P&G to Consolidate Agencies, Reduce Costs by $500m

Procter & Gamble announced its Q3 earnings today and, in addition to lightening its roster of brands, the company will be looking to cut costs by consolidating its agency relationships. The global behemoth plans to reduce its number of agency relationships to cut nearly $500 million from its agency fees worldwide.

While P&G doesn’t disclose its agency spending fees, Ad Age reports that executives close to the company have estimated it to be near $1 billion.

As of 2009, P&G spent around $1 billion on agency fees and had 2,500 marketing-services agencies, according to a presentation company executive made at a 4As conference that year. Since then, P&G’s sales have risen by around $10 billion and its reported advertising spending (which includes some agency and production costs) has grown by around $2 billion.

P&G’s shift to digital media has led to a substantial increase in agency and production outlays, Mr. Pritchard said, though he declined to disclose spending in the area or how many agencies the world’s largest advertiser works with.

“We started looking at this a couple of years ago,” he said, “because the amount of content required and the fragmentation of media and the number of touch points where consumers were going and agency sub-specialization have created a lot of extra work and in some cases a lot of extra cost.”

“We plan to significantly simplify and reduce the number of agency relationships and the costs associated with the current complexity and inefficiency, while upgrading agency capability to improve creative quality and communication effectiveness,” Moeller said.

In Canada, P&G has recently worked with Cossette on master-brand work; Leo Burnett on brands including Always, Bounce, Cheer and Mr. Clean; Grey Canada on brands including Gillette, CoverGirl, Febreze and Pantene; and Saatchi & Saatchi on Tide. Globally, the company also works with Publicis. No word yet on which agencies will be affected by this consolidation.

The company last consolidated its agencies in 2002 under Grey and agencies owned by Publicis Groupe, which include Publicis, Leo Burnett and Saatchi.

While organic revenue grew by 1% last quarter, that was below the 2% predicted by financial analysts, and net sales across all categories at P&G were down 8%. On the call, Moeller said the company was on pace with its plans to merge, discontinue or divest itself of 100 of its brands, with 40 brands having been divested so far. That includes the already-announced divestiture of Duracell to Berkshire Hathaway, expected to close by the end of the year. In August, P&G sold its pet food brands Iams, Eukanuba and Natura in many markets to Mars.