CLOSE-UP: LIVE ISSUE/PROCTER AND GAMBLE AD BUDGET CUTS; Will P&G try ‘everyday low prices’ in Britain next?

As its roster agencies try not to fear the worst, P&G denies all.

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

market.



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

per cent.



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

cut prices?



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

all.’



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

before it.



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,

fragrances



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

Ulay, Pampers.



Euro RSCG Wnek Gosper: Biactol, Blue Stratos, Insignia, Metamucil, Old

Spice



SOURCE: Brad Agencies and Advertisers



Become a member of Campaign from just £45 a quarter

Get the very latest news and insight from Campaign with unrestricted access to campaignlive.co.uk ,plus get exclusive discounts to Campaign events

Become a member

Looking for a new job?

Get the latest creative jobs in advertising, media, marketing and digital delivered directly to your inbox each day.

Create an Alert Now

Partner content

Share

1 Why creative people have lost their way

What better way to kick off the inaugural issue of Campaign's monthly print offering than with another think piece on the current failings of our industry, written by an embittered, pretentious creative who misses "the way things used to be"...

Share

1 Job description: Digital marketing executive

Digital marketing executives oversee the online marketing strategy for their organisation. They plan and execute digital (including email) marketing campaigns and design, maintain and supply content for the organisation's website(s).