Procter & Gamble (P&G) has reported a noticeable improvement in the effectiveness of its marketing spend, three months after promising to increase its investment in digital media.
At the same time, the FMCG giant continued to increase its marketing investments to communicate the “superiority” of its brands, which allowed it to increase its prices in the United States during the last quarter without “change noticeable” in consumer behavior.
In the company’s financial results for the second quarter of its fiscal year, P&G revealed that it increased its marketing spend by 50 basis points compared to the same period in 2020.
However, overall marketing spend as a percentage of sales decreased by 80 basis points, indicating that the company’s marketing spend is working harder and generating greater sales volume.
Speaking to investors today (January 19), Chief Financial Officer Andre Schulten said the improvement was due to sales leverage and savings from “non-functional marketing costs”.
Building on the strength of our brands, we thoughtfully execute tailored price increases.
André Schulten, P&G
Although he did not specify in which channels the marketing investments were spent, Schulten said during the last financial update in october that the company hoped to “optimize” its marketing strategy by increasing its digital media spend in all markets.
“We believe there are still significant opportunities to optimize our ability to reach consumers more broadly and more effectively at a significantly lower cost,” Schulten said at the time.
“[We will] increase the percentage of digital media globally, as we continue to optimize our own algorithms to target consumer-facing messages.
P&G recorded net sales of $21bn (£15.4bn) for its latest quarter between October and December, an increase of 6%, or $1.3bn (£954m) compared to the second quarter of the 2020/2021 financial year. Net profit rose 9% from $3.9bn (£2.9bn) to $4.2bn (£3.1bn).
Nine out of 10 product categories have increased market share in the past three, six and 12 months in the United States, even as inflation weighs heavily on household budgets, which Schulten attributes to consumers preferring brands P&G and “the superior performance they deliver”.
Price hikes don’t put consumers off
However, P&G CEO Jon Moeller admitted that the company has never faced more “volatility” than it is currently experiencing when it comes to geopolitics, regulation, health, supply and safety. workforce.
The impact of the new Covid-19 Omicron variant, combined with inflationary pressures and supply chain difficulties, are all driving up operational costs. The company is looking to offset some of these cost pressures with price increases, Schulten said.
“Building on the strength of our brands, we are thoughtfully executing tailored price increases. We have [combined] prices rise with innovation to improve consumer value along the way,” he said.
The company announced price increases in each of its 10 product categories in the United States, with increases in baby care, feminine care, adult incontinence, family care, home care, hair care, oral care, skin care and detergents now prevailing in the market.
Detergent price increases have also taken place in recent months, Schulten said. Price increases on select US healthcare brands were also announced to retailers yesterday, starting in mid-April.
“We expect pricing to be a strong contributor to sales growth in the second half of the year as more of our price increases become effective in the market,” Schulten said.
“As these prices hit store shelves, we will closely monitor consumer trends. So far, we have not seen any noticeable changes in consumer behavior.
P&G said price elasticity was lower than it would have been historically, with price elasticity on brands that saw increases in September and October in the range of 20-30% lower than what the company would have predicted based on historical data.
Demand for the company’s best-performing and most expensive brands remains “very strong” as their market share tends to increase, Schulten added, attributing the “strong superiority” of P&G’s brands.
“For price increases where we have a sufficient reading period at this point, we have seen a milder consumer reaction. The consumer is generally healthy and prefers our brands,” he said.
“We are therefore reassured by the strength of our brands, broad-based portfolio growth globally, broad-based portfolio growth across all categories and near-term consumer response.”