Rising Marketing Costs: Impacts on Consumer Goods Companies

Current trends in marketing expenses for consumer goods

Current trends in marketing expenses for consumer goods companies show a significant increase in investment. Companies like Coca-Cola and PepsiCo are ramping up advertising to justify price hikes and drive consumer engagement, while Procter & Gamble emphasizes maintaining marketing spend to support volume growth amid economic fluctuations.

"The increase in operating income was primarily driven by favorable pricing initiatives, lower operating expenses and the impact of acquired brands and structural changes, partially offset by a decline in concentrate sales volume of 1%, higher commodity costs and increased marketing spending." --- (KO, sec filing, 2024/Q1)

"But overall, we’re seeing, I think, a balanced consumer. The key is making sure that we’re providing the reasons to use our products, and the advertising that we’re executing across the market is very, very important to, one, justify the price increases that came through the category last year, but really to drive trade-up in the categories to ensure consumers see the real value and science-driven benefits of our products in our portfolio." --- (CL, earning call, 2024/Q1)

"business has, we’ve talked about resuming volume growth in most of the major markets and doing that while building margin and simultaneously increasing our investment in these kinds of things, and I don’t see any reason in a--if we do find ourselves in a more difficult environment from a consumer economic standpoint, one of the things we talk about internally is would we change our approach if we either had confidence that things were going to get remarkably better from a consumer standpoint or remarkably worse from a consumer standpoint, would we not want to be in daily use categories where performance drives brand choice?" --- (PG, earning call, 2024/Q4)

"We're investing in advertising and marketing even more, in the platforms that are growing, and that's what, overall, if we put it all together, we feel good about the second half of the year and the momentum that we will start 2025 with that." --- (PEP, earning call, 2024/Q2)

"These changes bring new consumers to our brands, as well as remind current consumers what drew them to their favorite beverages in the first place." --- (KO, earning call, 2024/Q1)

Impact of rising marketing costs on profitability

Rising marketing costs are significantly impacting profitability across consumer goods companies. Target and Walmart reported increased marketing expenses contributing to higher SG&A costs and reduced earnings margins. Conversely, Costco emphasized leveraging sales to mitigate these costs, highlighting the complex relationship between marketing investments and profitability.

"On the SG&A line, we saw a rate increase of about 130 basis points in the first quarter, reflecting the deleveraging effect of a decline in sales, combined with the impact of multiple cost increases, including compensation and benefits for our team and higher marketing expense to support the launch of Target Circle." --- (TGT, earning call, 2025/Q1)

"The increase for the six months ended July 31, 2024 was primarily driven by higher variable pay as a result of exceeding planned performance, higher marketing expenses and business reorganization costs of $0.3 billion incurred during the first quarter of fiscal 2025." --- (WMT, sec filing, 2025/Q2)

"In 2023, we made significant progress to lower our cost structure and improve overall profitability across all three of our segments. During 2022, we faced a number of challenges." --- (AMZN, event transcript, 2024/05/22)

"Net earnings decreased 7% to $3.0 billion as the increase in net sales was more than offset by a 170 basis-point decline in net earnings margin." --- (PG, sec filing, 2024/Q4)

"The higher our comparable sales exclusive of these items, the more we can leverage our selling general and administrative (SG&A) expenses, reducing them as a percentage of sales and enhancing profitability." --- (COST, sec filing, 2024/Q1)

Strategic adjustments in response to marketing cost pressures

Consumer goods companies are strategically adjusting to rising marketing costs by implementing pricing strategies to offset inflation, leveraging revenue growth management for value, and managing commodity price fluctuations. These approaches aim to maintain profitability while navigating cost pressures and driving growth.

"I think that talks to the strength of our brands and our need to continue to offset some of the inflationary pressures that we saw in the business. So overall, we’ll see pricing in the second half come--be a little bit lower than where we were in the second quarter, but given the levels of raw material inflation and the benefit of FTG, we still feel good about where we are from a gross profit standpoint." --- (CL, earning call, 2024/Q2)

"And I'm thinking about that in the context of commodity cost pressures easing a bit, or how do we think about your level of reinvestment as these cost savings maybe in an effort to drive faster top line growth?" --- (PEP, earning call, 2024/Q1)

"We generally use spot prices to forecast for the following year. Our ability to offset commodity fluctuation in our total exposure basket is the way we deal with the first level of volatility." --- (PG, conference, 2024/05/14)

"It's some good momentum in a number of the key markets with a lot of focus again on leveraging that RGM strength to provide both value and affordability as well as continue to be able to present to those who at the higher end of the spectrum what they're looking for." --- (KO, conference, 2024/09/05)

"We’ll get that through obviously funding the growth efforts that we have, good mix in terms of how we’re deploying some of our therapeutic brands around the world, taking pricing where we need to take offset, particularly inflationary and foreign exchange, and obviously very focused on the middle of the P&L, making sure we continue to get leverage there." --- (CL, earning call, 2024/Q1)

Consumer reactions to increased marketing efforts

Consumers are currently cautious and lack confidence, impacting their reactions to marketing efforts. Companies like Walmart and Target are adapting by focusing on value and engagement, while effective advertising must be relevant to drive consumer action. Overall, consumer sentiment remains volatile amidst rising marketing costs.

