In the last five years, consumer-product giant Procter & Gamble (PG ) has sharpened the effectiveness of its advertising, even as it has become harder to reach consumers in the fragmented media market. The numbers tell the story. In its last fiscal year, the nation's largest advertiser spent $4.4 billion -- 10% of sales -- on marketing. The number of products it sold, so-called unit volume, surged 8%, more than double the increase competitors saw. And analysts expect volume to accelerate about 9% this fiscal year.
Compare that with fiscal 1998, the last time P&G spent as much as 10% on marketing: Then, volume rose just 4%. While many variables affect volume, such as designing better products, it's safe to say smarter advertising is playing a role.
Much of this success has come on the watch of P&G Global Marketing Officer James R. Stengel. He climbed to P&G's top marketing post in 2001, after starting his career at P&G as a brand assistant in 1983. In a recent interview with BusinessWeek Correspondent Robert Berner, Stengel explained how he sees the change in mass marketing and how P&G is responding. Edited excerpts of their conversation follow:
Q: How do you see the dynamics of mass marketing shifting?
A:The consumer is changing. She is fundamentally changing -- in terms of how she consumes entertainment, how she consumes information, how she interacts, how she spends her free time -- what's important to her. No matter if you're in China or the U.S. or in Germany, it's really changing.
There isn't one consumer. I don't think there ever was. But it's more true now than ever. Obviously, that poses challenges for larger marketers like ourselves. But we think it poses some interesting opportunities for those who understand that.
People are exposed to a lot of ideas. Interests have become more specialized, just as the media has. It's an exciting change. We're well set up to embrace it because of our product portfolio. We're in everything from high-end cosmetics and fragrances to detergents, so it gives us a great understanding of those changes.
Q: What's the biggest impact this has on P&G's marketing?
A:The way consumers are interacting with TV is changing. And I think the way advertisers need to think about TV is changing and must change more. That's a big one.
Q: How about the Internet?
A:As [a means to reach] consumers, obviously the Internet has been enormous. Everyone kind of says, "Well, that was the dot-com thing, and it went away." No! I mean, if you look at how consumers are spending their time, it increases every year.
Q: Is it harder to get as good a return on your advertising by being more targeted?
A:The reality is the more targeted you are, the bigger bang you'll get. You find the people. You're very focused on them. You become relevant to them. Every one of our brands follows the 80/20 rule [80% of sales and profits generally come from the 20% of customers who are most loyal].
We don't want to be in an ivory tower creating marketing and then throw it over the wall. We really do think there is a renewal and a rebirth of marketing, which we think is really exciting.
Q: Are advertising agencies and others you deal with in the business thinking the same way?
A:We've developed a lot of new partnerships because this is the way we think we need to go forward. It's better for us if the media companies are in touch with the consumer and changing so that we can together develop marketing programs that are effective. The question is: "Is everyone changing fast enough with the consumer at the center of all this?"