Mark Ritson on branding: P&G's tactics point to marketing's way ahead

Can you name the best marketing company in the world? It is a very difficult question. Too often we confuse big revenues, innovative products, famous brands or remarkable ad campaigns with marketing excellence. Don't get me wrong: all of the above are wonderful corporate assets, but they do not necessarily denote marketing excellence.

A truly great marketing organisation displays excellence in all fields of our discipline. And that is why I have no hesitation in telling you that Procter & Gamble is the single greatest marketing company in the world.

Five years ago P&G was the last company you would associate with marketing excellence. Half of its leading brands were losing market share, employee morale was at an all-time low, and a once powerful marketing function had been decimated by a dis-astrous restructuring.

But the recruitment of a new chief executive - AG Lafley, himself a talented marketer - and the promotion of James Stengel to the post of chief marketing officer a year later has transformed the once ailing FMCG giant and propelled it into the vanguard of marketing practice.

Take market research. P&G recognised that it was awash with too much quantitative analysis that only served to stifle consumer insight. In response it has radically revised its research architecture, first by installing observational methods such as ethnography at its core, and then using these insights to drive its quantitative analyses.

When Jim Stengel began the restructuring of P&G's marketing function, his team shadowed marketing managers, studying how they used observational methods. The results were translated into a 300-item questionnaire that was distributed to more than 3000 staff. The data was analysed using structural equation modelling. The very best of qual and quant, in synergy.

Take marketing communications. While TV advertising prices and expenditures have continued to rise, Stengel has been an out-spoken critic of the medium and agencies that extol it. A year ago he delivered a remarkable speech to US advertising executives in which he predicted the imminent demise of the 30-second TV spot, berated the industry for failing to evolve in any meaningful way, and announced that the mass-marketing approach P&G had helped to develop was effectively dead.

It wasn't just talk. Stengel has overseen a dramatic 20% shift in P&G's global marketing budgets away from TV advertising and has experimented with a series of alternative approaches. One such venture is the Tremor Marketing Unit, a network of 280,000 teenagers that P&G uses to virally promote brands to the vital youth market that is increasingly hard to reach by traditional methods. Stengel has also taken an avowedly integrated approach to communications. He recently announced that P&G did not have advertising agencies any more, just 'communication agencies'. How's that for media-neutral thinking?

Perhaps that most revolutionary element of the new P&G set-up is its approach to return on investment (ROI). Rather than seeing marketing accountability as the topic for a academic debate, Stengel and his team have made it a practical reality. All P&G's communication agencies are now being paid on performance, not on retainer or commission. P&G has also committed itself to support the Apollo Project, the exciting new audience measurement system that could finally remove the embarrassing inexactitude of people meters once and for all.

The company that invented brand management and helped to write the book of marketing strategy in the 20th century is now busy on a new edition.

Anyone keen to learn about the future of marketing should watch what is going on at P&G now.

30 SECONDS ON ... THE NEW P&G

- The rallying call of the revolution at Procter & Gamble has been simple. 'The consumer is boss' has been the mantra since AG Lafley took the helm.

- He supports ethnographic research, despite bridling at the name: 'I call it the best way to create value. If you want to understand how a lion hunts don't go to the zoo. Go to the jungle.'

- Jim Stengel has been critical of accountability in advertising. 'This is a $450bn global industry and we are making decisions with less data and discipline than we apply to a $100,000 decisions in other aspects of our business.'

- The Apollo System, proposed in September 2004 by Arbitron and ACNielsen, would equip 70,000 people with a device to record their exposure to all marketing communications and link it to buyer behaviour. The system is budgeted to cost $100m; as yet, only P&G has agreed to invest in it.