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Procter & Gamble Reduces Its Agency Roster 50% To Save $400m
24 Jan, 2018 / 01:34 PM / OMNES News

Source: http://www.thedrum.com

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Procter & Gamble will cut its agency roster by 50% by the close of 2018, the latest act in a four-year cull witnessing some 4,700 firms axed from its books. For some agencies, this is par for the course in an era defined by austerity, but others are now worrying that P&G is cutting to the bone, not just trimming fat.

The advertising giant has been on a massive cost-savings drive since 2014 when it announced it would reduce the 6,000 agencies it works with by nearly 40% and cut agency and production spending by $400m. By 2016, it began “pooling production” and “open-sourcing” its creative needs as it eyed $1bn in savings from its media spend, plus an additional $500m in agency fees.

P&G chief financial officer Jon Moeller said that despite slashing the number of agencies it works with and saving $750m in associated costs (as well as improving cash flow by over $400m through 75-day payment terms) it was still looking to save another $400m by reducing its agency roster by another 50%.

Currently, there are 2,500 agencies on its global roster, but by the end of the year, this number will be just 1,250. Underpinning this is a desire to “implement new adverting and media agency models,” which seems to be based on the idea of “open-sourcing” which it first began trialling 18 months ago.

An example of this in action comes from skincare brand SK-II. The agency of record, Leo Burnett, now devises the overarching campaign strategy for the brand, and then briefs individual projects within that master idea out to other agencies – outfits both from inside and outside the Publicis Groupe network.

This strategy meant P&G spent 50% less than it traditionally would on a similar campaign. Now it wants to do this for more brands, on a bigger scale.

“We need the contribution of creative talent and are prepared to pay for creative talent, but we don’t need some of the other components of the cost,” said Moeller. “We’ll move to more fix and flow arrangements.”

Though it did increase its advertising spend overall in the second quarterby approximately 2%, P&G wants to trim its media spend moving forward, and will “automate more planning, buying and execution and bring it in-house.”

It’s a vague assertion and one that’s unlikely to unsettle Omnicom, its biggest media agency partner, just yet. To date, in-housing media has been an area P&G has been reluctant to talk about publicly. Despite its chief branding officer Marc Pritchard describing the media supply chain as “murky at best, fraudulent at worst”, P&G has not suggested it has any intentions of managing its media without the help of agencies.

“We’ve been talking a lot about media transparency, which is improving. As it’s improving it’s becoming clearer to us that there is more opportunity to eliminate waste within and across channels, eliminate non-viewable ads and stop serving ads next to bots and adjacent to inappropriate content,” continued Moeller.

“Though these efforts we’ve been able to eliminate waste and cut losses while simultaneously increase reach the number of consumers we’re connecting with by 10%. Looking ahead, we see further cost reduction through private marketplace deals with media companies and precision media buying fuelled by data and digital technology. We continue to reinvent agency relationships.”

Cutting to the bone?

That P&G will continue to tighten its belt when it comes to advertising has been met with a mixed reaction from the industry. Jonathan Trimble, the chief executive of 18 Feet & Rising, said P&G is treading a thin line and urged it to look at brands that are able to deliver profit without sacrificing creativity.

“Are there inefficiencies in the way networks operate? Sure, probably. But that’s not really the point given they’ve faced consistent cuts over the past ten years, I’m wondering at what point P&G is cutting bone not fat,” he added.

“Corporate doublespeak defined, is saying you value creative talent whilst simultaneously cutting actual investment – especially when hidden behind words like automation and in-house. Businesses disrupted by digital are attempting to cut their way to success; meanwhile, the emergent titans are doubling down and running straight into the wind. If you want new creative outcomes, look at Netflix and Amazon, who employ one strategy and one strategy only – spend.”

Matt Edwards, chief executive for creative and content at Engine, was less surprised by P&G’s move to make further cuts. Rather, this is just one example of what many advertisers, big and small, are increasingly trying to do. If agencies cannot adapt to this then they will likely face bigger problems down the road than simply losing a piece of P&G.

“P&G’s desire to ‘reinvent agency relationships’ echoes that of many of the clients approaching Engine in recent months – they’re all looking for faster, nimbler and more efficient ways to engage with creative agencies," he added.

Edwards concluded: “We’ve actually gone so far as to restructure our business to take advantage of this and we’re now delivering way beyond creative idea development with new units specialising in content production and the building of in-house agency teams.”