Gillette's edge: spend and save

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In the same breath, Gillette Co. Chairman-CEO James Kilts told Wall Street the company will embark on a stringent cost-cutting program and, at the same time, increase media support to right a long-running imbalance in promotion-vs.-advertising expenditures. Are the statements at odds with one another? Absolutely not.

The fact that Gillette will also be leaning on its suppliers for lower costs-including its ad agencies, Omnicom Group's BBDO Worldwide and Interpublic Group of Cos.' Lowe Lintas & Partners-will not be welcome news to some. In a faltering economy, belt-tightening at a $600 million-a-year advertiser is understandably not a happy prospect for Gillette's shops. Moreover, sensing weakness, rival agencies are likely to swoop in with cut-rate proposals to chip away at the incumbent agencies' business.

But the farsighted will also glimpse opportunity in Gillette's distress. Gillette CEO Kilts has an impressive record as a brand-builder at Kraft Foods and Nabisco, and clearly has the courage of his convictions: He is lowering earnings estimates in order to fund media spending. He's also admitted Gillette needs to work harder to find the right mix. "We must know a lot more about how much more marketing money we should spend," he said, "although logic and experience tell me we're not spending enough."

That will, ultimately, mean bigger billings for agencies that meet Gillette's demands for a lower cost structure. Significant budgets are at stake, since Mr. Kilts wants to raise ad spending from the current 5.8% of global gross sales. The aim is to break what he calls the "circle of doom," where new products fail to meet overly ambitious sales goals, forcing Gillette to cut marketing expenses to push product through retail channels.

Shops may have to operate on the razor's edge of profitability to bring Gillette back to health, but the longer-term rewards can be great. Mr. Kilts has set forth what an analyst called "a dose of reality," and his spend-and-save philosophy is just the prescription the company needs to cure its ills.

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