as CEO next year. Subscribe to Ad Age now for the latest industry news and analysis. As it stands, the consumer business doesn’t share much marketing operation overlap with the broader Johnson & Johnson, whose pharmaceutical and medical device brands are marketed primarily business-to-business through doctors and health institutions. While pharmaceuticals and devices accounted for 83% of J&J’s $82.5 billion in revenue last year, they accounted for only 22% of media spending—or $151 million—according to Kantar. Almost all of that came on three brands—Xarelto, Stelara and Tremfya. The consumer business, with 17% of revenue, or $14 billion, accounted for 78% of media spending ($543 million), per Kantar. While pharma and medical devices get considerable unmeasured spending, the media breakdown helps illustrate how little the biggest part of J&J business focuses on direct-to-consumer marketing. One area of overlap is media buying, where Interpublic’s J3 unit handles all of J&J, the 30th largest U.S. advertiser with $1.4 billion in all-in spending, according to the Ad Age Datacenter. The pharmaceutical brands that do media advertising do benefit from the scale that the larger J&J consumer media budget brings, said one former J&J executive. But margins on the pharma business are so much higher, and media spending so much lower as a percentage of sales, that the effect will be hard to notice, the executive said. On a conference call with analysts, Gorsky and Duato said separating the businesses would improve focus for both, and former executives agree. The consumer business historically has gotten little attention from investors unless something went wrong, such as big judgments in recent years in lawsuits alleging talc in Johnson's-branded baby powder caused ovarian cancer in women. Veterans of J&J, who asked to speak not for attribution, said the consumer business has operated largely independently, but was still held back in some ways by being part of the larger business. Within J&J, the role of the consumer business financially was to provide some predictability and stability, but that in turn made it less likely brands would get the green light for riskier ventures, said one former executive. The separation, he said, potentially “unleashes the company to go where the consumer has gone—much stronger on omni-channel, much stronger on digital health.” “I think the consumer company is definitely held back in its ability to really compete with other consumer companies,” said another former J&J executive. Pharmaceutical practices and protocols “led to a lot of over-engineering of just standard business practices,” she said. The mindset of being a “consumer health care company,” a phrase Gorsky used in a conference call with analysts Friday, doesn’t fully fit a business that’s only about a third made up of over-the-counter drugs, with another third being beauty brands and another third being baby or self-care brands such as Band-Aid that don’t neatly fit in either category. “Everything was seen from a health lens,” said the former executive. “And I think that that limited some of the positioning and the potential, particularly at the beauty brands like Neutrogena.” That brand, based in Los Angeles, and the more recently acquired OGX personal care brands based in Florida, have tended to be more innovative in such areas as new products, use of influencers and quick-cycle content, the executives said, and distance from the corporate center probably helped. Register for Ad Age Next: CMO at AdAge.com/NextCMO. One area where there was synergy between the b-to-b focused core heath business and the consumer business was corporate marketing, where people who came from the consumer side of the business have tended to work. The corporate marketing effort, led by BBDO on the agency side, is an area where J&J has maintained generally strong reputation rankings in recent years despite a series of negative reports including the talc lawsuits, litigation over the company’s role in opioid addiction, lawsuits over side effects of the antipsychotic drug Risperdal, and product defect allegations over surgical mesh. But the breakup raises questions about how corporate branding will work in the future. The Johnson & Johnson name will stay with the core pharma/device company. But many of the consumer brands most closely associated with it over the years—including Johnson’s Baby, Tylenol and Band-Aid—will be part of the new, yet-to-be-named company. Also to be determined is how the spit will affect agency relationships, including for BBDO's corporate work and Interpublic’s media account.

J&J split could give consumer marketers badly needed freedom

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