Procter & Gamble Co. President Durk Jager, whose value-pricing strategy eliminated more than 25 short-term trade promotion practices in the U.S., is now taking aim at advertising.
His vision, according to one executive familiar with his plans, includes moving toward pay-for-performance for ad agencies and squeezing more value per dollar from media spending.
P&G has been talking privately about pay for performance since at least 1989, though it has never forced the issue, said executives with P&G agencies.
"We currently have no plans to change our compensation system, though we are aware, of course, of all the talk in the industry about new compensation structures. And we are watching where this trend goes," P&G VP-Advertising Denis Beausejour told Advertising Age.
`SHARE THE WEALTH'
"In the long run, I think P&G would rather not pay the 15% commission, but rather cover the agency costs plus a modest profit--and then when you have a big hit, share the wealth," said a former top P&G advertising executive.
That would be a stunning change for one of the few marketers that has clung to the 15% commission system. But after more than a year on the job, P&G's new leadership team of Chairman-CEO John Pepper and Mr. Jager, also chief operating officer, clearly aims to bring to advertising the financial discipline it has applied to other areas of business.
In the past year, P&G has expanded its Core Supplier Program, reducing relationships with suppliers of services such as promotion and package design to a key few, and taken a sharper pencil to acquisitions while being more willing to cut brands that don't perform.
"They wouldn't have jettisoned Aleve so quickly five years ago, and today they wouldn't have made a couple of those cosmetics acquisitions," said Jay Freedman, portfolio manager, Lincoln Capital Management.
Agency executives said they've seen no moves, such as test models, toward pay-for-performance yet, and don't expect any until Mr. Beausejour has a chance to settle into his new post. The 38-year-old executive was named to the job this past summer after the resignation of L. Ross Love, whose abdication, though expected internally, surprised P&G outsiders.
BEAUSEJOUR ON BOARD
The changing of that guard became effective today.
Mr. Beausejour is perceived by agency executives as the eventual successor to Robert Wehling, 58, senior VP-advertising, market research and public affairs, who isn't expected to retire for seven years.
Mr. Beausejour was previously VP-general manager of laundry and cleaning, personal cleansing and healthcare products for China, where he was close to P&G Asia President A.G. Lafley, widely regarded as next in line for Mr. Jager's job.
Mr. Beausejour is also viewed as the man who will help Mr. Wehling successfully execute Marketing Breakthrough 2000, a plan outlined in a memo to P&G's worldwide agencies on the eve of Messrs. Pepper's and Jager's ascension last year.
In the memo, Mr. Wehling stated P&G's intention to reduce marketing spending from around 25% of sales to 20% or less, without cutting absolute dollar spending.
In what was billed in the memo as a "planning year," P&G's global advertising expenses decreased just under 1% to $3.25 billion for fiscal 1996, ended June 30. It was the first such decline in recent memory and followed average annual growth of 7% in four previous years.
A P&G spokeswoman said the decline was caused by global currency rates and lower media costs, particularly in Europe, and added the company doesn't set advertising budgets globally, but on a brand-by-brand basis.
COSTS DECLINED IN 1995
The company's recently released annual report, however, boasts of cost controls in administration, marketing and research. Those costs--excluding research and development--declined from 25.5% of sales in 1995 to 24% this year.
For P&G to meet its goal of cutting marketing spending to 20% or less of sales by fiscal 2000 without cutting overall marketing, it has to increase sales to at least $42 billion. If P&G can't equal or improve on last year's 5.4% growth rate--attributed by Mr. Pepper to negative currency developments and unit volume growth outside the U.S.--the company would either miss the 20% goal or have to cut spending.
This summer, P&G clipped commercial-production commissions from 15% to 10%, in turn agreeing to shoulder the cost of advertising research expenses, except for focus groups, designed to gain insight for creative work.
P&G also has developed a pool of three production companies to be used in Germany, Austria and the German-speaking part of Switzerland. Those must be used by agencies unless they have prior approval from P&G to work with an outside vendor.
Overseas executives believe P&G will expand this approach to other Western European countries. Certainly resource-pooling policy and talent reuse in TV and print commercial production was singled out by Mr. Wehling in his now-infamous memo.
Asked if pooling will be expanded to the U.S. as well, Mr. Beausejour said, "Around the world, we are working to get more effective and efficient in production. That effort is going to continue, but I can't provide details on specific plans."
Additionally, P&G has some other compensation tests under way, including one where it is paying agency D'Arcy Masius Benton & Bowles a single check, requiring the agency to reallocate funds worldwide to each of its offices rather than P&G writing the checks itself.
Still, the goal, Mr. Wehling claims, is not cost-containment.
MORE BANG FOR EACH BUCK
"I consciously put the word `breakthrough' in there to get through to everyone who was going to be involved in this effort that this was not `Marketing Cost-Cutting 2000.' What I was really after and am still after--and I see a lot of encouraging work--is better marketing, more creative marketing that helps us ensure we get as much as possible out of every dollar we invest," he said.
