Kraft shifting spend to reach more consumers. But at the cost of effectiveness?

On August 7th KraftHeinz took a billion+ in charges and the stock plunged. The next day on an investor call the CEO Miguel Patricio said this:

“In marketing, we are increasing investment, but media spend is declining because we are putting money behind other things [like] agency fees, production and research. [Investment in] the things consumers see are declining to pay for other expenses. These are inefficiencies we can redeploy,”

It’s hard to argue that they would not benefit in spending more to increase favorable opinions and behaviors among consumers. This money is apparently coming from what we frequently call “non-working” spend (things consumers don’t see) to “working” spend (the media dollars which translates to more eyeballs). There’s nothing inherently wrong with running a tight ship. It’s good to make sure that your balance of working to non-working media is in line. The danger is that you over-correct. Here’s an oversimplified equation.

Quality of the creative (the ad) x Exposure of the creative (media $) = Results

What makes for a great ad? A solid strategy grounded in deeply resonant consumer insights that leads to a great creative idea from your agency brought to life by excellent production.

Therefore, we want to maintain the balance of the equation. Are you cutting the research that leads you to great insights? To understand what it is about your brands that people find different and special? Research costs can get out of hand and in CPG there is arguably too much research (focused on justification rather than illumination). Just be careful.

Let’s move to the agency fees. Ask the agency to take a 10% fee reduction, and they will remove 10% of the expenses (people) off your business. Maybe they will take time from the most expensive and experienced people working on your business. Good agencies cannot just accept lower margins; they need to balance their own books. Great agencies will probably just walk away. Could you find a smaller, less expensive agency that is a diamond in the rough? Maybe. The expense is not driven by the fact that agencies are rolling in margins. The number of different agencies involved and the inefficiencies of the marketing planning /development cycle drive much of the expense. Agency time is agency money. Shorter, sharper development cycles might be a smarter choice.

Production expenses show up in the quality of the ads. A cheap director and production company will shoot your ad inexpensively. A great director will make your ad better than the version you handed her. The costs for producing advertising vary widely and there are more options to save money now. You do not always need to spend a fortune and certainly, money is wasted in over-produced ads. However, you do generally get what you pay for.

David Abbott, a famous British advertiser, once famously said, "Shit that arrives at the speed of light is still shit."

Do look for efficiencies. Do prioritize spend on the areas that generate the most return. Do hunt for those diamond in the rough agencies and production resources that can deliver top quality at a great price.

But don’t be naïve. Don’t spend more money showing people worse ads. The equation just doesn’t work.