Global Marketer Gets Lean & Mean

18 Apr

marketing services agency networkAt the beginning of 2012 PepsiCo announced a series of strategic enterprise expense reduction initiatives.  These included the elimination of 8,700 employees representing 3% of its global workforce plus additional cost reductions of $500 million per annum over the course of the next three years and an announced streamlining of its marketing services agency roster.

It was announced that part of the savings from that initiative would be invested back into marketing PepsiCo’s beverage brands to narrow the competitive spending gap with category leader Coca Cola.  According to Jefferies & Co. in 2010 Coca Cola spent 8% of annual revenues to market its beverage brands compared to 3% for PepsiCo.

On April 13, 2012 it was reported by Advertising Age that Pepsi’s North America beverage division had completed the downsizing of its agency roster.  The result?  Pepsi eliminated sixty-five percent of its beverage division’s marketing agencies, approximately 100 agencies.  Long-time agency partner Omnicom Group was the big winner, strengthening its hold on what has been a long-term client relationship.

To PepsiCo’s credit, it had recognized that its agency roster had become bloated in recent years and took aggressive action to right size its marketing services agency network.  So what will this move yield for the beverage giant?  Well for one, the consolidation of responsibilities across fewer agencies will yield a combination of agency fee and expense reductions tied to the elimination of duplicative efforts and overlapping roles and responsibilities across its marketing agency network.  Secondly, the reduction in the size of PepsiCo’s agency roster will enhance the marketing team’s focus and ability to effectively engage its marketing partners in a meaningful collaboration to build sales, market share and brand strength.

Managing and motivating a smaller group of suppliers is certainly less complex than doing so with an agency network numbering over 150 marketing agencies.  However, post-consolidation PepsiCo’s North American beverage division will continue to work with approximately fifty agencies.  While there will continue to be challenges in aligning agency resource investment and effort with the division’s business goals, establishing performance criteria and systematically monitoring progress across its media, creative services, digital, diversity, promotion and PR agencies this is clearly a step in the right direction.

Hats off to PepsiCo for taking a measured approach to identifying a supply-chain optimization strategy that has the potential to both save money and enhance marketing ROI.  In the words of Benjamin Franklin; “Well done is better than well said.”

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