'Broken' Ad Model Holds Big Advantages for P&G

Traditional Media-Buying Practices Boost Giant's Sales

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BATAVIA, Ohio (AdAge.com) -- Procter & Gamble Co. Global Marketing Officer Jim Stengel once famously declared that "today's marketing model is broken."
Despite its top executives' frequent public speeches about a broken ad model, P&G remains heavily dependent on that traditional marketing model.
Despite its top executives' frequent public speeches about a broken ad model, P&G remains heavily dependent on that traditional marketing model.

Old model
So why, three years after that declaration, is the old model still working so well for P&G, which has been on a sales-growth tear built on record ad spending in the U.S.?

The answer is mainly that P&G is uniquely situated to benefit from today's marketing model because it uses its operating efficiency and unmatched clout as the world's biggest marketer to massively outspend its rivals and meticulously measure everything it does, so it knows what's working. And the brand and marketing managers who ultimately make the decisions regarding P&G's media spending (Mr. Stengel isn't among them) continue to ply that advantage ruthlessly.

4A's speech
Last week Mr. Stengel trumpeted a shift to a new era of relationship-building communications at the American Association of Advertising Agencies' Media Conference, saying, "It's not about telling and selling." But the reality is that P&G continues to do plenty of both successfully.

Last year, P&G spent about $3.5 billion on measured media in the U.S., according to data from TNS Media Intelligence. That is up about 17% from the $3 billion it spent in 2004, the last time Mr. Stengel took the assembled media world to task for the decline of advertising effectiveness. P&G's sales last quarter were up a healthy 7.6% to $23 billion.

Of course, a lot of that media spending was around relationship-building themes, which have become increasingly common in P&G advertising in recent years -- Dawn dish detergent shows how it saves ducks slimed by oil slicks, and Pantene shampoo asks people to cut off locks of their hair to use in wigs for cancer patients.

Telling and selling
But plenty of old-fashioned telling and selling remains in the mix too, such as ads touting the efficacy of Olay Definity anti-aging products or Head & Shoulders Intensive Treatments shampoo, which have helped lift both brands to double-digit sales gains in recent years.

P&G's executives have a habit of making powerful speeches chronicling the decline of traditional marketing. But its brands still have a habit of loading up on gross ratings points like no one else, and generally outspend their rivals in measured media by margins of two-to-one or more.

It all leads some competitors to wonder aloud if Mr. Stengel and his boss, Chairman-CEO A.G. Lafley, aren't engaging in a bit of disinformation each time they make new pronouncements on the future of marketing.

The reality likely isn't so Machiavellian. The brand managers, marketing directors and general managers who pull the trigger on P&G's massive media budgets get rewarded for doing what works today. And for the most part, that remains TV -- particularly as P&G has invested more heavily in recent years in marketing-mix modeling and other analytics to ensure every dollar gets spent optimally.

Anticipating the future
But Messrs. Stengel and Lafley also get paid to anticipate what's going to work in the future. So while no other marketer in any major sector has a bigger spending edge on its rivals, P&G also has far more to lose than anyone else from the marketing model's decline.

It can afford its big spending edge on traditional media today in part thanks to its superior scale as the first $80 billion consumer-products company and in part because it's the low-cost producer in many of its categories. In its main competitive set, only Colgate-Palmolive Co. boasts similar operating margins. But media spending for P&G's Crest regularly totals more than twice what Colgate spends on all of its brands combined. Colgate has remained competitive in part because its huge edge in Latin America has translated into a major advantage in the fastest-growing U.S. demographic: Hispanics.

When traditional media truly begin to fail P&G's brands, they'll be the first to know. All that clout and efficiency also pays for the biggest market-research budget in the world. Each of P&G's top 20 brands gets not one but three reports of brand health quarterly -- sometimes more -- including survey research, P&G's version of the net promoter score and syndicated market-share data. Some of its competitors make due with only the latter.

And so far, all that data is leading P&G's brands to keep spending on traditional media like there's no tomorrow.
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