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P&G Losing Market Share, Boosting Marketing Dollars

Procter & Gamble saw volume fall 5% globally in the last quarter, and consensus from analysts has it that the packaged goods giant may see earnings per share sink as much as 5% in fiscal 2010 (beginning July 1).

To prevent such slippage, P&G will likely boost marketing spending by as much as $750 million to $800 million next year, according to a report from Consumer Edge Research, writes AdAge.

The company hacked ad spending 7% to $3.2 billion in the fourth quarter of 2008.

With the increase in marketing budgets, the company is likely to look at rebranding and repackaging of its brands. For example, P&G is fighting back against the recession with $1 packages of Crest toothpaste. Selling a $1 product increases the likelihood that consumers will purchase a more expensive product from the same brand, points out 24/7 Wall Street. Someone looking at the $1 tube of Crest may buy the $3 tube with whitener, instead, if they can afford it.

P&G is struggling against value brands as consumers become more focused on pricing due to the recession. The company seems to be losing market share in 60% of its U.S. categories, as well as in some emerging markets and in Japan and Western Europe, said Deutsche Bank analyst Bill Schmitz. Schmitz says P&G likely understands that halting the slide in its tracks, now, is less expensive than trying to regain it later, a fact which will lead to increased spending.

Much of P&G’s increased marketing budget will go into developing markets such as the Arabian Peninsula and Pakistan, according to The National. The company is expecting to more than double sales in those markets in the next 15 years, from around $80 billion now to more than $175 billion.

P&G has seen sales decrease even in those markets: where previous growth has been in the 5% to 6% range, the last quarter saw growth of between 4% and 5%.

Head & Shoulders, one of P&G’s shampoo brands, was the top TV advertiser in the Middle Eastern region, spending $16.58 million, according to the Pan Arab Research Centre. Yassin al Attas, P&G general manager of external relations for the region, says the company will likely spend 7% to 10% more on advertising in the next year. Digital will be one category likely to increase spending, al Attas says.

The marketing budget in the U.S. is also liable to increase, specifically in the laundry category, where P&G is being particularly pressed. A Consumer Edge survey, for example, found that 19% of Tide’s core users have switched to a value brand, and 81% of them said they’ll likely stick with that brand after the recession eases.

Wall Street expects that P&G will pull back on its earnings and sales guidance for next year. The company has promised earnings growth in the double-digits for nearly the last decade but may not be able to make such promises this year.