P&G to boost marketing spend by 30%, sees 'significant opportunity' in reaching consumers

P&G plans to continue driving marketing spend in the future, CFO Andre Schulten said during a recent financial earnings call. According to him, P&G's marketing volumes were running at about 33% pre-COVID-19 and current marketing volumes are back up to about 30% of total spend, marking a US$130 million year-over-year increase. 

Schulten explains that there is still "significant opportunity" to optimise in the ability to reach consumers more broadly and more effectively at a significantly lower cost as P&G's digital reach increases. He added that as long as P&G "can create good return of investment" with its incremental spend, it will continue to boost marketing spend. At the same time, as P&G increases its digital reach and as it gets better at targeting, Schulten said the company can both increase reach and quality of reach, and therefore, offset some of that incremental investment by pure efficiency within the marketing spend. 

When asked how sustainable it was for P&G to have efficiencies within the marketing spend to offset increased investment, Schulten explained that from a marketing efficiency standpoint, there will be a combination of both. He reiterated that the company will continue to drive efficiency as it brings more media spend into its optimised targeting pool, as it increases the percentage of digital media globally, and as it continues to optimise its own algorithms to target messaging to consumers.

"There continues to be significant opportunity. And you see a combination of reinvestment in marketing programs and flowing those productivity effects into the P&L to offset some of the cost pressures, and it will vary quarter by quarter depending on the situation," he explained. 

P&G's vice chairman and COO, Jon Moeller, added that while it might seem like an odd dynamic, the more efficient and effective the company can be in its marketing spend be, the more attractive it becomes to make those investments. "So maybe in somewhat of an odd way, efficiency breeds effectiveness, effectiveness breeds spending and that all drives the market and the business," he added.

Additionally, P&G still has a significant opportunity in its supply chain to optimise leverage, the digitisation P&G has been investing in its supply chain over the past years, as well as better synchronised demand from suppliers all the way to retail partners. "There is certainly still opportunities within our overhead structure where we can optimise work processes, leverage innovation, leverage automation to focus employees on higher-order tasks," Schulten explained. 

P&G reported net sales of US$20.3 billion in Q1 2022, a 5% increase compared to the same period last year. Greater China organic sales were in line with prior year due to strong growth in the base period comp and due to intra-quarter softness in beauty market growth. On a two-year stack basis, Schulten said during the call that China organic sales increased 12% in line to slightly ahead of underlying market growth. Meanwhile, global eCommerce sales grew 16% compared to the same period last year. 

According to P&G, the overall volume increase was driven by strong consumer demand for products and innovation, partially offset by a high base period in some markets due to rebuilding of inventories by retailers. Chairman, president and CEO, David Tayor, said these results keep P&G on track to deliver its top-line, bottom-line and cash targets for the fiscal year. 

"We remain focused on executing our strategies of superiority, productivity, constructive disruption and continually improving P&G’s organisation structure and culture. These strategies enabled us to build strong momentum before the COVID crisis and accelerate progress as we navigate through the crisis, and they remain the right strategies to deliver balanced growth and value creation," he added.

In April, P&G kickstarted the process of implementing price increases on its baby care, feminine care and adult incontinence product categories in the US. This was to offset a portion of the impact of rising commodity costs. During the recent earnings call, Schulten said it announced to US retailers in the last few weeks that it will increase prices within the grooming, skin care and oral care businesses. According to him, the degree and timing of these moves are "very specific" to the category, brand and sometimes the product from within the brand, and is not a one-size-fits-all approach.  

P&G is also taking pricing in many markets outside the US to offset commodity, freight and foreign exchange impacts. "We will look to close a couple of price increases with new product innovations, adding value for consumers along the way. As we said before, we believe this is a temporary bottom line rough patch to grow through, not a reason to reduce investment in the business. We're sticking with the strategy that has been working well before and during the COVID crisis," Schulten said.

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Photo courtesy: 123RF

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