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P&G Changes Ad Payment Setup

September 15, 1999

CINCINNATI (AP) _ Procter & Gamble Co., one of the nation’s biggest advertisers, will change the way it pays advertising agencies, linking their compensation to the company’s sales.

Beginning July 1, P&G will pay agencies a percentage of global brand sales instead of commissions based on media spending. P&G, one of the nation’s biggest advertisers, spends more than $3 billion each year to promote its 300 consumer product brands like Tide, Crest and Folger’s.

``It’s really simple: As we grow, our agencies grow,″ Bob Wehling, the company’s global marketing officer, said Wednesday.

P&G now pays ad agencies a percentage of what it spends to advertise its products on television, radio, magazines, newspapers and other media. That results in marketing plans skewed toward traditional forums of television and print to the exclusion of the Internet and direct mail, P&G and ad agency officials said.

In the past few years, an increasing number of companies have adopted similar plans for agency compensation that tie agency pay to sales or other measures of advertising performance like brand awareness.

Procter & Gamble has taken the lead in pushing the advertising and Internet industries to provide more advertising opportunities.

In 1994, Edwin Artzt, then the company’s chairman and chief executive, warned in a speech that the advertising industry was being left behind by rapidly changing technologies and the growing importance of the Internet.

In August 1998, P&G sponsored a meeting of advertisers and Internet industry leaders to discuss strategies for online advertising.

The company is also pushing ahead with its own Internet ventures. On Monday, P&G announced it is teaming with the investment firm Institutional Venture Partners to create a Web site called reflect.com to sell customized beauty care products. The Web site is to begin operating later this year.

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