P&G Slashed Digital Ad Spending, This Is What Happened Next

Submitted by Wolf Richter of WolfStreet

Tired of feeding an opaque, slimy industry of bots and fake clicks

Procter & Gamble, one of the largest and most sophisticated advertisers in the world, reported on Thursday that sales were slightly down in the fourth quarter and for the fiscal year, despite consumer price inflation. It’s the epitome of corporate revenue stagnation: only price increases keep revenues from declining. An activist investor – formerly called “corporate raider” – is breathing down its neck. So cost cutting to raise profits is the trick.

When a corporate giant cuts costs, it cuts the revenues of other companies.

And it did. Its “selling, general, and administrative expenses,” which include advertising and marketing, fell 7% in the quarter. Net income jumped 12%. And digital advertising took it on the chin in P&G’s earnings report:

Digital ad spending was lower versus a high base period and due to current period choices to temporarily restrict spending in digital forums where our ads were not being placed according to our standards and specifications.

Back in the day before digital ads, advertisers lived by a rule of thumb: Half of our advertising doesn’t work and is wasted; we just don’t know which half.

Digital advertising with all its consumer tracking technologies and direct micro-targeting promoted by now withering “adtech” companies or booming Facebook was supposed to have changed that equation. But it hasn’t. The hard part still is figuring out which half is wasted. But P&G is working on it.

When P&G speaks about cutting digital advertising, people listen, other companies follow, and the advertising industry quakes in its boots.

In April, P&G announced some details of its $12 billion or so cost-cutting binge over five years. This includes slashing $2 billion in advertising expenditures – among them $1 billion in media and $500 million in agency fees.

A year ago P&G announced that it would move away from ads on Facebook that micro-target specific consumers. Facebook is trying to leverage its enormous trove of consumer data to enhance its income. This has been its big promise. But P&G found that this micro-targeting of specific consumers based on the data Facebook has collected on them reduced reach and wasn’t working.

During the earnings call with analysts on Thursday (transcript via Seeking Alpha), CFO Jon Moeller explained the gist of it:

“In the fourth quarter, the reduction in marketing that occurred was almost all in the digital space. And what it reflected was a choice to cut spending from a digital standpoint where it was ineffective: where either we were serving bots as opposed to human beings, or where the placement of ads was not facilitating the equity of our brands.”

He touched on the two most common complaints about digital advertising scams:

  • Advertisers are paying for ads that are viewed and clicked on by bots, not humans.
  • Ads are placed by thousands of automated “ad exchanges” that are out of control of the advertiser on sites and pages that don’t match the advertiser’s products.

The entire vast space between legitimate advertisers and legitimate publishers is populated by a murky slimy world of often invisible entities, usually automated, that try to extract their cut and in the process further dilute the effectiveness of advertising expenses.

So P&G cut over $100 million out of its digital advertising spend in the fourth quarter, and this is what happened, according to Moeller: “We didn’t see a reduction in the growth rate.” And he added, “What that tells me is that that spending that we cut was largely ineffective.”

These spending cuts on digital ads are part of a larger strategy to more quickly halt spending on things – from ad campaigns to product development programs – that aren’t working, CEO David Taylor told the Wall Street Journal:

“We got some data that said either it was in a bad place or it was not effective,” Mr. Taylor said of the digital cuts. “And we shut it down and said, ‘We’re not going to follow a formula of how much you spend or share of voice. We want every dollar to add value for the consumer or add value for our stakeholders.”

P&G didn’t say if it would shift its ad spend from digital to other media, such as television. TV networks have long been clamoring that much of digital ad dollars disappear without trace in the opaque world of the Internet. But back in the day when we lived by the rule that half of ad spending was wasted and that we just didn’t know which half, there was no digital advertising – and TV networks got a big part of the pie, and still, half of the ad money just disappeared without producing results. So TV isn’t going to be the solution.

Marketing executives of other companies too have long riled against the murkiness of digital advertising, the false promises, the intractability of the Internet, the clicks and views by bots on which advertisers are wasting their money, and the billions of dollars that get blown without results. But getting a grip on what works and what doesn’t is hard.

There’s a larger issue: Retail spending (not adjusted for inflation) has grown on average 2.4% per year in the US over the past five years. Over the same period, digital advertising nearly doubled to $72.5 billion in 2016. Clearly, even digital advertising – despite the lure of Facebook and the like – cannot induce consumers overall to spend more and increase the size of the overall pie for advertisers. It can only, at best, divide up the pie differently.

And when one of the most sophisticated high-tech advertisers in the world decides it is overspending on digital advertising and is able to very carefully remove the rot, thus bringing down its costs without hurting its revenues, other companies will follow, with some consequences for the relentless but often ineffective surge of digital advertising dollars.

Investors who bought the hype of “adtech” in the world of digital advertising are left holding the bag.


