According to the Chief Marketer online newsletter posted this week, Procter & Gamble is cutting its marketing spending by $1 billion in five years.
That’s $200 million per year! How will this really play out?
- According to P&G’s 2014 annual report, net sales are $83 billion with net earnings of $11.6 billion. Cutting $200 million is less than ¼ of 1%.
- The P&G Annual Report shows advertising expenses to be $9.23 billion for 2014. Advertising costs are just over 11% of their annual revenues. That $200 million dollar cut looks like a 2% decrease. The cuts are reported as deep in the article, and these cuts will look deep to the agencies (reminiscent of a “Mad Men” episode come to life), but I think it’s more of a paper cut for P&G.
What Can Businesses Learn From This News?
A full 11% of revenues are spent by one of the largest consumer products giants to promote its brand and products. It is a necessary investment to protect the brand and future revenues. A publically traded, well-managed money-making machine spends a full 11% of its revenue on advertising. While the cuts look small to me, P&G is looking hard at their agency expenses. Are they doing their advertising and promotion in house? Not likely. They hire experts who are marketing and advertising experts, not manufacturers. The lesson for all businesses is to look at their allocated total expense invested in advertising, promotion and marketing. Take that expense and divide by the revenues generated. With little investment, don’t expect much return. If strategic and tactical marketing is done internally, is it providing adequate return? Is it planned and consistent? Using a competent marketing agency with its objective to fully leverage your marketing investment should produce better results than doing it on your own.
Industry Giants Spend Big Bucks on Advertising. What Do SMBs Spend?
The underlying lesson is to look at the giants of advertising. They know how to secure and protect their market position. Consistent and constant branding and promotion with a solid marketing plan and an allocated budget is not merely a good business suggestion; it’s essential and required. More SMBs need to emulate their “big brothers” (and sisters). If your business is interested in professional marketing support, we know how to leverage your investment and get results.