Employing actuaries' system: P&G tests risk model

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Procter & Gamble Co. is adopting, throughout its $3.8 billion global marketing budget, an analytical business model forged in Argentina that applies loss analysis commonly used by insurance actuaries and risk-management specialists to its marketing budgets.

Last year in Argentina, P&G's marketing executives found themselves facing both a struggling economy and the sudden need to match a 30% price cut in laundry detergents by rival Unilever. To slash costs quickly, the team turned to counterparts in product supply within the company's manufacturing, engineering and logistics operation. Jim McGinnis, marketing director for fabric and home care in Argentina, described the process as "marketing marrying product supply for money."

Internally dubbed FIRE, for "Fueling Investment via Reallocation of Expenses," the software program helped P&G trim $13 million in wasted marketing expenses, or 33% of its marketing budget for laundry detergent in Argentina during the fiscal year ended June 30. Of that amount, $4 million was re-invested in extra weeks of advertising and sampling of Ariel detergent. Company-wide, FIRE has now saved $80 million, of which more than $20 million has been re-invested in advertising, said Bruce Byrnes, P&G co-chairman and president, global health and beauty.

"To me it was a very creative reapplication of a new expertise we have in another area," said P&G Global Marketing Officer Jim Stengel. "We saved a lot of money and had better consumer impact, which is beautiful."

Mr. Stengel believes the new analytical tool will apply broadly to P&G's global business. "As much as we try to be efficient, there's waste in every system," he said. Already, the idea has been used to carve 50% off the cost of sampling for Head & Shoulders and Pantene hair care products in the U.S. by eliminating the least-promising target households. "We're talking about millions of dollars we've saved," he said.

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