Martin Stuart Sorrell, chief executive officer of WPP Plc, gestures while speaking during a Bloomberg Television interview in London, U.K., on Tuesday, Nov. 28, 2017. Sorrel said WPP are aiming to make the company function as one. Photographer: Chris J. Ratcliffe/Bloomberg
For Sir Martin Sorrell, P&G’s clarion call comes at a particularly difficult time © Bloomberg

These are dark days for WPP and its rivals in the advertising industry. With professional services firms such as Deloitte and Accenture encroaching on to traditional advertising turf and Google and Facebook offering brands the ability to connect directly with vast numbers of people, the threats are numerous and everywhere.

The biggest of all comes in the form of reduced ad spending by consumer goods companies that are under pressure from activist investors. Procter & Gamble, the world’s largest advertiser and the owner of brands ranging from Gillette razors to Crest toothpaste, has trimmed $750m from its spending with ad groups since 2015 and plans to cut another $400m by 2021.

P&G, which has been grappling with the activist Nelson Peltz, spends about $10.7bn a year on advertising — more than any other company. But it is not actually cutting its annual marketing budget. Instead, it is shifting resources after discovering what Marc Pritchard, its chief brand officer, said this week was “substantial digital media waste”. He told the Financial Times the company wanted to make smarter bets and “take back control”.

There is some disagreement about how badly this will hit the ad groups. Sir Martin Sorrell, chief executive of WPP, sounded a bullish note on Thursday, telling the Enders/Deloitte telecoms and media conference that Mr Pritchard had been referring to taking back control of its digital marketing on technology platforms.

But there is little doubt that P&G’s cuts in spending with ad groups will also bite, given that it is planning to move more of its media planning, data and analytics in-house — functions and services offered by the likes of Publicis and WPP. In a speech in the US last week, Mr Pritchard even seemed to serve notice on the structure of the holding companies, saying it was “time to disrupt this archaic ‘Mad Men’ model”.

For WPP, P&G’s clarion call comes at a particularly difficult time. The company run by Sir Martin for 32 years owns advertising brands such as J Walter Thompson and Ogilvy & Mather but its shares have lost a third of their value over the past 12 months. They slumped again last week when WPP reported a drop in sales and said challenging conditions would continue into 2018.

Can Sir Martin turn things round? He has promised to “simplify our offer” in response to client demands, merging some agencies and offering clients single points of contact, allowing them to work with teams across all of WPP.

It is unclear how much simplification will be needed to appease clients such as P&G. But there are other options open to Sir Martin, who built WPP through the acquisition of hundreds of companies — namely, merging with a rival.

Others have tried — and failed — to merge the vast holding companies that dominate advertising. Five years ago, Publicis and rival Omnicom unveiled a $35bn merger plan but the deal collapsed amid acrimony and clashing egos. Combining WPP with a competitor such as Interpublic Group would improve its hand in the US and create significant synergies.

But would a merger solve the problem of complex holding company structures that has antagonised clients? Mr Pritchard was not referring specifically to WPP this week when he addressed the ISBA conference of UK advertisers but his comments were indicative of the broader concerns of brand owners.

“Our marketers have steadily outsourced work to agencies resulting in too many touch points between brand managers and consumers,” he said. “We need P&G people much closer to the consumers they serve.”

A merger between WPP and a rival would not address this issue of a simpler structure. With that in mind, Sir Martin would be better served redoubling his efforts at WPP.

The question is whether he has the stomach for what looks like an increasingly difficult task if, as seems likely, root and branch reform is really needed.

If he does not, he could always sell the company. There would likely be no shortage of buyers: the professional services giants, such as Accenture, that are eyeing WPP’s market share and increasingly moving on to its territory would be among the likely interested acquirers.

If a sale or merger does not appeal, Sir Martin could always leave the tough work of restructuring WPP to his successor, whoever that turns out to be. But the man who ushered in advertising’s modern era has shown no sign of stepping aside and all indications are that he is going to stick it out. He will know that a tough road lies ahead.

Matthew.Garrahan@ft.com

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