Media shifts likely as P&G cuts to core

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The swift departure of Durk Jager and ascent of A.G. Lafley to the helm at Procter & Gamble Co. could signal an equally dramatic shift in marketing direction for the nation's No. 2 advertiser.

The likely impact: a more stringent focus on older, core brands; a tempered pace of new brand rollouts; and an even faster migration from TV to print and other more targeted media. Other expected changes to the marketer's massive $2.65 billion budget may be a greater emphasis on multicultural and teen marketing as well as an increasing reliance on major retailers not just to distribute but also to advertise P&G brands.


"Every bean is going to be counted again," said Andrew Shore, analyst with Deutsche Banc Alex. Brown. "If anything, they may make the mistake of going too far in the other direction."

Mr. Lafley becomes president-CEO after more than a year as president of P&G's global beauty care business and head of its North American Marketing Development Organization -- a period that saw the company regain lost market share in hair and beauty-care even as it cut media spending and shifted substantial funds from TV to print on key brands such as Pantene and Olay.

Despite his CEO-style white mane, Mr. Lafley is only 52, and his rise to CEO came about five years ahead of when most observers expected. Overseeing and possibly tempering Mr. Lafley's early tenure as CEO will be John Pepper, 61, former chairman-CEO, who returns from retirement to a chairman's post he relinquished to Mr. Jager only nine months ago.

The move dovetailed with P&G's announcement that it would not meet analysts' earnings estimates for the second consecutive quarter. Mr. Lafley put the blame squarely on the rapid pace of organizational change under P&G's current "Organization 2005" restructuring and overly ambitious sales and new-product goals.

"[We] didn't make enough of the tough choices required to balance top- and bottom-line growth," he said. "We ended up growing new businesses but not consistently growing big, core established businesses."


A year after Mr. Jager announced an ambitious plan to roll two dozen new brands or major line extensions into test or full distribution by the end of 2000, Mr. Lafley said he would review P&G's new-product plans, possibly delaying or canceling some. P&G already has launched 14 such ventures in the past year.

In a conference call last week, Mr. Lafley told analysts to view his record during the past 17 months as a guide for how he'll run the broader company. Under his watch, the beauty-care division has been a shining example of P&G's mantra that it rely less automatically on TV and more on a broad range of marketing approaches. Mr. Lafley said he'll adopt the same approach within the company as a whole.

"We will ensure our marketing support is more effective and more efficient," Mr. Lafley told analysts. "We are developing new marketing models and already are testing them in the marketplace. These new marketing models target consumers more sharply, employ a broader, more effective and more efficient mix of media, employ more targeted and more efficient trial, and improve the efficiency and effectiveness of the way we market with [retailers]."

The North American MDO Mr. Lafley has headed saw a sales increase of 10% so far this fiscal year, the first double-digit increase for P&G here in recent memory. His strategy was to focus on the region's top 10 established brands, plus key new or newly acquired brands such as Swiffer, Febreze, Physique and Iams. His MDO also has increased marketing and trade promotion efforts targeted at teens and ethnic groups through new, dedicated marketing groups.

Neil Kreisberg, group exec VP on P&G business at Grey Worldwide, who first began working with Mr. Lafley when he was assistant brand manager on Joy dishwashing detergent in the 1970s, discounts any notion that Mr. Lafley will take a slash-and-burn approach.

"He's been one of the strongest proponents and advocates for advertising and for building brands through advertising and imagery and not through promotion or gimmickry," Mr. Kreisberg said.

"A.G. is passionate about building brands and building people," said Arthur Selkowitz, chairman-CEO of D'Arcy Masius Benton & Bowles, New York. "He exemplifies the best of what Procter has always been about."

However in the past year, the media spending approach in Mr. Lafley's beauty-care business already has reduced media outlays, and in some cases agency revenues. Any future media spending cuts won't directly affect agency revenues, since they will be based entirely on sales as of July 1. But changes in the past year could be felt for years to come.


P&G currently is concluding negotiations with its agencies -- Leo Burnett Co.; D'Arcy; Grey; Jordan McGrath Case & Partners/Euro RSCG and Saatchi & Saatchi -- to establish the percentages they will receive on sales for brands they handle under the new sales-based compensation policy. The plan is to base future sales commission rates on past revenues from media commissions, so that agencies receive roughly the same money for the same brands next year as they got in the previous three years.

Negotiations on new rates are complete on all but four or five of P&G's roughly 200 brands, said Global Marketing Officer Bob Wehling.

"Ninety-five percent-plus of all the problems have been successfully resolved," he said. "Both the agencies and our business units are comfortable that this is a win-win situation that is going to help us grow sales faster."

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