P&G is belt-tightening, not just trimming TV

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As Procter & Gamble Co. cuts TV spending, the big unanswered question is whether the move is about long-term strategy or short-term earnings management. The unsatisfying answer appears to be: a little of both.

Executives inside the company and others familiar with the communications-planning system P&G is implementing for the fiscal year that starts July 1 say it's far too soon for that system to move the amounts of money in question-20% of the marketer's broadcast and cable commitments and other likely cuts to its syndicated TV outlay.

What's more, the cuts really started coming late last year, in the middle of P&G's current fiscal year and before communications planning began in earnest. P&G exercised options to dramatically cut its network and syndicated TV buys for January through June, according to people familiar with the matter, who said those cuts were spurred primarily by rising raw-material costs.


P&G slashed network TV spending in the first quarter 23.5% to $171.7 million and syndication 26.8% to $62 million compared to the prior year, according to TNS Media Intelligence. Most other media, however, were relatively unaffected or saw gains, so P&G's spending fell only 7.7% overall. With the current upfront, however, the pain appears to be spreading to cable.

"Could last year's assignment of communications-planning agencies have resulted in moving this kind of money this soon? No way, no how," said another executive familiar with P&G's media. "That's not to say that's not what you're going to hear."

The reality behind the cuts is likely a mix of long-term strategy and short-term margin pressures, said an analyst familiar with P&G. He said P&G hasn't lowered earnings guidance for the coming fiscal year despite several recent factors likely to weigh on profits.

For one, it won't be able to deal with rising raw-material costs fully with price increases--a particular problem since P&G hasn't raised the price of flagship Tide and is having to deal back price hikes on other brands to retailers because rival Unilever hasn't followed. And club-store giant Costco's delisting of Pampers gives P&G a $100 million-plus top-line hit. And the sudden strengthening in the dollar in the past month threatens to cut profit contributions from key markets in Europe and Japan.


P&G's belt-tightening isn't across the board and appears based on long-term strategy and growing use of marketing-mix models to measure returns from each medium. People familiar with P&G's magazine and interactive marketing plans see no major cuts there, but also no increases big enough to account for the money coming out of TV.

One surprise in P&G's numbers is that spending on spot has risen sharply, despite cuts elsewhere. Though P&G brand managers traditionally use spot to target their strongest markets, spot budgets tended to be the hardest hit when P&G tightened its belt in years past. Yet P&G nearly doubled spot spending last quarter to $44 million.

One strategy P&G appears unlikely to try is to undermine the upfront or hold money back for scatter, which is traditionally a strategy for small and midsize marketers.

"Our belief is that the upfront process still is the best way and the most strategic way to invest our [TV] money," the P&G spokesman said. "It provides both guarantees and some flexibility that the open market would not give us."

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