Quest for Marketing Efficiency puts Market Share Growth at Risk

Procter & Gamble spent $9.3 billion on advertising last year,which helped generate $84.2 billion in global revenue. The company currently projects to increase its advertising spending on an absolute dollar basis, but is anticipating slightly reducing its advertising spending as a percentage of overall revenue while trying to win market share. This translates into a need to improve marketing return on investment.

To accomplish this objective, P&G is planning to  improved marketing efficiency by holding all of its brands to minimum success standards. CEO A.G. Lafley recently declared, "We are holding all of the businesses to a minimum ROI. . .We're pounding away on best media."

A.G. Lafley and Jon Moeller, CFO, explained on a recent earnings call that a significant portion of this ROI improvement will be achieved by continuing to shift traditional media dollars into digital marketing. Lafley indicated some brands are spending up to 35% of their marketing budget on digital, with plans to raise the bar on its other brands.

As a former P&G marketer, I understand why P&G management is making this push. P&G's marketing mix modeling analyses often indicate digital marketing has stronger ROI's than traditional advertising. That said, if my primary objective is winning market share over the next year versus maximizing profitability, the move starts to raise a caution flag in my mind.

It's very easy to overlook advertising effectiveness (volume impact) on a quest to maximize advertising efficiency (ROI). In other words, yes, digital is much cheaper and hence tends to produce a stronger ROI , but its reach is often limited and thus typically does not drive as many transactions as television ads. Additionally, you can only throw so much money at any one marketing vehicle before it reaches saturation and digital has a tendency to max out at a lower spend. The combination of these factors makes it difficult to drive market share, while also dramatically cutting back TV advertising. 

Lafley also indicated the next big wave of P&G product innovation may not arrive this coming year, meaning the business will have to rely on a high mix of commercial innovations creating another growth hurdle.

Net-net, if I was an investor, I'd be hard pressed to anticipate significant market share growth over the next year.