How Procter & Gamble Spends Its $8.2 Billion Ad Budget Now, and What That Tells Us | 2015 Youth Series

With its old ways of advertising and selling both losing force, how can P&G find a new way to market itself and reach a new generation of young consumers?

P&G's results over the past year have shown little improvement.

In fiscal 2015, which ended June 30, sales volume fell in every one of P&G's business units. Sales dropped 5% year on year to US$76.3 billion, and net income fell 40% to US$7 billion. The first quarter of fiscal 2016, which ended September 30, was worse: revenue fell 12% year on year, P&G's steepest decline in seven quarters.

As 2015 draws to a close, nearly all the news from P&G has been about subtraction.

In June, P&G folded 43 of its beauty brands into Coty, the world's largest fragrance company. The US$12.5 billion deal completed P&G's brand-slimming plan, and soon afterward David Taylor was named to succeed A.G. Lafley as president and CEO.

Lafley returned to run P&G in 2013 and designed the largest brand sell-off in the company's history. Over two years, P&G would shed 90 to 100 small brands, each with annual sales under US$100 million and three straight years of decline, so it could concentrate on the 70 to 80 core brands that bring in more than 90% of its sales and more than 95% of its profit.

P&G also cut nearly US$700 million from its global marketing spending in fiscal 2015 and dropped 40% of its advertising agencies. In April, chief financial officer John Moeller announced plans to cut US$500 million a year from agency fees.

Other consumer-goods giants facing the same pressures, such as Unilever and Coca-Cola, are also trimming their marketing budgets. That is bad news for fast-moving consumer goods (FMCG), which depend on constant advertising to keep consumers from forgetting them.

International FMCG giants, P&G foremost among them, are losing influence in China, or at least no longer shine as they once did. P&G is losing customers, especially young middle-class ones. That is its biggest problem.

P&G is also rethinking what Chinese consumers want. In a media interview this year, Lafley admitted that P&G had wrongly taken Chinese consumers for "frugal middle-class people," and so had handed the high-end mother-and-baby market to Japanese brands.

The deeper problem is that young consumers have changed how they get information, which brands they buy and where they buy them. P&G mastered a world in which television carried the message and goods moved layer by layer from first-tier cities down to second-, third- and lower-tier cities. In the age of mobile phones and e-commerce, neither works as well.

How can P&G find these young people again and win them over? It is trying, and its main tool is still advertising and marketing. Note, too, that even after the US$700 million cut, P&G spent US$8.2 billion on advertising in fiscal 2015 and remains the world's largest advertiser.

"We see this more as making our marketing more efficient. And in the Chinese market, we haven't cut spending on [advertising and marketing]," Xu Youjie, vice president of communications and public relations for P&G Greater China, told QDaily. Xu has worked at P&G for 30 years and ran P&G Hong Kong as general manager from 2000 to 2006.

Greg Paull, global CEO of R3, a management consultancy that helps advertisers choose agencies, agrees: "Being a big client of a few agencies, rather than a small client of many, will make P&G more efficient."

So, with its old ways of advertising and selling both weakened, how is P&G spending its money to find its next generation of young consumers?

"Wherever the consumers are, we follow."

According to figures that Nils Roehrig, chief digital officer of GroupM China, gave QDaily, the FMCG industry has sharply raised its digital marketing spending. Annual growth over the past three years has ranged from 35% (2015) to 60% (2013), and mobile's share is rising.

Share of digital channels in the FMCG industry, 2015-2016

"Wherever the consumers are, we follow." Xu Youjie said this seven times in his interview with QDaily. Marketers have always lived by it; today it points more and more toward digital channels.

Everyone knows young people are online. Xu would not say how P&G divides its spending among digital channels, but every example he was keen to discuss was a digital campaign.

In March, P&G placed WeChat Moments ads for Head & Shoulders, its biggest shampoo brand in China, making it the first personal-care brand to advertise in Moments. The ads targeted consumers aged 18 to 38 in Beijing, Shanghai, Guangzhou and provincial capitals, and the copy borrowed young people's own idiom: "I couldn't care less."

According to P&G, on the day the ads went out, sales on Head & Shoulders' WeChat store reached three times the daily average, and its WeChat account doubled its followers. Head & Shoulders ran three more rounds of Moments ads in October, November and December.

Besides speaking young people's language, Head & Shoulders has dropped its old preference for mature, steady spokesmen. It moved from Tony Leung and Donnie Yen to Eddie Peng, three years running, to shake off its image as a brand "for middle-aged men." The video ad shown here is most likely the one starring Jolin Tsai.

