For financial directors seeking cost savings, advertising is an attractive starting point. But even if the manufacturers of some of the most popular household products in the world are squeezed by the strongest inflationary pressures in a decade, they will think twice to cut marketing budgets.
Consumer goods suppliers spent a lot of money on advertising during the pandemic Concerns about hygiene Increased demand for cleaning products and lockdown restrictions have stimulated the sale of food and beverages consumed by households.
Procter & Gamble is particularly active in seizing the opportunity, spending $8.2 billion on advertising in the 12 months to June—an increase of $900 million from the previous year. In the beverage sector, Diageo’s marketing expenditures increased by 17% over the same period to reach 2.16 billion pounds.
For the advertising business, as the commissions of other corporate clients dries up, these companies are a much-needed source of work.The agency has carried out activities for the industry aimed at capturing current emotions, such as The courage of the pigeon is beautiful The video shows the faces of frontline medical staff.
However, how much advertising costs to deploy and where to deploy in the next few months is more like a dilemma. Although the lockdown has boosted the sales of household packaging product groups such as Procter & Gamble, the prospects are not optimistic: Transportation costs and the cost of raw materials such as palm oil are spiralling, while shoppers’ demand for certain products is faltering. At the same time, reopening from the blockade is encouraging companies in other industries to increase advertising spending and push up prices.
Mark Read, CEO of WPP, the world’s largest advertising group, said that during the pandemic, apart from technology and medicine, consumer products (CPG) have always been one of the most resilient industries.Other customers now Increase advertising expenditure again, The industry has “some pressures on profit margins and marketing costs.”
“We have seen mixed conditions for our CPG customers, but in general, I think they are aware of the need to invest in marketing – those companies that have gained share are seeking to keep it,” he said.
Some CPG companies are more likely to get rid of cost pressures than others, because relaxing lock-in restrictions should boost their sales. For example, beverage companies are positioning brands for reopening bars, clubs and restaurants.
Heineken CEO Dolf van den Brink announced plans to cut earlier this year 8,000 jobs to control costs, Said: “We really strongly believe that we need to increase our marketing and sales expenses.
“Although it hurts [financially] In the short term, it is correct to do it in the long term. “
But for other companies, the return of consumer behavior to pre-pandemic norms is leading to a slowdown in sales-complicating the calculation of marketing expenditures.The British group Reckitt Benckiser, one of the manufacturers of Finish dishwasher tablets and Lysol disinfectant, reports that consumer demand for soap and disinfectant has increased recently Begin to ease.
Chief Executive Laxman Narasimhan said that the group “really does not have the specific advertising goals we disclosed”, but “marketing expenditures are still high.”
In the United States, analysts at Barclays Bank estimated that the bleach manufacturer Clorox’s marketing expenditure for the fiscal year ending June was 790 million U.S. dollars, and it is expected to spend 700 million U.S. dollars in the coming year. Kimberly-Clark’s marketing expenditures Decline within a month. -Clark, the company behind Andrex toilet paper and facial tissues, is estimated to fall from USD 956 million in 2020 to USD 879 million this year.
Kimberly-Clark CEO Mike Hsu told analysts when the results showed that organic sales had fallen for the second consecutive quarter that the company had “chosen to slightly reduce” advertising spending in certain areas. He emphasized the toilet paper in North America. As consumers spend more time outdoors, the demand for toilet paper has slowed down.
“Our advertising plan contains as many math parts as there are creative parts,” Hsu added. “We are disciplined.”
Even so, the forecasted ad spending of Kimberly-Clark and Clorox is still expected to be higher than pre-pandemic levels. Hsu said that the group is maintaining brand investments in multiple regions and product lines.
Clorox spent more on advertising last year than in previous years. It said it plans to invest about 10% of its sales this fiscal year, consistent with the previous period. The company added that it “has been committed to investing heavily in our brand.”
Despite cost pressures, companies that are expected to increase advertising spending include Coca-Cola, Pepsi and Colgate-Palmolive. Barclays predicts that P&G’s advertising budget will increase by another $250 million in the coming year.
Colgate-Palmolive released a more conservative full-year profit forecast last month, citing a “difficult cost environment”, stating that although it is accelerating cost reductions in other areas, its advertising “expects the dollar and the percentage of sales.”
Television remains attractive to the industry, which has long been attracted by the extensive influence of the media, but Google, Facebook and other digital platforms have become increasingly important.
Media buyer GroupM Global Business Intelligence President Brian Wieser (Brian Wieser) said that big brands usually spend at least 40% of their marketing budget on digital channels.
According to a survey, an average of one-third of British adults’ waking time last year was watching TV and online video. Recent studies Via Ofcom.
Analysts said that executives are reluctant to actively control spending, partly because Kraft Heinz’s difficulties exposed the danger of budget tightening.
Other industries in this industry, at least in the United States, have been pressured by Wall Street to adopt strict cost management methods-in this food group backed by Brazil-U.S. investment company 3G Write down 15 billion U.S. dollars Three years ago, the outlook for some of its most well-known products was even bleak.
“The investment community has realized this,” Bernstein analyst Bruno Monteyne said. Now there is “a lot of attention” to whether the company “gets share and is it still growing.”
“You just have to look at what happened to Kraft Heinz and stock price performance. No one takes it as a model of virtue anymore.”
Kraft Heinz, now run by a former marketing executive, Miguel Patricio, Stating that it “has undergone a major change in a short period of time by reinvesting our brand and talents, becoming more consumer-focused than ever before.”
The company’s products include Heinz tomato sauce, Kraft macaroni and cheese, HP Sauce and Philadelphia cream cheese-said it plans to spend $100 million more on marketing this year than in 2019, and plans to increase it further in the next few years.
The competition from disruptive start-ups (which have gained traction through digital marketing) and the competition of cheap private labels in supermarkets give managers another reason to avoid adopting an overly harsh approach to advertising expenditures.
The importance of brands to packaged goods is that advertising is to a large extent the lifeblood of the industry.
According to Phil Smith, former director of marketing at Kraft in the 1990s and current director of trade for British advertisers, CPG “sees advertising as a core expenditure, not a discretionary expenditure. Some retailers may think so.” The Association, Isba.
Monteyne said that compared with marketing, executives are more willing to curb investment in innovation, or improve efficiency in other ways, such as reducing the number of versions of similar products.
Smith said that the spending outlook for the industry will ultimately depend on the extent to which the company can pass on cost increases to shoppers. “Obviously there is huge inflationary pressure, and if they can’t let prices rise, at some point advertising will bend downwards,” he said.
Advertising in a more important Inflationary environmentGroupM’s Wieser said, especially considering the threat of competition from cheaper alternatives. “If you want to pass on costs, if your brand doesn’t exist, will you really convince consumers to pay more? You need to make sure that consumers don’t switch to store brands.”
Even if the financial director is willing to protect the overall marketing budget, the advertising director said that the customer’s requirements for driving returns remain the same. Procter & Gamble said it is saving agency costs, eliminating waste and reducing “excessive advertising frequency.”
Diageo CEO Ivan Menezes said: “To work really effectively, you need to do two things. One is to have outstanding creativity in understanding consumers, developing products and digital participation. The other is understanding. The return for every dollar you spend.”
Institutions are required to provide more concrete evidence that their activities have produced results, especially because technological advances have made their effectiveness easier to measure.
A creative executive in the industry said: “The level of censorship has been increasing and it is very correct.” “This is not art. This is advertising.”