P&G to Cut Another $400 million in agency costs

http://adage.com/article/cmo-strategy/p-g-cut-400-million-agency-produc/312488/

In 2017, P&G notoriously cut $140 million dollars in digital ad spend citing concerns about brand safety and where P&G ads had been appearing. This alone is troubling for the industry, but the fact that since this decision P&G's organic sales have outperformed both analyst forecasts and key rivals at 2% growth is downright startling. What does this say about the impact digital advertising has on impacting revenues? Is digital advertising simply an ineffective waste of marketing spend?

The CPG giant has doubled down on this notion and plans to slash another $400M by 2021, totaling more than $750M in savings over the last three fiscal years. This includes disassociating from 80% of P&G's agencies and doing more "open sourcing" of projects, rather than relying upon an agency of record.

Unilever, the number two global ad spender, has followed P&G's lead and is cutting agencies, their fees and production costs. Overall, around $2.5 billion of the $7.5 billion Unilever plans in cost savings by 2019 will come from a combination of marketing and overhead reductions. Once again, these budget cuts have had no demonstratable effect on Unilever's bottom line.

What does this trend say about the industry at large? Corporations are no longer simply throwing money at digital; they are getting smarter and leaner. Rather than a threat to digital advertising, this creates a litmus test of sorts where vendors and agencies need to truly demonstrate their impact in empirical terms. Gone are the days where a flashy new ad unit will suffice to obtain investment; agencies need to demonstrate brand lift, measure impact and influence revenue. Hopefully, the trepidation of giants like Unilever and P&G will remove the "pretenders" from the industry and enable those who truly create value to rise to the top.