847328_3527 Giant Meteor Sat, 07/29/2017 - 10:30 Permalink

How both middle-class and wealthy American families are sliding inexorably into the red http://www.marketwatch.com/story/how-you-can-still-be-broke-with-500000… matter how hard or how much they spend on ads or anything else; you can't squeeze blood out of a rock. 8 years of Soweeto-nomics has consequences. If you want a job, go to India or China where Soweeto sent them.

In reply to by Giant Meteor

pigpen Dame Ednas Possum Sat, 07/29/2017 - 20:43 Permalink

Dame ednas, you should use brave browser on any device iOS or Android, laptop, desktop or mobile. Blocks all ads and has embedded anti tracking that is on by default. Set it and forget it. Run any social media apps including YouTube out of the browser. No ads.It is time everybody uses this browser to destroy the Goobook duopoly. Revalue your attention. I'm surprised this hasn't been a mass movement to destroy these two companies. Change your browser and block ads and tracking by default. You will be amazed how fast and better your internet browsing experience will be.The amount of data you will save will be 30-40%.Cheers,Pigpen

In reply to by Dame Ednas Possum

CrazyCooter NoDebt Sat, 07/29/2017 - 13:10 Permalink

The reason P&G spends so much money on digital advertising is ... <drumroll> ... it's somebody's JOB! Do you really think that ad exec (and his team/org) is going to say "Hey, I think this is all BS - why don't you sack our budget and reallocate us to print media."Uh huh - ain't gonna happen.So, it goes until it is so painfully obvious that a higher level boss does his/her actual job and realizes their subordinates are wasting money and producing no value.And while I don't know exactly how it unfolds at that point - but it might look like a certain Great White concert ...Search is a different critter - but that is a commoditized utility at this point. If you don't like google, use duckduckgo.com.Regards,Cooter

In reply to by NoDebt

Antifaschistische CrazyCooter Sat, 07/29/2017 - 15:08 Permalink

had some VIP from big shot ad company as a guest lecturer in Business School.  She asked us how we determine what to spend on advertising.  Suckers in the class started spouting off marginal revenue/marginal cost rations, and other ROI crap.  I didn't know where she was going, but I sensed the trap.She said"no we don't do any of that.  that's all stuff you learn in school but we don't ever do that.  We help companies spend money....that's it.  They come to us and say 'we have a $50 million advertising budget this year what should we do'...and we help them spend $50 million" 

In reply to by CrazyCooter

Lore NoDebt Sat, 07/29/2017 - 23:15 Permalink

They're the internet equivalent of mosquitos, a constant, nagging, sometimes even system-crashing nuisance. Wouldn't you love to do something extremely unpleasant to the people who bring us those infuriating micro-pathologies from the likes of doubleclick, adblade, aproductmsg.com and googleapis.com?  I'm thinking of the fax-smashing scene from Office Space. I don't know about anyone else here, but I actively boycott companies that bog down my page loads with their 3rd-party shit. I keep a list. The absolute worst are those fucking little video ads.  Seriously, may hellfire rain down upon their asses.  

In reply to by NoDebt

Giant Meteor 847328_3527 Sat, 07/29/2017 - 10:43 Permalink

Yes, well between the wealth care, states attempting to squeeze every ounce of blood to fund their bankrupt enterprises, fees for this fees for that, the massive financialization of every fooking thing ..Tell me, what is the percentage of actual working people remaining, who are supporting the actual non working people ?.gov / and the FED are in a position where they absolutely MUST lie, to keep the few balls remaining, floating in mid air ..Meanwhile there is little actual real reporting of this .gov / FED oppression, least nothing of substance in the lame stream, yet we are regularly treated to evil Russian memes, and Mooch potty mouth stories ..Bloody hell .. 

In reply to by 847328_3527

Giant Meteor Taint Boil Sat, 07/29/2017 - 11:25 Permalink

It is however somewhat disheartening to see all those faces in the glow of their phones, like "Invasion of the Body Snatchers" has already occurred. I've seen them walk into oncoming traffic, after stepping off curbs, noses buried in phones ..It's fucking spooky I tell ya ..Brains, Brains! Send more cops ! (yeah a different flick)Zombies everywhere, boozed, drugged, tattooed, fellatiating their spy phones ..It's a jungle out there !

In reply to by Taint Boil

Giant Meteor ToSoft4Truth Sat, 07/29/2017 - 13:50 Permalink

Yes, yes ..You have a point there friend. However generally speaking I do that as I would read a book, or a newspaper, and when generally, I have nothing else of anything importance going on ..The phone? When not working I lose it .. the phone that is .. I prefer NOT to be perpetually connected to the "outside world." Not even to close familiy members and friends I might add ..Out at dinner, or home, conversing with family or friends? I would not think of being so ignorant as to stare into a screen while entertaining, engaging in real life social activities, like conversation, you know, like back in the olden days, when actually interacting with people, looking them in the eye when speaking, stuff like that ..Now, if you look at my posting history, you will find I've been a bit "scarce" prior to the last few days, due to something called work .. another lost art. Been very busy this hot summer, (since June) so no rest for the wicked, so to speak ..I've been lucky to get a few minutes here and there, to read myself to sleep (in about five minutes ..)Fear not however, as winter is coming ! 

