Why did sales not decline after P&G’s digital cuts?

by Nigel Hollis | July 31, 2017

The latest quarterly results from P&G once again raise the question of the real value of digital advertising. If a major company can cut digital spend by $140 million and sales increase, what does that imply about the effectiveness of that spend?

As noted in this post P&G, and specifically Marc Pritchard, have been questioning the accepted wisdom on digital media spend for some time. The first step was to question the assumption that more accurate targeting boosted return on investment. The next step, along with others, was to question the quality of the metrics provided by digital platforms. And now it seems that P&G has decided to restrict digital spend with platforms where their ads were not being placed in accordance with standards and specifications.

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First of all, before I start speculating about the nature of digital advertising effectiveness, maybe we should put that $140 million in context. Last year P&G was reported to spend $7.2 billion on advertising including in-store. Assuming a similar spend this year, spread evenly across quarters, then the cut is sizeable but still only about 7 percent of overall spend.

The $140 million might be nearer to 20 percent of P&G’s digital spend and if digital is so good at driving short-term sales you might expect some demonstrable downside. Instead organic sales growth is reported to have been 2 percent and the cut in ad spend added nearly a percentage point of profit margin for the quarter. But why? As always, there are so many factors in play there can be no definitive answer but let’s have a quick look at some of the possible reasons.

P&G’s brands do not advertise in isolation, what were the competitors doing? The AdAge article reports that Unilever also cut spend accompanied by a sales increase while others, like Kimberly-Clark, Colgate-Palmolive and Reckitt Benckiser are reported to have had flat sales accompanied by “decreases in advertising spending where that was reported”. So maybe P&G’s cut in digital ad spend was offset if most companies also reined in their ad spend.

Earlier I asserted that digital was a short-term sales driver but maybe that does not apply given the nature of P&G’s brands? Many of the categories in which it operates are habitual purchases and most of its brands are either leaders or big players in the category. Unless all of that spend was directed against immediate sales activation maybe we should not be surprised that behavior is slow to respond to changes in ad spend?

Last but not least, let’s visit the elephant in the room; maybe that ad spend was not doing much in the first place. Yes, there are huge questions over the efficacy of digital ad spend and whether that money is spent effectively but Kantar Millward Brown’s Brand Lift Insights find that some digital campaigns can be very effective and I have to believe that, unlike many, P&G have done their homework to ensure effectiveness(otherwise they would not be asking questions in the first place).

So will P&G continue to restrict digital ad spend? I guess it will all depend on what their sales modeling tells them but what do you think? Please share your thoughts. 

6 comments

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  1. Sylvain Desfossés, August 03, 2017
    About 75% of the impact of Advertising is on the creative shoulders. I'm a media planner but i understand that too much weight is on digital as a miraculus media. Advertising agencies must put more time to measure their creatives with panels and not only with clicks or conversion rates alone. That's the real problem with digital world : the immediate response. This lead on short term decision about the creative. On the other spectrum, we develop obscur algorythms to predict the futur without understanding the chaos theory. We can measure long term impact of a creative after the fact. But this is not without value. Actually, we know that emotion have better results on the long run. These kinds of insights don't be find with conversions analysis only.
  2. Nigel, August 01, 2017

    Thanks for the comments. 

    Based on the results we see from our research there is no doubt digital can be effective at brand building. But there is a huge range of response. The problem is that too little time and money has been put into ensuring that the creative used really does engage the target audience. Targeting can only get you in front of the audience, it does not guarantee they will pay any attention or respond well to what is shown. As Sylvain notes some of it is to do with ad format, the less interruptive the better, but then the ad still needs to evoke a positive instinctive response. 

  3. Bjørn Dahl, August 01, 2017
    Hi Nigel, and thanks again for an interesting post;   Yes, it is often said that digital is a short-term sales driver. At the same time it is said that long term effects can be 3-6 times larger than the short term effects. So I wonder what the more important long term effects of digital is relative to other media – or digitals total impact on sales relative to other media?  
  4. Jay, August 01, 2017

    Or maybe it's a duplication of offline ads? So it looks good for ROI, but not for absolute profit.

  5. Sylvain Desfossés, July 31, 2017
    P&G is a crunch numbers organisation. How you spend your budget is as important as how much. In the first step, they probably cut money from digital properties that not allow them to have enough transparency and measure results after to see the impact. Second point, digital formats are not equally efficient. Some have more long term impact (video, Pop-up with small size, animated banner) while others perform better in the short term context (regular banners, search, etc.). Programmatic buys can also be questionned : great cost and human time saving but less control on the quality (even if premium buy can be integrated). P&G send a wake-up call about digital media but I imagine that the next step will be to start looking how to make great ad in each digital platform.
  6. eliott stead, July 31, 2017
    @Nigel, Very thought provoking!! I guess there are other questions here, how do they measure digital ad effectiveness? What does there attribution model look like? Have they put enough focus on the ad creative - using data driven triggers to ensure relevancy, optimised ad creative and good sequencing/storytelling to drive performance. I'm slightly biased but surely good digital advertising executed well has to be part of the marketing mix for my buck!!

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