P&G Cuts More Than $100 Million in 'Largely Ineffective' Digital Ads

By Alexandra Bruell and Sharon Terlep Features Dow Jones Newswires

Procter & Gamble Co. said that its move to cut more than $100 million in digital marketing spend in the June quarter had little impact on its business, proving that those digital ads were largely ineffective.

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Almost all of the consumer product giant's advertising cuts in the period came from digital, finance chief Jon Moeller said on its earnings call Thursday. The company targeted ads that could wind up on sites with fake traffic from software known as "bots," or those with objectionable content.

"What it reflected was a choice to cut spending from a digital standpoint where it was ineffective, where either we were serving bots as opposed to human beings or where the placement of ads was not facilitating the equity of our brands," he said.

Chief Executive David Taylor said in an interview that the digital spending cuts are part of a bigger push by the company to more quickly halt spending on items -- from ad campaigns to product development programs -- that aren't working.

"We got some data that said either it was in a bad place or it was not effective," Mr. Taylor said of the digital cuts. "And we shut it down and said, 'We're not going to follow a formula of how much you spend or share of voice. We want every dollar to add value for the consumer or add value for our stakeholders."

After cutting back on certain digital ads, "we didn't see a reduction in the growth rate," said Mr. Moeller during the call. "What that tells me is that the spending we cut was largely ineffective."

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P&G also said it reduced overhead, agency fee and ad-production costs in the quarter.

P&G, whose brands include Bounty, Crest, Tide and Pampers, spent $2.45 billion on U.S. advertising, not including spending on some digital platforms, according to Kantar Media. Long the biggest advertiser in the world, its pronouncements on trends in ad spending are watched closely.

The company about a year ago said that it would move away from ads on Facebook that target specific consumers, after finding that ultra-niche targeting compromises reach and has limited effectiveness. P&G indicated it wouldn't pull back on overall Facebook spending.

It's unclear whether P&G has shifted more spending to other media, including television, as it tweaks its digital spending approach. TV networks have been making an aggressive case that marketers have over-allocated budgets to the dark alleys of digital, and should move ad money back into TV.

The cuts echo marketing executives' mounting concerns around the efficacy of digital advertising and the growing perception that they are wasting money on digital ads that never reach their intended audience.

P&G, which is facing a proxy fight with activist investor Nelson Peltz, reported 2% increase in organic revenue in the quarter and full year ended June 30. The company posted a higher profit in the most recent quarter despite a slump in consumer spending.

It's unclear what impact the digital cuts have on the company's overall marketing spend.

P&G said it's committed to advertising that delivers tangible results for its brands.

Personal care brand Always, for example, saw "a significant increase" in awareness and equity scores since its "Like a Girl" campaign launched a few years ago, said Mr. Taylor on the call. The campaign shed a light on gender bias, challenging what it meant to do something "like a girl."

Mr. Taylor on the call talked about the importance of "having a superior product" that has "a point of view" as more consumers use social media to share their opinions.

Always is among the many brands that have taken on a larger social cause or purpose in their marketing in recent years.

P&G is among the packaged-goods giants tweaking their marketing spending and strategy as they face larger business challenges. Rival Unilever is also undergoing a marketing reorganization, including drastically cutting the number of agencies it works with.

Spending cuts are hurting the ad agencies that rely on business from the big consumer-goods spenders. Interpublic Group of Cos, which owns McCann Worldgroup and IPG Mediabrands, said during its latest earnings call this week that spending cuts by consumer packaged goods clients reduced its revenue in the second quarter by almost 1%.

(END) Dow Jones Newswires

July 27, 2017 17:46 ET (21:46 GMT)