WPP just lost a huge chunk of one of its oldest, most valuable accounts, Johnson & Johnson
- WPP, the world's largest ad agency holding company, just lost a huge chunk of one of its oldest, most valuable accounts, Johnson & Johnson.
- WPP shut down its dedicated division for J&J's consumer products in July as a result.
- The loss impacts the majority of the J&J account, which meant an estimated $75-$100 million in annual revenue to WPP.
- The mega-conglomerate has slashed its marketing budget in recent years, cutting spending by more than 13% in 2018 and 10% so far in 2019.
- After the WPP split, Johnson & Johnson chose much-smaller agency Doner, part of the MDC Partners network, to handle advertising for Tylenol, Listerine, and Zyrtec.
- Despite these cuts and fighting high-profile class action lawsuits, Johnson and Johnson easily beat earnings estimates for Q3.
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As the ad agency holding company model continues to face challenges on all sides, the world's largest such network, WPP, just lost most of the business of one of its oldest and most valuable clients, Johnson & Johnson.
As a result of that loss, WPP in July dissolved called The Neighborhood, the dedicated division it created last year to market Johnson & Johnson's consumer products in the United States.
The closure followed a series of cuts to Johnson & Johnson's ad budget earlier this year and a decision to stop using WPP to advertise its North American consumer products, several sources with direct knowledge told Business Insider.
One person tied J&J's decision to changes in WPP leadership, saying J&J was unhappy with a series of executive-level departures in recent months.
J&J and JWT had one of the ad industry's oldest agency-client relationships. Agency founder James Thompson befriended Robert Wood Johnson, one of the three brothers who started the company, and created some of its earliest ads in the late 18th century.
The top-earning pharma company just chose to 'evolve' its ad agency model again
"Johnson & Johnson Consumer recently established a new business model that streamlines our priorities and allows us to be more agile and focuses on relevant innovations that provide the most positive impact on our consumers' lives," said a company spokesperson. "As we look ahead to 2020, we've identified ways to evolve our agency ecosystem to better support our business."
"After a great deal of analysis and consideration, we made the difficult decision to end our AOR partnership in the United States with bespoke agency solution, The Neighborhood, led by Wunderman Thompson," the spokesperson continued. "We're grateful for the team's partnership and collaboration and we're proud of the work we've achieved together. Our partnerships with Wunderman Thompson outside the US remain intact."
It's unclear how many WPP employees lost their jobs as a result of the move. A holding company spokesperson declined to comment.
J&J is by far the world's most profitable pharma company, but it faces legal challenges to all three divisions of its business. Ongoing or recently concluded lawsuits allege that its medical device ads misled consumers, that its prescription painkillers contributed to the opioid epidemic, and that talc in its baby powder led to thousands of cases of cancer over decades.
J&J consolidated work with holding companies last year to save money on marketing
The Neighborhood was housed in the offices of creative agency J. Walter Thompson, or JWT, after review that was limited to the client's main holding company partners WPP and Omnicom. At the time, The Wall Street Journal reported that the review's goal was to cut costs by 30% by consolidating creative, production, PR, in-store marketing and other functions on a holding company-wide level and ending J&J's contracts with other agencies.
The Neighborhood included staff from agencies JWT, VML, Hogarth, and Geometry as well as PR firms Ogilvy, Marina Maher Communications and Burson Cohn Wolfe. Omnicom's equivalent, Velocity, consists of creative shops DDB, BBDO, and various Omnicom PR teams. IPG Mediabrands agency UM continues to handle media planning and buying for Johnson and Johnson.
J&J continued to look for ways to cut its operating expenses. This past May, Adweek reported that The Neighborhood and Velocity were hit by a 13% year-over-year reduction in Johnson and Johnson's paid media budget. A spokesperson then confirmed to PRWeek that there had been cuts on the ad side but said the model remained "strong." Two months later, The Neighborhood closed.
A new agency will oversee marketing for Tylenol, Listerine, and Zyrtec
After dropping WPP, Johnson & Johnson hired Doner, a far smaller network owned by holding company MDC Partners.
Johnson & Johnson confirmed that Doner would lead creative for Tylenol, Listerine and allergy medication Zyrtec, and that Velocity continues to work on its consumer health business.
Two people with knowledge of the matter also said that Omnicom picked up some new business. Spokespeople for Doner and Omnicom's lead agency DDB declined to comment.
Data intelligence firm Kantar estimated Johnson & Johnson spent just over $394 million on marketing in the U.S. in the first six months of 2019, down 10% from the year-ago period. About three-quarters of that total went to consumer goods, though the company earns nearly three times as much revenue from pharma sales worldwide, according to last week's quarterly earnings report.
The sources who spoke to Business Insider said J&J consolidated much of its U.S. pharma marketing business with WPP in 2018, around the same time The Neighborhood launched; the company will retain that work moving forward.