OLAY, another P&G brand, has also changed spokespeople by trial and error. In 2012, P&G launched Huajiyue, an OLAY sub-brand aimed at young consumers. It dropped longtime spokesperson Lin Chi-ling for a girl-next-door type, advertised heavily on media platforms said to be popular with people born in the 1990s, and staged events in various cities such as the "Morning Flower Girls Club" and the "Campus Elite Challenge." The results were modest, and the parent brand never really escaped its image as "mom's brand."

For this year's Singles' Day (November 11), P&G signed two stars for OLAY, each fronting a different product: Wang Kai, who shot to fame as "Prince Jing" in Nirvana in Fire (《琅琊榜》), and Lay Zhang of EXO, whose popularity soared after he appeared on Go Fighting! (《极限挑战》). The two heartthrobs launched an "Extreme Challenge for Likes," asking fans to like their posts and offering signed photos, concert tickets and other perks to fans who completed the task of "follow the OLAY Tmall flagship store, add to cart and pay."

Poster for the "Extreme Challenge for Likes" campaign

The campaign drew 170,000 reposts, 34,000 comments and 24,000 likes on Weibo. According to P&G, OLAY's official flagship store passed 10 million yuan in sales within 15 minutes of the start of Singles' Day, and beat its entire Singles' Day total from last year within 74 minutes.

But recent news from OLAY may cast a shadow over its push to win younger buyers. According to a December 28 report in The Wall Street Journal, OLAY will cut one-sixth of its product range, including a number of weak-selling skincare products such as anti-acne cleansers, to focus on anti-aging products.

QDaily asked P&G Greater China about this and received confirmation: OLAY has already cut about 16% of its products in North America, but the cuts do not cover China, and most of the products involved are not sold there anyway. Still, OLAY's best sellers in China are also anti-aging products.

According to P&G, OLAY has three product lines in China: anti-aging, whitening, and dermatology-grade treatments led by the ProX series. The professional ProX line grew more than 20% from last year, and the anti-aging Regenerist line grew 10%.

Of P&G's 20-plus brands in China, Xu Youjie says some are marketed "almost 100% digital." One is Gillette, whose razors are aimed mainly at 18-to-25-year-olds. Much as girls stay loyal to the first brand of sanitary pads they buy, boys stay loyal to the first razor brand they buy.

Search "razor" on Baidu today and the first eight results are all paid listings, with Gillette's official website at the top.

On Baidu Index, Philips shows the steepest rise in searches for "which razor brand is best"

"In the digital age, it's not like before, when a new product might have six months to a year to build brand awareness. A lot of timelines have shrunk," Xu said. P&G's ads used to talk about the product from the first second to the last; now P&G would rather join the conversations consumers already care about.

"You have to watch what happens every day and see whether it can be tied to your brand's message. Some key windows last only a few hours, and if you miss them, the chance is gone."

"We don't see e-commerce only as a sales channel. It is also an important marketing platform"

Not long ago, if you raised e-commerce with retailers, most would tell you it was only a supplement to their other sales channels. That is no longer true.

E-commerce data show even more clearly how young consumers have become. "Consumers aged 18 to 24 account for 64% of sales volume, and those aged 25 to 29 for 20%," Xu said, citing figures from e-commerce platforms.

China's shift to digital and e-commerce is indeed more striking than anywhere else in the world. Greg Paull says the next shift may be FMCG sales moving from physical stores to online. "You can see it on Singles' Day. Most Chinese FMCG companies now say e-commerce makes up about 10% of total sales, and that figure could double within two to three years."

According to Bain & Company's recently released 2015 China Shopper Report, e-commerce accounts for only 3% of sales of shampoo and personal-cleaning products and 10% of skincare. The highest share is for baby diapers, at about 34%, which are also the best-selling category on overseas-shopping and cross-border e-commerce platforms.

Overall, online sales still make up a small share of FMCG sales, which leaves plenty of room to grow.

E-commerce share of sales by product category

"E-commerce platforms are now also seen as a marketing battleground. Driven by events such as the 'Singles' Day gala,' we expect this trend to accelerate quickly in 2016," Adil Zaim, CEO of Carat China, told QDaily. "E-commerce used to be run separately, but the line between it and sales and marketing is blurred. Some companies now set up e-commerce teams and give them separate budgets for promotion and communication, creating new sources of revenue through e-commerce."

P&G treats e-commerce as an integrated business. "We have a president dedicated to e-commerce who pulls together resources from across the company, on both the marketing and the sales side," Xu Youjie said. "We don't see e-commerce only as a sales channel. It is also an important marketing platform."

