Advertisers Ready for Age of Austerity

P&G, GM, Coke, Nissan and A-B Look to Tighten Their Belts

By Published on .

BATAVIA, Ohio ( -- Here come the cuts.

Amid roiling financial markets, a who's who of blue-chip marketers are making moves to slash marketing spending, or at least apply tougher financial discipline to what they do spend. Among them are five major companies that together contribute more than $10 billion to the U.S. ad economy: General Motors Corp., Procter & Gamble Co., Anheuser-Busch, Coca-Cola Co. and Nissan.

The biggest of them all -- P&G -- last week appointed as its new Global Marketing Officer Marc Pritchard, who spent eight years in finance compared with only six in brand management and marketing. The new steward of P&G's reported $7.9 billion global ad budget has spent the past two years developing corporate cost-cutting initiatives and before that was known by marketing executives who worked with him for his keen eye on spending.

The country's No. 2 advertiser, AT&T, meanwhile, is in a period of transition as its marketing chief, Wendy Clark, departs the company, leaving a question mark about how her successor will manage its massive $3.2 billion budget.

Its new top marketing executive, Marc Pritchard, has spent the past two years developing corporate costcutting initiatives and is known for keeping a keen eye on spending.

The automaker has already slashed its measured-media spending nearly $1 billion from 2005 to 2007 and is looking to cut more and shift more dollars to digital amid a round of restructuring.

Wants to save between $400 million and $500 million a year by the end of 2011 and is looking to wring some of that from marketing. It will use global campaigns and "optimize" shops.

Though the company wouldn't comment, execs said it is trimming $100 million from its ad spending in the fiscal year that started April 1 to meet an aggressive profit target set by CEO Carlos Ghosn.

Historically frugal InBev's $52 billion buyout of free-spending beer marketer A-B has agencies girding for a pullback on its $1.3 billion budget -- even as the acquirer denies it.

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Two rungs down at No. 4, struggling automotive giant General Motors, which already cut its measured media spending nearly $1 billion from 2005 to 2007, is looking to cut more and shift more dollars to digital amid a new round of restructuring.

Auto slowdown
Others in the auto industry, the biggest ad-spending category behind retail in the U.S., appear to be following GM's lead as it adjusts to one of the slowest sales years in recent history and to Americans' quick shift to smaller, more-fuel-efficient vehicles.

Nissan North America is trimming $100 million from its ad spending this fiscal year that started April 1 to help meet an aggressive profit target set by Nissan Motor Co. CEO Carlos Ghosn, according to two former executives. The ad dollars are being moved to the incentives bucket, needed to move big trucks out of showrooms, they said. A Nissan spokesman declined comment.

Meanwhile, Coca-Cola wants to save between $400 million and $500 million a year by the end of 2011 and wants to find some of those savings in marketing.

In a second-quarter earnings call with analysts July 17, newly minted Coca-Cola CEO Muhtar Kent said as the company undergoes an aggressive review of spending, marketing will be a primary area of focus.

The company will look to reduce "nonconsumer-facing" programs through global campaigns. It will also leverage best practices for creative and overall execution, as well as optimize its use of agencies. As an example, Mr. Kent said Coca-Cola recently completed a global marketing research agreement that will replace a number of local agreements.

"Our objective is to reinvest marketing efficiencies ... that we realize into efficient brand-building activities to drive the long-term health of our business," he said.

More direct-marketing
Coca-Cola Exec VP-Chief Financial Officer Gary Fayard said that given the economy, the company is maintaining a "disciplined" approach to marketing. That entails an increase in total direct-marketing spending vs. planned spending, as well as reallocation of funds against certain geographies to drive growth.

The soft-drink giant's strategy to reduce costs through increased use of global campaigns is an approach similar to that outlined by Unilever Chief Financial Officer Jim Lawrence earlier this year.

Historically frugal InBev's $52 billion buyout of free-spending American beer marketer Anheuser-Busch also has agencies girding for a possible spending pullback. And some A-B agency executives said they simply don't see how InBev's philosophy of zero-based budgeting can mesh with A-B's prolific approach to brand marketing.

