P&G Shifts Marketing Dollars to Online, Mobile; World’s Largest Advertiser Says as Much as 35% of Ad Budget Going to Digital Media

Updated August 1, 2013, 8:00 p.m. ET

P&G Shifts Marketing Dollars to Online, Mobile

World’s Largest Advertiser Says as Much as 35% of Ad Budget Going to Digital Media

SERENA NG and SUZANNE VRANICA

‘We need and want to be where the consumer is,’ says A. G. Lafley, CEO of P&G, maker of basics like Tide.

Procter & Gamble Co. is now spending more than a third of its U.S. marketing budget on digital media, an aggressive shift as Americans for the first time are expected to spend more time online this year than watching television. P&G chief executive A.G. Lafley said the consumer products giant’s digital spending on things like online ads and social media ranges from 25% to 35% of its marketing budget and is currently near the top of that range in the U.S., its biggest market. That is well beyond the estimated 20% to 25% share that digital ads typically claim of companies’ marketing budgets and highlights the threat to traditional advertising media like print.The company is planning to spend more on advertising in its current fiscal year, and its growing emphasis on digital media reflects both the shift in where consumers are focused and a desire to increase the effectiveness of the money it spends. Company executives say digital media in many cases is proving to be a faster and cheaper way for P&G’s brands to reach consumers, and feedback is also faster.

“The bottom line is we need and want to be where the consumer is, and increasingly that is online and mobile,” a P&G spokesman said.

Mr. Lafley on Thursday spoke publicly for the first time since retaking the top job at P&G in May following stumbles at the Cincinnati, Ohio, company. P&G on Thursday reported a 48% drop in profit to $1.9 billion for the quarter ended June 30, reflecting restructuring costs and other charges, while sales ticked higher to $20.7 billion.

The CEO, who previously ran the company from 2000 to 2009, said P&G will sharpen its focus on product innovations, cost cuts, and execute well with core brands and its most important markets. He said P&G also has a plan to revive its Pantene and Olay beauty brands, which have been losing share to rivals in recent years.

“We know we’re not consistently winning now,” he told reporters on Thursday, cautioning that the changes would take time. “It’s going to take a couple of years before we’ve got everything in place so that we’re hitting on enough cylinders to perform to our full potential.”

P&G built its business on deep consumer research and premium products that it pushed through heavy advertising, much of it on television. That backdrop is changing, however. The recession has left consumers more frugal, and there are now many ways to influence consumers using the Web and mobile technologies.

The average time that consumers spend with digital media per day is expected to surpass TV viewing for the first time this year, according to research firm eMarketer, which estimates the average adult will spend more than five hours per day online, on mobile devices or with other digital media this year. By contrast, the average person will spend four hours and 31 minutes watching television, eMarketer estimates.

Companies that make consumer packaged goods spent about $13.4 billion on advertising in the U.S. last year, of which 22.2% was spent on digital media, according to data from IRI, Kantar Media and eMarketer. In 2011, about 19.3% of these companies’ U.S. advertising spending went to digital media.

P&G, which makes everyday items from Tide detergent to Crest toothpaste, has yet to disclose how much it spent on marketing in its recently ended fiscal year, in which its total sales topped $84 billion.

In its 2012 fiscal year, the company spent $9.3 billion on marketing, including advertising on television, radio, print, digital and in-store adsAbout a third of P&G’s revenue comes from North America, which is the biggest market for its media spending.

Mr. Lafley said the company’s spending on digital varies from brand to brand. For some businesses, he said, “digital is incredibly effective, and we’re doing more.” P&G’s Pampers diapers, Secret deodorant and Old Spice men’s toiletries are among those with a large digital focus.

P&G’s deeper dive into digital ads comes as online advertising is gaining ground on television, even though there is little evidence so far that television companies are suffering as a result.

Digital ad spending in the U.S is expected to grow 14% this year to $41.9 billion, while TV ad spending is expected to grow just 3% to $66.4 billion, according to eMarketer.

Mobile devices are the biggest beneficiary of the shift in American’s attention. Adults will spend an average of two hours and 21 minutes per day on devices like smartphones and tablets doing something other than talking. That is longer than they will spend online on desktop and laptop computers and nearly an hour more than they spent on mobile last year, according to eMarketer.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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