An expected change in top management at Procter & Gamble could further an already troubling trend for Madison Avenue: a winnowing of the number of advertising firms used by big ad spenders.
Ad executives greeted with some trepidation the news that P&G was poised to appoint a new chief executive. On Monday, The Wall Street Journal reported that P&G’s board was expected to approve a plan to replace longtime CEO A.G. Lafley with Robert McDonald, currently its chief operating officer. Mr. Lafley would remain chairman.
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In ad circles, Mr. McDonald is regarded as a no-nonsense executive who, along with P&G’s global marketing chief Marc Pritchard, has been streamlining the way the company works with advertising and marketing companies.
That effort could cut a number of ad agencies and marketing firms out of the spoils, according to ad executives close to the company. P&G, the world’s biggest advertiser, spends about $8.7 billion annually on promotions ranging from TV ads to in-store marketing programs for products like Tide laundry detergent and Pampers diapers.
“They are pushing to get more service for less money,” says one ad executive familiar with the company.
A P&G spokeswoman declined to comment.
Madison Avenue is undergoing a broad contraction sparked by the economic crisis and tumult in the auto industry. General Motors, which until last year was the second-largest ad spender in the U.S., behind P&G, has already slashed the fees it pays to its ad firms and — ad executives familiar with the company say — will likely cut down on the number of ad firms it employs.
Mr. McDonald’s expected appointment raises questions about how P&G’s massive advertising budget might be affected. The consumer-products company slashed its U.S. ad spending on conventional media, including TV and print, and Web display ads by 6% last year to $3.2 billion, according to WPP’s TNS Media Intelligence.
P&G has been moving more of its ad dollars to digital media, and has been pressuring media companies for price breaks. Ad executives familiar with P&G suggest that both patterns will continue under the new regime.
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With Mr. McDonald, people will see “much leaner and more efficient ways to build a brand than P&G has in the past,” says an ad executive familiar with the matter.
P&G now works with thousands of ad and marketing firms around the globe. Mr. McDonald probably will seek to cut down on the number of firms it uses, according to people familiar with the matter. One executive suggests that smaller firms are likely to be more vulnerable as P&G seeks to further consolidate its ad business in an effort to save money.
P&G recently said it was continuing with a new approach to marketing in which it pulls together a team of experts culled from different ad and marketing companies to work on a given brand under one leader. It’s a process, dubbed internally “the brand franchise leadership model,” that P&G began slowly adopting in 2007.
P&G, like many marketers, has become frustrated with the lack of collaboration between its ad and marketing-services firms. Marketing services include in-store marketing and direct mail, among other functions.
The new approach is intended to eliminate turf wars. The company is hoping to foster collaboration among the people who create ads for TV and print and the other experts who do things such as research consumer behavior and design Web promotions.
“We are establishing a brand-agency-leader design that will simplify our business, lower our costs and improve capability by eliminating thousands of individual contracts and generating much more holistic advertising and marketing,” Mr. Lafley said last month at an investor conference in New York.
One executive close to P&G suggests that the company may ultimately try to reduce the number of ad-holding companies it deals with to two. It currently uses Paris-based Publicis Groupe, Dublin-based WPP Group and New York-based Omnicom Group.
Over the past few years, under Mr. Lafley and Jim Stengel, P&G’s former global marketing czar, the company expanded the number of firms it employed as it sought to bring more creativity to its marketing. For example, it added Wieden + Kennedy, the Portland Ore. firm known for its Nike campaigns, to its roster of ad shops in 2006.