In China, Mr. Beausejour was credited with raising the bar for P&G's advertising, something he is now expected to do worldwide. And P&G has been trying to do that for a while; it first began using creative concepts across agency, brand and national lines under former Chairman-CEO Edwin Artzt.
An example is a campy campaign from Leo Burnett Co., London, for the Daz detergent brand in the U.K. that involved a TV crew knocking on doors of unsuspecting housewives to sniff their clean laundry.
The campaign appeared in the U.S. for Gain last year, albeit less humorously done, and was also used for other brands in Europe.
Also, Tide's current "Demanding experts" campaign, from Saatchi & Saatchi Advertising, New York, is being executed by D'Arcy Masius Benton & Bowles/Americas, Miami, in tests in Puerto Rico and Mexico, for the Ariel brand.
One pay-for-performance concept might be special compensation for agencies whose creative becomes one of the "global success models" P&G increasingly uses.
As it fosters growth of interactive media--the company now has 10 Web sites, seven for products--P&G has moved quickly to establish pay-for-performance measurement principles with vendors, this year negotiating to buy Web banners based on click-throughs rather than impressions.
SQUEEZE IN MEDIA BUYS
P&G also wants more impact per dollar from measured-media spending. When it comes to making media buys, the company is a perennially tough negotiator.
Emboldened by European advertising law changes in fiscal 1996, P&G recently went through a bruising media battle in Mr. Jager's native Holland.
European media executives said P&G pulled advertising from the Netherlands' government-owned TV channels for four months as it sought better rates and positioning in ad breaks, before coming back on air "on punishing terms" with drastically reduced rates.
It is estimated that total European media spending dropped 20% during the first six months of 1996, though after some bargaining P&G returned in the third quarter of calender 1996 to 1995 spending levels.
In developing markets, where TV is needed to establish brand equities, comparable coercion is considered unlikely. But there are other challenges in these regions.
In key Latin American categories, it has been playing catch-up to Colgate-Palmolive Co., and in India its $300 million in sales are tiny compared to Unilever's $1.6 billion.
Moreover, many of its so-called global agency networks come up lacking in these regions, particularly in Latin America.
In Japan, P&G has had to use McCann-Erickson Worldwide, a Unilever core agency, to handle some of its brands.
BURNETT RATED BEST
Leo Burnett Co. is rated as having the strongest global network of all the company's networks by agency executives who work for P&G and those who compete against it. That's largely because Philip Morris Cos. drove Burnett's growth overseas.
"A decade ago, P&G was basically still an American soap company. Then it moved to globalization and asked its agencies to grow with them. There is no doubt the agencies are less developed than some of the competition's. But they are coming along," said one P&G agency executive.
Back in the U.S., P&G's zero-coupon test in upstate New York is proceeding, though the company has actually broadened use of Catalina Marketing Corp.'s Checkout Coupon system and direct-mail couponing, leading some consultants to reason the test's primary target is cutting newspaper free-standing inserts.
But Mr. Wehling maintains: "We're evaluating all coupons carefully."
P&G continues couponing programs through Publishers Clearing House.
On Dec. 26, PCH will mail P&G coupon packets valued at $20 to nearly 70 million homes. The drop will include Cover Girl coupons and tie into the introduction of long-wearing Marathon lipstick. Marathon's claim--"Stays on your lips through 1,000 sips"--will be promoted in the mailing, taken by many in the industry as further evidence P&G doesn't intend to kill off coupons.
MORE COUPONS IN ARIZONA
Indeed, in Phoenix and Tuscon, Ariz., P&G has increased all kinds of couponing over the past month, though the effort seems weighted toward laundry products.
Gary Stibel, principal of the New England Consulting Group, calls the zero-coupon program "a legitimate test of the worst-case scenario . . . The test will not succeed, in that they will lose share. But it will succeed in that P&G will learn from it. Whether it's expandable remains to be seen."
P&G's co-marketing programs with retailers, however, are expandable. And the company will triple spending in the next two years for those programs, to as much as $120 million.
Now handled by Grey Advertising's J. Brown/LMC Group, Chicago, executives close to the program said P&G is conducting a review that could end with P&G agencies of record for brands taking over media buying.
P&G's agencies include DMB&B, Burnett, Grey, Saatchi & Saatchi, Euro RSCG Tatham, N.W. Ayer & Partners, Wells Rich Greene BDDP and Lotas Minard Patton McIver.
The biggest benefit of co-equity remains that it moves P&G away from "commodity" promotion and toward a proprietary system, Mr. Stibel said.
"Procter does not like being a commodity marketer, and they are absolutely moving away from that," he said.
CO-EQUITY STILL GETS SQUEEZED
But even in co-equity, a program that's expanding rapidly, P&G is looking for ways to squeeze more impact out of every dollar.
"Part of what we've been trying to do is look at every single aspect of our marketing programs and justify to ourselves that those dollars are working hard for us," Mr. Wehling said.
"If they are, fine. If not, we need to find a better approach."
Contributing: Mark Gleason, Mir Maqbool Alam Khan, Dagmar Mussey, Laurel Wentz, Jeffrey D. Zbar.
Copyright September 1996 Crain Communications Inc.