In reply to by ToSoft4Truth

MoreFreedom Giant Meteor Sat, 07/29/2017 - 14:44 Permalink

Not only that but "page views" often (perhaps mostly) include pages that are closed before completely loaded or even if loaded the ad isn't seen because it's below requiing one scroll down for it to be visible.  And there are so many bots representing fake people loading pages.  Yep, its bad news for alot of digital advertisers. Marketing is more than placing an ad these day. 

In reply to by Giant Meteor

pigpen Lets_Eat_Ben Sat, 07/29/2017 - 11:52 Permalink

Please use brave browser and never see an ad again by default. Works on iOS and Android. Desktop or mobile. Run YouTube or any social network app out of the browser. Blazing fast as adblock and anti tracker are embedded in the browser.It is amazing how much data you save running brave browser esp with YouTube.Brave is basically chrome with adblocking and anti tracking. Set it and forget it. Even allows you to bypass the we notice you are using adblocking message.Cheers,Pigpen 

In reply to by Lets_Eat_Ben

Bad Attitude pigpen Sat, 07/29/2017 - 12:50 Permalink

Agree about Brave! I just started using Brave. I haven't completed the transition on my desktop, but Brave is fantastic on my iPhone.As to on-line advertising, I think it is largely ineffective because it is overly agressive - you don't make a positive impression by pissing people off. Pop-ups, pop-overs, and auto-play videos seriously piss me off, which is why I use ad-blockers and ScriptSafe. Forward (over the cliff)!

In reply to by pigpen

Ralph Spoilsport pigpen Sat, 07/29/2017 - 13:15 Permalink

I'd like to use Brave. After installing a few minutes ago (Linux version), it turned ZH pages into an unreadable mess within a minute. It does solve the "Reload the page after every vote" problem some of us were having on ZH. I'll play around with the settings before I give up on it because it is fast and blocks ads most everywhere I browse.

In reply to by pigpen

Metastatic Debt blueyefinity@y… (not verified) Sat, 07/29/2017 - 15:04 Permalink

I had to log in to 'reply' to your endless shilling OF YOUR OWN WEBSITE even on an article about how digital advertising does not work.Your total lack of comprehensive skills of the material substance of the article shows either you are a brain dead vegitable (someone PLEASE pull the plug for humanities sake) or your self shilling drive is so ingrained into your physical being that you have entered a psychotic super state that defies any form of intellectical critical thinking.Click bate does not work for P&G and it will not work for you.

In reply to by blueyefinity@y… (not verified)

GoldRulesPaperDrools willy up the creek Sat, 07/29/2017 - 17:45 Permalink

No, we only blame the JOOS because, at the end of things, they are the singular group of people with the influence behind most of it.  Not all of them, mind you, a lot of them are super-nice people.  I would even say most of them are ... but then you have the evil, influence peddling, money-grubbing Frankfurt School/George Soros types who ensure that the entire group of those people, the nice ones as well, will eventually be sucking down Zyklon-B again in shower stalls.

In reply to by willy up the creek

Giant Meteor Jay Sat, 07/29/2017 - 10:35 Permalink

Years ago there was this guy Bernay's, and he did this little ad campaign to entice women to smoke cigarettes, which had previously been "taboo." So cigarettes became "torches of freedom", as women started protesting, marching in the streets, and lighting up, and the rest as they say, is history ..PT Barnum had it right, although ..Human beans, previously ripe for exploitation, may be getting another clue  ..

In reply to by Jay

bonin006 Giant Meteor Sat, 07/29/2017 - 14:23 Permalink

It seems the real story behind "There's a sucker born every minute" is quite interesting. A competitor of Barnum had a fake statue of a giant which he was exhibiting, claiming it was real (and making a bunch of money off it). Barnum had a similar statue constructed, and buried on his property. He then hired people to dig a well on his property, instructing them to do it right where the statue was buried. Of course they found it and now Barnum had his "giant" to charge people to look at. It the other showman that said the famous quote, out of disgust after Barnum outdid him at the same game.

In reply to by Giant Meteor

Donald J. Trump Jay Sat, 07/29/2017 - 10:40 Permalink

Speaking of movies, notice the shrinkflation there too?  It used to go like this:  movie starts at 8:00pm.  Movie is 2 hours long.  Previews start at 8 and movie starts at 8:20.  Movie ends at 10:20.  Now, the movie ends at 10:00pm.  They are calculating the previews into the runtime of the movie.  A 2hr movie is now 1 hour 40 minutes.

In reply to by Jay