| 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.
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.