As its roster agencies try not to fear the worst, P&G denies all.
Procter and Gamble strenuously denies slashing ad budgets in order to
fund an ‘everyday low pricing’ strategy in Britain (Campaign, last
week). Instead, it stresses, P&G is merely cutting some prices in some
markets and hoping to tackle marketing more efficiently.
Not everyone, however, is convinced. They fear ‘edlp’, as it is
affectionately known, has arrived in the UK, fresh from its success in
revitalising sales in the US. They claim edlp - to paraphrase an old
saying - is over-hyped, overdone, and now over here.
Why edlp strikes fear into the hearts of agencies and media owners is
easy to understand. P&G is Britain’s biggest advertiser and a diversion
of its massive budgets elsewhere could be catastrophic. The group has
always been a strong believer in advertising, and has made a point of
devoting 25 per cent of its sales budgets to marketing support.
However, towards the end of the 80s, P&G began an experiment in the US
which could have alarming consequences over here. It found that by
spending less on marketing support - promotions and so on - it could
drop prices. This attracted more loyal customers and sales are now
climbing at 6 per cent, a phenomenal result in what is a very mature
Such a policy would be much more difficult to fund over here, though.
We’re a less coupon-crazy nation than the US, so companies spend less
money here on promotions. Similarly, ‘hidden’ promotions - paying
rebates to retailers to offer prominent shelf space, etc - will also be
much harder to cut.
This, according to Michael Bourke, a food analyst for the stockbroker,
Panmure Gordon, is because retail chains are more powerful in the UK.
Sainsbury’s, for example, has around 20 per cent of the market here,
compared with the biggest retailer in the US, which has no more than 2
Even more crucial is the strength of own label in this country. In the
US, own label has only 12 to14 per cent of supermarket business compared
with three times that level in the UK. Retailers make much more profit
margin on their own label than on brands, so why should they help P&G to
Nevertheless, that is what P&G has done. It dropped the price of Pampers
nappies by 7 per cent in December and Fairy Liquid by 9 per cent in
January, setting alarm bells ringing in the advertising and media world
as people began to wonder where the cash was coming from to fund it.
Then, in January, P&G pulled most of its advertising schedule from
London’s Carlton TV, effectively halving its spend with ITV stations.
The gloom deepened. Was this just a negotiating tactic? Or signs of what
was to come?
Finally, two weeks ago, a leaked internal memo, ‘P&G Marketing 2000’,
blazed around the marketing press. It revealed the disturbing fact that
P&G was committed to cutting its marketing support from 25 per cent of
sales to only 20 per cent by the end of the century.
P&G moved swiftly to allay fears that the Carlton cuts were in any way
related to Marketing 2000, although its head of media, Bernard
Balderston, refused to comment, leaving Dick Johnson, the corporate
communications director of P&G, to assert: ‘The two are not connected at
Instead, he says, P&G’s Carlton cancellation was merely a three-week
blip while annual price negotiations were in progress. He also denies
that TV schedules have been cut by 10 to 15 per cent this quarter, but,
ominously, refuses to comment on whether expenditure is set to fall
overall this year.
As for Marketing 2000, Johnson stresses this is a long-term strategy
that will not begin to bite until the next financial year, which begins
in June. Anyway, he claims, the policy has more to do with more creative
and efficient use of marketing than cuts in ad budgets.
There is some truth in this. P&G has a reputation for expensive, blanket
TV campaigns, rather than tightly targeted ads, and for heavy use of TV,
rather than lower-priced print advertising.
The group appears to have been trying to address this recently, with a
new, if minor, poster campaign for Ariel, and heavier commitment to
relationship marketing, much like Heinz did in a blaze of publicity
P&G, it seems, is not embracing edlp whole-heartedly here. Instead,
there are some moves in its direction in some categories. For example,
one insider says where a brand is 30 per cent above own-label prices,
the margin may be reduced to 10 per cent.
This will only work in some areas. The upmarket shampoo, Pantene, for
instance, is not a price-sensitive item, but Fairy Liquid, with own
label snapping at its heels, is a definite candidate.
Some of the money to fund the price cuts will come from lower production
costs, because demand for the lower-price items will be higher and more
regular. Some will come from cuts in promotions and cost savings through
making, say, one commercial that can be used in more than one country.
Nevertheless, it is too soon for agencies to fall on their swords.
Unilever, P&G’s biggest competitor, is not in a mad rush to cut its
prices to match. Indeed, its chairman, Sir Michael Perry, was keen to
make this point as he reported a pounds 64 million drop in pre-tax
profits last week. ‘Edlp has been with us for the past decade. It’s
nothing new. We adjust our prices as and when necessary, desirable or
sensible,’ he said.
Procter and Gamble main roster agencies and their brands
Grey: Pantene, Fairy Liquid, Cover Girl, Milton Infacare, Camay,
Leo Burnett: Daz, Le Jardin, Max Factor, Vidal Sassoon Red Line, Vidal
Sassoon Wash and Go,Vicks range
DMB&B: Always, Bounce, Clearsil, Crest, Viakal, Dreft Automatic, Dreft
Handwash, Fairy Automatic, Fairy Non-Biological, Fairy toilet soap
Saatchi and Saatchi: Ariel, Fixodent, Flash, Head and Shoulders, Oil of
Euro RSCG Wnek Gosper: Biactol, Blue Stratos, Insignia, Metamucil, Old
SOURCE: Brad Agencies and Advertisers