Procter & Gamble’s decision to shift its China media negotiation business in-house raises some interesting questions about the way brands operate in China and their relationships with agencies.
The decision means P&G’s in-house purchasing team will negotiate directly with media vendors. Rather than rely on media agencies, who use the buying power of multiple clients to negotiate discounts, it has chosen to deal direct with the media properties.
The main motive is thought to be cost. P&G spends an estimated US$1 billion a year on advertising, and believes it can get a better deal negotiating itself. Other agency sources note that, as it spends more money on online media, and invests in areas such as content rather than paid-for advertising, P&G will need greater flexibility in its media deals.
While this decision affects only China, it falls against a backdrop of upheaval in P&G’s supplier relationships. In the US it has recently taken steps to ensure ad agencies use only production houses on a pre-approved list. In Asia, meanwhile, sources suggest that it may look to pull media negotiation in-house in the Philippines too. China, says one source close to the account, is a “pilot market”.
Greg Paull, principal at consultancy R3, believes the initiative should be welcomed. “P&G has always led the way in China on involvement in media and its latest move is just a further sign of this. We always urge clients to invest time in media negotiations and work with media vendors,” he says.
Paull argues that the complexity of the Chinese market means it makes sense for clients to take a close role in media negotiation. “But P&G, unlike most other companies, already has senior media people in its local marketing teams across Asia. I know a lot of companies are looking at [this model]. It’s easy to say, harder to execute. You need real China media specialists to pull it off,” he says.
The latter point raises a question about the timing of P&G’s decision. J Alfonso ‘Pon’ De Dios recently departed after 14 years at the company and, as one insider notes, he took a lot of P&G’s China media experience with him.
It’s certainly not unheard of for clients to deal direct. Andrew Carter, leader, Mindshare Shanghai, points out that local clients often negotiate directly with media owners. (Examples, say one source, include shampoo brand Bawang and detergent brand Liby.) However, Carter believes they will take the opposite path to P&G. “In China a lot of large local clients still book their media directly without using agencies. We are already seeing a reverse in this trend as local clients look to target international best practice by minimising wastage and improving their return on investment.”
One reason a multinational company might want to look at P&G’s model is corruption. While there is no evidence to suggest this is the motive behind P&G’s decision, some believe the murky relationship between agencies and media owners in many emerging markets means more global brands will consider this sort of approach.
One China-based agency head says: “If I was a client, I would be doing exactly the same things as P&G. The main reason for this is because of the sheer amount of corruption in China. It’s a growing market and television billings have increased enormously. If corruption is happening with the big brands, then they have to take care of it themselves.”
Paull agrees that corruption is “always an issue”, but adds: “I am sure P&G is focused on optimising the 100 per cent of its media money, not focused on the two to three per cent of potential corruption.” Another source argues other brands will see how P&G fares before deciding whether to copy the move.
There’s also the issue of what this means for P&G’s media agencies. Starcom sources insist the bulk of its fees came from planning and scheduling, and these will remain with the agency, as well as the actual buying of the media.
Yet, this sort of move will increase the pressure on agencies to raise their game in areas such as planning and consumer insight. If big clients begin to believe they can get a better deal on their own, agencies will need to work harder to prove the value they add.
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The decision means P&G’s in-house purchasing team will negotiate directly with media vendors. Rather than rely on media agencies, who use the buying power of multiple clients to negotiate discounts, it has chosen to deal direct with the media properties.
The main motive is thought to be cost. P&G spends an estimated US$1 billion a year on advertising, and believes it can get a better deal negotiating itself. Other agency sources note that, as it spends more money on online media, and invests in areas such as content rather than paid-for advertising, P&G will need greater flexibility in its media deals.
While this decision affects only China, it falls against a backdrop of upheaval in P&G’s supplier relationships. In the US it has recently taken steps to ensure ad agencies use only production houses on a pre-approved list. In Asia, meanwhile, sources suggest that it may look to pull media negotiation in-house in the Philippines too. China, says one source close to the account, is a “pilot market”.
Greg Paull, principal at consultancy R3, believes the initiative should be welcomed. “P&G has always led the way in China on involvement in media and its latest move is just a further sign of this. We always urge clients to invest time in media negotiations and work with media vendors,” he says.
Paull argues that the complexity of the Chinese market means it makes sense for clients to take a close role in media negotiation. “But P&G, unlike most other companies, already has senior media people in its local marketing teams across Asia. I know a lot of companies are looking at [this model]. It’s easy to say, harder to execute. You need real China media specialists to pull it off,” he says.
The latter point raises a question about the timing of P&G’s decision. J Alfonso ‘Pon’ De Dios recently departed after 14 years at the company and, as one insider notes, he took a lot of P&G’s China media experience with him.
It’s certainly not unheard of for clients to deal direct. Andrew Carter, leader, Mindshare Shanghai, points out that local clients often negotiate directly with media owners. (Examples, say one source, include shampoo brand Bawang and detergent brand Liby.) However, Carter believes they will take the opposite path to P&G. “In China a lot of large local clients still book their media directly without using agencies. We are already seeing a reverse in this trend as local clients look to target international best practice by minimising wastage and improving their return on investment.”
One reason a multinational company might want to look at P&G’s model is corruption. While there is no evidence to suggest this is the motive behind P&G’s decision, some believe the murky relationship between agencies and media owners in many emerging markets means more global brands will consider this sort of approach.
One China-based agency head says: “If I was a client, I would be doing exactly the same things as P&G. The main reason for this is because of the sheer amount of corruption in China. It’s a growing market and television billings have increased enormously. If corruption is happening with the big brands, then they have to take care of it themselves.”
Paull agrees that corruption is “always an issue”, but adds: “I am sure P&G is focused on optimising the 100 per cent of its media money, not focused on the two to three per cent of potential corruption.” Another source argues other brands will see how P&G fares before deciding whether to copy the move.
There’s also the issue of what this means for P&G’s media agencies. Starcom sources insist the bulk of its fees came from planning and scheduling, and these will remain with the agency, as well as the actual buying of the media.
Yet, this sort of move will increase the pressure on agencies to raise their game in areas such as planning and consumer insight. If big clients begin to believe they can get a better deal on their own, agencies will need to work harder to prove the value they add.
Got a view?
Email [email protected]
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