What's behind P&G's cutback on targeted Facebook ads?

August 15, 2016 10:51
With over 100 brands, P&G is the world's largest advertiser, using a mix of traditional as well as digital media. Image credit: gurufocus

Facebook has dominated the social network world with its 1.6 billion users. However, the world's biggest advertiser, Procter & Gamble, said recently that it will scale back ads on Facebook that target specific consumers, and consider more spending on traditional platforms like TV. The news has shocked the advertising and internet world.

Marc Pritchard, P&G's chief marketing officer, made the announcement in an interview with the Wall Street Journal last week. Pritchard said targeted ads placed with Facebook did not boost sales as much as expected.

"We targeted too much, and we went too narrow," he said in the interview, "and now we're looking at: What is the best way to get the most reach but also the right precision?"

The so-called targeted ads would pitch ads to a specific group of target customers. For example, if P&G intends to unveil a new perfume primarily for 25-35 year-old office ladies, it can place ads with Facebook asking for this specific group to be targeted at, bypassing females in other age groups and males.

Targeted ads based on attributes of users have always been viewed as the strength of social media platforms like Facebook. By contrast, traditional media like TV and newspapers are unable to zero in on a certain type of viewers or readers specifically.

Such targeted online advertising is supposed to minimize waste, which is typical when advertising on traditional media.

P&G spends nearly US$8 billion each year on advertising. After numerous reviews of its campaigns, it has now concluded that targeted ads are not as cost effective as expected.

In one example, the company tried ads for its Febreze air freshener, targeting pet owners and households with large families. Sales had been tepid until P&G carried out another campaign.

Using a similar budget, the company sprinkled the spending across a wide range of media, traditional plus online. Sales took off with the new approach. 

Traditional mass-market advertising approach offers some synergy to a consumer giant like P&G which owns more than 100 brands.

For example, a sanitary towel ad in a subway station, though not intended for male customers, can raise the brand awareness. Next time when the customers are looking for, say shavers, there is a greater chance they may pick P&G products.

P&G has already ramped up ad spending on traditional media while scaling back from targeted ads, according to the Wall Street Journal.

The consumer products titan spent as much as 35 percent of its annual ad budget on digital media, and the percentage kept increasing in recent years.

But now the strategic shift means the trend could reverse in coming years.

Does P&G's decision spell the victory of traditional media?

Not necessarily.

Audiences' shift from traditional media to online platforms remains an irreversible trend. As such, digital advertising is set to keep expanding.

P&G's high profile cut-back of targeted ads spending on Facebook could be just a bargaining tactic.

The company measures the efficiency of ads in dollar value, or how much business an ad brings.

The cost-per-view of targeting ads on Facebook is a lot higher than of traditional, undifferentiating media.

To reach 5,000 targeted viewers on Facebook, the spending needed can reach the equivalent of that required to reach a million TV viewers, according to Peter Daboll, chief executive of Ace Metrix, which tests ads for effectiveness.

That means targeted ads on Facebook are about 200 times more expensive than traditional ads.

But if P&G can get a better deal, Facebook advertising has the potential to become more alluring.

This article appeared in the Hong Kong Economic Journal on Aug. 12.

Translation by Julie zhu with additional reporting

[Chinese version 中文版]

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Hong Kong Economic Journal columnist