Package Goods Giant to Shift Budget to Promotions

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CINCINNATI ( -- Clorox Co. cut ad spending 4.5% to $106 million in its fiscal first quarter, ended Sept. 30, and will likely make similar cuts throughout the year as it shifts money to trade promotion, the company reported today.

In August, Clorox said ad spending would

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be flat in fiscal 2004 after two consecutive years of double-digit growth. The cuts came following marketing analyses that showed some brands in some competitive situations respond better to trade promotion than advertising, said President-CEO Jerry Johnston, who added that at 10.1% of sales, Clorox's ad spending is still stronger than most package-goods companies.

Bleach and charcoal brands
Some brands to benefit from the spending shift include flagship Clorox bleach and Kingsford Charcoal. Omnicom Group's DDB Worldwide, San Francisco, handles Clorox.

Speaking in a conference call with analysts, Mr. Johnston denied the shift was caused by weak sales growth and lower margins, which were squeezed by rising raw material costs.

Clorox sales were flat for the quarter at $1.05 billion, up 1% excluding impact of divestitures, as net earnings fell 11% to $129 million or 60 cents a share. Clorox had indicated earlier this year that earnings would be off due to comparisions to a strong quarter a year ago and costs associated with 14 new product launches, led by Glad Press & Seal wrap and Clorox Bleach pen.

Slotting fees (fees package goods companies pay to retailers to get shelf space) and other trade promotions behind those launches helped depress sales in the quarter, Mr. Johnston said.

"I don't think it's a change in mindset," he said of the shift from ad to promotion spending. "We simply are going to use this [marketing mix] tool we have to say where do we get the most incremental volume for the spending."

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