"The consumer at this point in time is not confident, right? And you can tell, I mean, we see improving market conditions, but we're not yet seeing optimism, which ultimately gives us some tailwind to drive category growth. We said all along this recovery will be volatile and bumpy." --- (PG, conference, 2024/05/14)

"Private-label products typically offer higher margins than national brands, and the company's efforts to introduce new and innovative private-label items have attracted customers seeking quality at lower prices.Consumer Demand and Economic ContextThe robust consumer demand highlighted in Walmart's earnings report indicates broader trends in the retail sector." --- (WMT, press release, 2024/08/21)

"So I think it's got to be really clear that while we're excited about the relaunch and the initial reaction, adding 1 million new members, this is going to be an ongoing commitment every week of the year as we continue to use Target Circle as a way to build greater engagement with guests." --- (TGT, earning call, 2025/Q1)

"And advertising really only works if the ads are helpful to customers and relevant to what they're shopping for, which ultimately leads to customers taking action and buying and success for advertisers, too." --- (AMZN, event transcript, 2024/05/22)

"Taking a closer look at margins, as we continue to work closely with our suppliers to lower cost, we're managing our Walmart U.S. pricing aligned to competitive price gaps, and customers are responding favorably, resulting in sustained sales growth and higher gross margins." --- (WMT, earning call, 2025/Q1)

Competitive dynamics in the face of rising costs

Rising marketing costs are prompting consumer goods companies to enhance their competitive strategies. Unilever notes increased marketing spending in key markets, while Procter & Gamble cites competitive activity affecting sales. Colgate-Palmolive emphasizes innovation and advertising to maintain demand, and Coca-Cola acknowledges cost inflation while focusing on productivity and pricing competitiveness.

"We see some increase in the level of competitive marketing spending, particularly in markets like U.S. and India, and this can demand a higher BMI in the next future." --- (UL, earning call, 2024/Q2)

"The unit volume decline was due primarily to Europe (due to higher pricing), North America (due to market decline and competitive activity) and IMEA (due to lower demand in the Middle East and increased pricing)." --- (PG, sec filing, 2024/Q3)

"And so when you combine that effort those efforts with the profession, with the significant increase in advertising, the innovation, the increased availability that we have now, we feel very good about the consistency of demand for our products and our competitive position." --- (CL, conference, 2024/06/11)

"But in the end, our strategy remains yes, there'll be cost inflation, yes, we'll look to put it through. Yes, we'll work on productivity." --- (KO, earning call, 2024/Q2)

"You know, our service has improved significantly. We have restored competitiveness in our pricing strategy and our promotion strategy, particularly in U.S. and Europe." --- (UL, earning call, 2024/Q2)

Future outlook on marketing costs and strategies

Consumer goods companies are adapting to rising marketing costs by enhancing integrated strategies and focusing on innovation. Procter & Gamble emphasizes delivering superior value, while Colgate-Palmolive plans to increase advertising to drive growth. Target is also prioritizing strong marketing leadership to maintain relevance and differentiation in their strategies.

"We continue to believe that the best path forward to deliver sustainable, balanced growth is to double down on the strategy, excellent execution of an integrated set of market constructive strategies delivered with a focus on balanced top and bottom line growth and value creation, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners. With that, we will be happy to take your questions." --- (PG, earning call, 2024/Q4)

"We're now in the midst of putting our 2,030 strategy together that says these are the need states that we want to grow and we're going to develop the R and D innovation and the go to market strategy to build those need states over the next 5 years, which we've done through 2025 and now we're going to do through 2,030." --- (CL, conference, 2024/06/05)

"In the meantime, we'll conduct a thorough search for a top brand marketer to succeed Lisa and build on our strong marketing foundation. As chief strategy and growth officer, Hennington will work closely with Cornell, Fiddelke and the rest of Target's leadership team to build on the retailer's roadmap for growth, ensuring the strategy remains relevant and differentiated as the company plans into its next growth horizon." --- (TGT, press release, 2024/06/25)

"We have confidence this remains the right strategy to deliver balanced growth and value creation. January - March Quarter Discussion Net sales in the third quarter of fiscal year 2024 were $20.2 billion, a one percent increase versus the prior year." --- (PG, press release, 2024/04/19)

"Our revamped strategy and increased advertising spending have allowed us to drive growth across a greater percentage of our portfolio, and our focus on core innovation is keeping our biggest brands relevant and vibrant in consumers’ minds." --- (CL, earning call, 2024/Q1)

Innovations in marketing to offset rising costs

Consumer goods companies are leveraging innovations in advertising, particularly through AI-driven solutions, to offset rising marketing costs. Companies like Google and Snap are enhancing their platforms and shifting budgets towards more effective digital channels, resulting in improved performance and increased demand for their advertising services.

"rate at nearly a quarter of the cost. In addition to strengthening our ads products for customers, we continue to evolve our existing systems and products with improved models delivering further performance gains. In just six months, AI-driven improvements to quality, relevance, and language understanding have improved Broad Match performance by 10% for advertisers using Smart Bidding." --- (GOOG, earning call, 2024/Q2)

"Derek Andersen: Thanks, Evan, and good afternoon, everyone. For the first quarter, revenue and adjusted EBITDA exceeded our expectations as a result of increased demand for our advertising solutions and an improved cost structure that enabled us to generate greater operating leverage." --- (SNAP, earning call, 2024/Q1)

"Analysts are already projecting major gains, with Statista projecting advertising spending enabled by AI amounted to a respectable $370 billion in 2022, but will rise significantly to $1.3 trillion by 2032." --- (GOOG, press release, 2024/05/30)

"We have made significant progress to start the year with revenue growing 21% year-over-year, an acceleration of 16 percentage points over the prior quarter growth rate, which was driven by improvements we have made to our advertising platform and an increase in demand for our advertising solutions while also benefiting from the impact of an improved operating environment." --- (SNAP, earning call, 2024/Q1)

"is continuing to benefit from a combination of strong watch time growth, viewer and advertiser innovation and a shift in brand advertising budgets from linear TV to YouTube." --- (GOOG, earning call, 2024/Q2)