While package-goods companies broadly have been talking about cutting overhead to maintain marketing spending, managers at analytics firms say the companies also have been actively testing models to project how successfully they can raise prices without losing out to private labels -- and the impact of shifting funds from media advertising to trade promotion and other areas of shopper marketing.

A combination of a hard times and internal austerity measures often has meant a back-to-basics movement for P&G and others -- and quite possibly a resistance to any experimental marketing that doesn't have proven ROI.

Lafley's example
After Chairman-CEO A.G. Lafley took over P&G amid earnings misses and a looming recession in 2000, he cut back interactive efforts and abandoned hundreds of URLs it had accumulated. P&G also ramped up couponing and, in some cases, trade promotion.

But at P&G, at least, it's far from certain any of that will play out again. Mr. Pritchard, while a financial disciplinarian, has also been a champion of interactive media at times.

And even as GM expanded its restructuring last week, VP-North American Sales, Service and Marketing Mark LaNeve told Advertising Age sibling Automotive News the company is looking at "getting better at digital" advertising in addition to "big savings."

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Contributing: Jean Halliday, Jeremy Mullman and Natalie Zmuda

Finance execs cut path to power

A new group has steadily been taking charge at Procter & Gamble in recent months: the finance guys.

Brand management was once the nearly exclusive path to power at the iconic marketer, and even managers who started in other functions had to spend time there before making it to general management. That included new Global Marketing Officer Marc Pritchard, despite his finance-heavy résumé.

But P&G has appointed three new managers since the beginning of the year who had spent all or the vast majority of their careers in finance and now collectively oversee nine of the company's 24 billion-dollar brands.

They include two former treasurers of P&G who've taken over struggling business units targeted for cost reductions: John Goodwin, president of snacks and pet care, and Juan Pedro Hernandez, who recently became president of the Braun unit.

For Mr. Goodwin, it's his first general-management assignment after a career in finance, and for Mr. Hernandez, the move came after a career in finance and four years as general manager overseeing Spain and Portugal. Ed Shirley, appointed last month as vice chair of global beauty and grooming, spent his first 10 years as a finance manager of Gillette before moving into general and sales management there and later at P&G. He did spend two years as senior VP over Gillette's logistics and marketing-services organization, where he oversaw a global media review. But he was never a brand or product manager.

Mr. Shirley's appointment came after P&G's beauty business delivered only 3% organic sales growth despite a double-digit hike in U.S. ad spending on the business in the calendar first quarter.

It's not clear the rise of finance will mean the fall of marketing budgets broadly, analysts say. So far, P&G executives have said they plan to focus on other areas of overhead while maintaining spending at near historical levels. And analysts say investors will likely punish the stock if earnings come at the expense of ad spending.
-- Jack Neff

Pain may trickle down to sports

Source: Sports Business Journal

The specter of marketing cuts by the likes of General Motors, Coca-Cola, Nissan and Anheuser-Busch is no doubt causing headaches for ad salespeople everywhere, but nowhere is more aspirin being popped than among sports leagues and teams where these companies rank as some of the largest spenders.

"It has a ripple effect," said Marc Ganis, president of Chicago consultancy SportsCorp. "It softens the ability to increase prices, and more inventory becomes available. ... It's not easy to find replacement sponsors willing to do a major expansion in an economy like this."

GM, which said last week it would pare down its mammoth marketing budget due to economic conditions in the U.S., is the sports world's biggest spender, with four brands in the top 50, according to an analysis by Sports Business Journal. Anheuser-Busch -- whose new owner, InBev, is renowned for cost cutting -- is the second-largest spender.

Nissan is No. 8, and Coca-Cola, which was named the best-loved brand by sports fans last years in a survey by Turnkey Sports, is No. 15.

Executives at the major sports leagues said major cuts by their largest sponsors were a concern, but they also expressed confidence that they'd see fewer cutbacks than other media from those marketers.

"When it's all said and done, I think sports will be hit the least," said Keith Wachtel, the National Hockey League's senior VP-corporate sales and marketing and a former business-development executive at the National Football League. "You generally find other categories and other marketers who'll step up."
-- Jeremy Mullman
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