Though the company missed forecasts, bringing in $16.5 billion in the last quarter, rather than the predicted $16.54bn, revenues were up 1%. Net income, meanwhile, was down 14.9% year-on-year. Missing Wall Street’s forecasts did not impact the company too significantly, but agency reductions will continue. “We’ve delivered $1bn in savings from advertising agency fees and production costs in four years,” said P&G CEO, David Taylor. He added that there is more potential for savings in this area.
Spending on advertising was up, however, 4% in this last quarter.
The company announced it would be increasing prices, beginning in October. Outwardly, Taylor put this down to shifting market dynamics and rising commodity costs, according to the Wall Street Journal, and, unlike some other earnings calls this season, he didn’t single-out tariffs or trade disruptions. That said, trade tariffs and the threat of disruption have been felt throughout the company’s supply chain. Across the brands Bounty, Charmin, and Puffs, there would be a 5% price rise, and a 4% rise in the price of Pampers, which is already being implemented.
Any strategy for the company will have to consider, then, how it will encourage its consumers to be more elastic on price. P&G is not alone in this - brands from Coca-Cola to Whirlpool have said they would be increasing prices to adapt to surging overheads and raw materials. P&G’s direct competitor Colgate Palmolive has also said its prices would be going up in response to the price of raw materials.
Analysts have observed how the company has taken longer than competitors to pass on price hikes in previous commodity cycles, with some suggesting that may be down to P&G’s “less powerful” brands.
Price increases could see consumers cutting back and there’s the risk competitors could undercut P&G, which may prompt the company to rely on short-term promotional activation to the detriment of its brand.
P&G executives said they would be putting their faith in improved products, strong demand on the back of strong household income and spending rises in June, and – crucially – clever marketing.
Marc Pritchard, P&G’s Chief Brand Officer, has already ruffled feathers by bringing members of different holding groups into the same brief. “We’re implementing a fix-and-flow model, reducing the number of agencies on retainer and flowing creative resources in-and-out,” Taylor said of his company's agency relationships. “This has not only saved money but leads to better and faster work.”
This ‘People First’ operation, managed from New York, is combining staff from Publicis, WPP, and Omnicom to work on some of the company’s biggest US brands. The result being P&G is making fewer different ads but is getting it in front of more customers.
Meanwhile, the brand is looking to China for a radical example of how it can get closer to consumers at the new point of purchase. In China, the brand’s media spend is 70% digital and 30% of sales come from e-commerce (globally, it is just 7%). The signs that it can replicate some elements of this strategy are strong. Global online sales have increased 30% since last year, with the added advantage of bringing in more first-party data.
Another threat, as Ad Age reported, is that smaller competitors – backed by venture capital and requiring no profit – will undercut incumbents in the search for growth. The challenge is to build brands that can continue to matter, amid the need to turn a profit and react to cost increases, as well as the threat from new start-ups, the company needs to continue to invest in the big picture.
Sourced from Wall Street Journal, Financial Times, The Drum, Ad Age