Cutting a budget is never easy—just ask the U.S. Congress. But in the past five years, Proctor & Gamble (P&G) has cut $10 billion in overall costs and $1 billion in marketing from its budget. That sounds great—unless the budget cuts also mean cuts in sales and profits.
Some of the savings came from P&G’s move into the digital arena, which increased efficiency, such as through an in-house, digital media buying optimization system called Hawkeye. But analysts also worry that P&G is losing its edge and cite several reasons for this dire prediction:
- P&G has lost market share across more than half of its global business. According to consumer surveys, P&G is also falling behind the competition in advertising effectiveness, particularly for its television and print advertisements.
- Retailer ratings of P&G have been falling for approximately four years. A recent survey indicated that P&G has fallen to fourth place, behind Unilever and Kimberly-Clark.
- In recent years, P&G consistently has been unable to deliver on promised product launches, leaving consumers, retailers, investors, and analysts frustrated and disappointed. Some executives blame these failures on capital spending constraints, but a P&G spokeswoman also has asserted that they were due to unexpected consumer demand.
- P&G has been slipping particularly far behind its competitors in the beauty and personal care businesses, which traditionally were mainstays of its product portfolio.
The company’s CEO Bob McDonald has talked about using digital marketing to solve some of these problems. For example, he promises that the use of digital tools will enable P&G to predict demand better and lead to improved product innovations. But at the moment, P&G’s digital portfolio consists only of digital advertising, and there are no universal standards to determine the effectiveness of digital advertising. And even as McDonald promises a move toward more digital advertising, most of its current advertising budget remains focused on print.
Furthermore, P&G’s competition similarly is also looking to put more money into digital advertising. Analysts thus worry about P&G’s ability to put its promises into action. The cost cutting moves helped raise P&G stock value 5 percent, but competitors’ stock values also rose in the same period. If everyone else is doing it too, can Procter & Gamble maintain its traditional lead in the field?
- Should P&G continue to work to cut costs, or is it risking its competitive advantage by doing so?
source: Jack Neff, “Is Procter and Gamble Losing its Edge?” Advertising Age, March 26, 2012.