P&G to go digital in attempt to cut multi-billion dollar ad costs

Company CEO Robert McDonald announced the revelations during P&G’s earnings call to discuss its 2012 second quarter results, and admitted that regardless of how much sales increase, the ad budget, thought to be around $10bn annually, will have to be moderated.

Asked by analysts about the ad costs on several occasions, McDonald revealed: “I believe that over time, we will see the increase in the cost of advertising moderate. There are just so many different media outlets available today and we're quickly moving more and more of our businesses into digital. And in that space, there are lots of different avenues available.”​

Traditional media has been the culprit for using up most of P&G’s advertising budget in the past, but McDonald hinted that Facebook and Google could hold big value for the consumer goods giant in the future.

Digital over traditional​

“In the digital space, with things like Facebook and Google and others, we find that the return on investment of the advertising, when properly designed, when the big idea is there, can be much more efficient,”​ he explained.

“One example is our Old Spice campaign, where we had 1.8 billion free impressions and there are many other examples I can cite from all over the world.”​

“So while there may be pressure on advertising, particularly in the United States, for example, during the year of a presidential election, there are mitigating factors like the plethora of media available,”​ added McDonald.

However, the problem P&G will face with this new strategy is consistency. Although the Old Spice online campaign has worked out, as have others, it cannot be said for all of P&G’s products.

Whilst some boast a Facebook fan page or a Twitter following, there are some products that have no social media or online presence at all and this will have to change if the company want to effectively implement this new strategy and cut its ad spend.

Work to be done​

And there is work to be done following P&G's announcement that revenues were up 4 percent to $22bn in the second quarter but the company's costs for sales, general and administrative work were all flat.

The company claimed the results were buoyed by a strong performance in the developing markets, however slower consumer spend in the US market held back growth.

The slower rate of growth underlines the fact that sales took quite a beating in the US market, where the company recently raised retail prices in a bid to make up for increased commodity prices.

P&G said that one of the main reasons for the declining sales growth was the fact that many of its competitors in leading markets had not increased their retail prices, making some P&G product lines not very competitive with an increasingly budget conscious consumer.