From the outside, Always liquid pads look no different

The "futuristic" Always Infinity liquid pads that P&G's Always brand launched late last year show how this works. The product debuted on P&G's WeChat account "P&G Lifestyle." At the same time, P&G started an online discussion, "What do you imagine a liquid pad would be like?", invited social-media influencers to try the product in return for word of mouth, and held offline events such as "Run, Sisters" in some cities.

This was nothing like how P&G used to launch products. "In the past we might simply have run TV ads and then online ads. This time we built word of mouth entirely online, and all the online activity ultimately leads to our e-commerce platform."

Xu said another reason this worked is that girls who once felt awkward discussing "that time of the month" online no longer have any such hang-ups. The copy has dropped its straight face, too, with lines like "This never-before-felt, weightless protection leaves your ex ten streets behind."

Braun, P&G's premium shaving brand, also launched a younger product line this year. For Singles' Day, Braun teamed up with STAYREAL, the streetwear label run by Ashin of the band Mayday, on an exclusive limited-edition grooming kit and T-shirt.

E-commerce, in other words, has become a way into consumers' lives, and done cleverly, it earns both word of mouth and sales.

Before this year's Singles' Day, P&G also opened shop on Mogujie. Mogujie says it has 130 million users, mostly young women, and that is exactly what P&G wants.

"As advertising investment on e-commerce platforms grows, this budget is shifting more and more from promotion spending toward advertising spending, and it should be part of the overall media plan and attribution reporting," Nils Roehrig said.

TV advertising still matters

Carat forecasts that TV will account for 51% of total ad spending in 2017, down from 56% this year. "But that doesn't mean spending on TV ads has fallen," Adil Zaim said. "Growth in China's TV ad spending has slowed over the past five years, but it is still growing. As more money flows to digital channels, TV's share of total media spending has simply shrunk."

Carat's survey data show that time spent watching TV actually rose this year, to an average of 127 minutes per person per week. That may be partly because TV dramas now cater more to young people's tastes, and because there are more celebrity reality and variety shows aimed at young viewers. We analyze this in detail in this article.

According to Xu Youjie, products like laundry powder and liquid detergent suit TV ads better, while newer products such as laundry pods, which ask consumers to change their habits and appeal more readily to young people, lean toward digital media. There is no fixed formula; the advertising mix depends on how each product is positioned.

Still, P&G, and multinational FMCG companies in general, are far less active on TV than they used to be.

2016 CCTV advertising bids

The new "king of bids" for CCTV's 2016 advertising slots is Jilongdai, a P2P lending platform. P&G, which won the top spot three years in a row a decade ago, is nowhere near the top of the list.

FMCG is still the industry with the largest share of total bid value (19%), but its bids fell 31% from the previous year. Instead of Xinwen Lianbo (the main evening news) and the weather forecast, more FMCG brands are flocking to variety shows on provincial satellite TV channels.

Beverage makers' bids for Hunan TV's 2016 advertising rose 83%, making beverages the industry with the largest share of its ad slots. P&G's brands are again absent; near the top of that list are domestic brands Yili, Baisuishan and Feihe.

Over the past year, you may have noticed FMCG companies putting plenty of effort into gimmicks. Pepsi, for instance, actually made a phone. Yes, the cola company. It was only a Pepsi-licensed phone made under contract by Shenzhen Koobee Communication, but that did not stop the whole thing from being packaged as a pure publicity stunt.

Rather than launch the phone on a mainstream platform, Pepsi put it on JD Finance's crowdfunding site. The Pepsi phone drew more than 10,000 likes and over 3,000 followers and raised more than 1.3 million yuan, a respectable sum for a crowdfunded phone. But the target was set too high, and the phone missed its goal of 3 million yuan by the December 3 deadline.

We have heard of many similar stunts: Yili crowdfunding a limited-edition Star Wars milk, Budweiser launching a custom refrigerator... FMCG companies are also spending more and more on social media and on hit films and TV shows. Every beer you see in House of Cards season 3 belongs to Anheuser-Busch, and whenever some catchy idea starts trending on social media, Coca-Cola is always the first to jump on it.

"We don't really believe in hardware-driven innovation in FMCG. It's just a gimmick," Nils Roehrig said. Greg Paull agreed: "This is more about keeping the brand visible and has nothing to do with sales. What Pepsi probably wants to learn [by making a phone] is how young people use mobile."

Whether P&G can return to its peak depends on whether it can solve these problems soon. "Everyone says P&G is an elephant, but we have in fact been working hard to be an elephant that can dance," Xu Youjie said.

(Reporter Fei Liting also contributed to this article)

Graphics: Xu Bingqing

Cover image from Hellorf