P&G sales grow as cuts to agency costs continue

The CPG's best quarterly sales in eight years come amidst plans to invest more in brand building.

P&G delivered strong quarterly results on Tuesday as it continues to make cuts to agency and production costs, but increase its investment in building its brands.

The world’s second-largest advertiser (having been overtaken by Samsung last year) had organic sales rise by 5% in Q3 of the 2019 fiscal year, which covers January to March. Its the strongest organic sales performance the company has reported in eight years.

The company also cut $165 million in overhead costs during the quarter, which includes agency and production costs and is equivalent to roughly 1% of sales. That’s after making $104 million in similar cuts last quarter and more than $1 billion over the last four years, P&G CFO John Moeller said during a conference call.

Moeller said during the call that “tons” of its marketing spending in past years was “a complete waste,” as it was driving excess and unnecessary frequency. By improving its data and analytics capabilities, Moeller said, the company has been able to avoid wasteful spending and reach a broader audience, instead of speaking to the same people multiple times.

The costs cut from agency and production spending at P&G have been “reinvested” into marketing functions that give P&G to ability to drive “more efficiency and effectiveness in media delivery” and greater control over increased brand-building efforts, Moeller said. Last year, the company introduced a new media model that includes in-housing more of that work, but it has also been investing more in marketing, specifically one-to-one marketing enabled through digital channels, that are helping it build its brands and reinforce the value they provide to consumers. While marketing spending is up, sales attributed to promotional activity and offers are down 5% as the company focuses on competing more on brand than on price.

P&G also said that it had been raising the costs of its products after years of cutting prices in attempts to compete with discount and store brand. P&G is joining the likes of Kimberley-Clark and Unilever in betting on the fact that consumers will pay more for brands they trust and have a connection with.