It’s Procter & Gamble memogate season again. ’Unless we fix our
fundamental growth issue, we have no way to hit our forecasts ... We
must operate in a crisis mode.’ Thus goes a confidential diktat - part
of which was leaked to the trade press last week - from P&G’s new head
of European operations, Wolfgang Berndt.
Another leaked P&G memo set off similar shock waves back in 1996 when it
was suggested that the world’s largest advertiser was, horror of
horrors, cutting its advertising expenditure. You could almost hear the
network bosses trembling. However, it turned out that P&G wants to
reduce the proportion of its revenues that it spends on advertising and
marketing support from one-quarter of net sales to one-fifth or less by
the end of the decade. Readers with a mathematical bent will realise
that whether this reduces the level of advertising depends on what
happens to sales.
However, it’s a given that P&G business in Europe is faltering, so let’s
suppose that the latest memo contains a warning for agencies. After all,
we already know something of its plans. P&G is to cut back on the brands
it supports and move budgets in the direction of those that offer the
best return. P&G is to move towards a fee remuneration system from the
commission-based system that has served agencies, and particularly big
P&G agencies, so well. Four years ago P&G was crowing over its claims
that Lever Brothers’ Persil Power could damage clothes, but today it is
still trialling a version of laundry detergent tablets which Unilever
has had on sale since May. So P&G needs to spot the things that turn
consumers on more quickly.
Cutting the non-media agency commission rate is one easy way to save
money. But there is another. I’ve heard convincing arguments that P&G’s
commercials production system - which guarantees a number of shooting
days a year for a handful of pet production companies and ensures that
P&G’s strict copy guidelines are followed to the letter - leads to P&G
paying above the market rate for mostly average commercials. In effect,
P&G has to guarantee turnover for these companies and, in doing so, it
has taken away the competitive pressure of the open production market in
which Unilever operates. The economic parallel is state control - if the
P&G system worked then Albania would be a world-class economy.
There is yet another way of reading the Berndt memo. Could it be the
posturing of a new manager anxious to stamp his authority on a company
notorious for quantifying and justifying every decision? Remember all
that stuff about how it’s easier to effect change when you’re new to a
job? After all, Proctoids are people too.
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