By Joel M. Albrizio, President
"P&G Cuts Advertising Allowances Leading To Diminished Brand Strength".....Now P&G Is Forced To Cut Brands!
Procter & Gamble led the Big "3" in slashing vendor advertising programs a number of years ago. Described in a more politically correct manner, P&G repositioned marketing/advertising funds to more accurately account for these funds. The new approach was to base advertising monies on the cases each retailer purchased.
However you want to look at it this is what happened. For generations Procter & Gamble demanded brand dominance with all of its products. Year after year P&G acquired brands and delivered success again and again.
Just How Did Procter & Gamble Deliver Success?
Advertising monies and P&G's generosity with these monies played a major role in this success. Procter & Gamble did this by offering grocery wholesalers and retailers alike generous advertising monies.
So generous were these advertising funds some at Procter & Gamble questioned if all of this advertising money was really necessary. Certainly within the boardroom walls of Procter & Gamble the thought was these advertising funds could be better spent.
Was Procter & Gamble Correct?.....Simply Put, No.
Procter & Gambles initial goal with these generous advertising funds was to be certain whenever possible most if not all grocery wholesalers and retailers would believe they......"Must" feature Procter & Gamble brands rather than those brands of the competition.
Even more compelling, most grocery merchandisers across America relied on Procter & Gamble's advertising monies as the base to financially build and justify the cost of almost every ad. The very vendor programs that funded most every ad from every major retailer or independent grocer alike.
"Procter & Gamble Built A Best Of Class Brand Empire"
So as time progresses Procter & Gamble like no other manufacturer built a second to none dominance within each space it's solid SKU'S were offered. In essence grocery retailers and wholesalers were hooked on this drug like addiction of advertising funds provided generously by Procter & Gable.
"Why Mess With Success...But They Did"
While the old saying goes, "No trees grows to the sky" Procter & Gamble must have been convinced it was time for changes.
Procter & Gamble changed manufacturer vendor funds forever....
Procter & Gamble made the decision all future advertising allowances would be case driven and paid based on performance and not funds to be counted on regardless of the retailers success or failure with any particular sale.
"Is This Change In Accounting A Big Deal"
In reality most would agree this advertising dollar change was really an accounting adjustment. Procter & Gamble's vision of advertising funds was not a total discontinuing of these advertising funds, although it was not viewed as such.
This change of allowances based on cases took away the safety net most wholesalers and retailers relied upon as guaranteed funds to build an ad.
Given that most of us would agree the retailers and wholesalers were overpaid if anything with Procter & Gamble's original advertising program that did not change the perception of this new case driven program. The case driven vendor fund concept was not well received.
What Does the Retailers Pushback Look Like?
Now over time retailers had to look elsewhere for advertising monies to replace the Procter & Gamble financial support to build an ad. The retailer was forced financially to look deeper into alternative manufacturers offerings as well as private label as an option when building an ad.
Remember, when Procter & Gamble ruled the grocery industry through bean counters, merchandisers had no choice but to project reduced advertising costs via Procter & Gamble's advertising dollar support.
So as we look back to the days when Procter & Gamble had over 150 dominant products,were they correct in the adjustment leading to advertising dollar support savings?
Was This The Correct Approach To Reduce Vendor Funded Advertising Expenditures?
Lets look at it objectively. During the years when Procter & Gamble felt as a company they were overspending Procter & Gamble had as we said 150 hot items. Today that hot list of items has been reduced to about 65!
A closer look at this financial maze might well reveal the reduction in advertising expenditures were not simply advertising dollar savings but in fact a simultaneous reduction in the value of the corporate asset we think of today as Procter & Gamble.