Everyone’s at it: reducing (or trying to) the amount they spend on agency fees.
Procter & Gamble is trying to chop $500m from the amount it pays agencies (in the summer it announced it had so far saved $300m) and now Unilever says it is trying to save $1bn a year by switching to the dreaded ‘zero-based’ budgeting – which forces managers to justify expenditure from the ground up every year – and also by cracking down on internal marketing costs.
Zero-based budgeting is favoured by private equity giant 3G which owns Kraft Heinz, among others. Heinz caused controversy in the UK recently by offering payment terms of 97 days to its agencies.
Unilever spends nearly $9bn on marketing to generate $58bn of sales, which sounds fair enough. But, in 2014, agency and other creative costs accounted for 22 per cent of the $9bn. In 2011 it was an eyebrow raising 30 per cent.
Presumably, though, it gets what it pays for. Clients like Unilever now want a presence in all sorts of media that were unheard of five years ago plus they want the highest creative standards. Last year its ad budget rose by 12 per cent in constant currency terms despite the beginnings of the crackdown.
Zero-based budgeting is the nuclear solution to this. Is forcing managers to undertake this dreary process the best way to get the best out of them?
It’s not hard to imagine what people like WPP’s Sir Martin Sorrell make of this – Unilever is a big WPP client. Sorrell regularly bemoans the reluctance of big companies to invest in brand building. If he has a cat he’ll be kicking it.