By SHARON TERLEP and DEEPA SEETHARAMAN
Updated Aug. 9, 2016 1:12 p.m. ET
Procter & Gamble Co., the biggest advertising spender in the world, will move away from ads on Facebook that target specific consumers, concluding that the practice has limited effectiveness.
Facebook Inc. has spent years developing its ability to zero in on consumers based on demographics, shopping habits and life milestones. P&G, the maker of myriad household goods including Tide and Pampers, initially jumped at the opportunity to market directly to subsets of shoppers, from teenage shavers to first-time homeowners.
Marc Pritchard, P&G’s chief marketing officer, said the company has realized it took the strategy too far.
“We targeted too much, and we went too narrow,” he said in an interview, “and now we’re looking at: What is the best way to get the most reach but also the right precision?”
Mr. Pritchard said P&G won’t cut back on Facebook spending and will employ targeted ads where it makes sense, such as pitching diapers to expectant mothers. He said P&G has ramped up spending both on digital sites and traditional platforms. One category the company is scaling back: smaller websites that lack the reach of sites such as Facebook, Google and YouTube.
On a broader scale, P&G’s shift highlights the limits of such targeting for big brands, one of the cornerstones of Facebook’s ad business. The social network is able to command higher prices for its targeted marketing; the narrower the targeting the more expensive the ad.
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P&G could be the bellwether on how consumer goods companies and big brands use digital advertising. Over the past year some marketers, specifically consumer product companies, have discovered they need to go “much more broad” with their advertising on social media sites such as Facebook, said James Douglas, executive director of social-media agency Society, which is owned by Interpublic Group.
Mr. Douglas said case studies show that companies can receive a bigger sales increase if they reach a more significant portion of a platform’s overall audience.
For instance, P&G two years ago tried targeting ads for its Febreze air freshener at pet owners and households with large families. The brand found that sales stagnated during the effort, but they rose when the campaign on Facebook and elsewhere was expanded last March to include anyone over 18.
A Facebook spokeswoman said its partnership with P&G “grows every year” and the two companies learn from one another. “That has always been the spirit of how we work together and challenge one another,” she said.
Facebook started working on a targeted ad system in 2007, when it was an unprofitable three-year-old startup with less than 60 million active users. At the time, its main marketing platform was free Facebook pages through which companies promoted their products.
Facebook has since emerged as a marketing platform of singular scale. Last year, Facebook raked in $17.08 billion in ad revenue, up 49% year over year, as advertisers sought the attention of its 1.7 billion monthly active users.
Advertisers can pinpoint their target audience precisely. Political candidates can focus on users in congressional districts, restaurant chains can run campaigns to spicy food lovers, and moving companies can find users who are “very likely” to move to another home.
“If you could run an ad and reach a million people or run a targeted ad to reach 5,000, you have to have pretty impressive returns on that 5,000 to make it worth it,” said Peter Daboll, chief executive of Ace Metrix, which tests ads for effectiveness and works with Facebook.
Cincinnati-based P&G spent roughly $7.2 billion on advertising globally in the year that ended in June, up about 1% from the previous year, according to company filings. P&G said it plans to increase it around 5% for the year that started July 1. Prior to last year’s increase, the company cut spending two years in a row.
P&G’s push to find broader reach with its advertising is also evident in the company’s recent increases in television spending. Toward the end of last year P&G began shifting money back into television, according to people familiar with the matter. During the first quarter of 2016, the company’s ad spending jumped 11% to $429 million from the year earlier, Kantar Media said.
For many of the largest advertisers in the world, the precise targeting tools touted by Facebook are less of a draw, said Pivotal Research analyst Brian Weiser.
“The bigger your brand, the more you need broad reach and less targeted media,” he said. Targeting is paramount for advertisers trying to get users to download a game app or a small business trying to appeal to local customers.
Facebook has started offering new tools specifically for large advertisers, including a way to boost brand awareness by showing ads to people who are more likely to pay attention to them. On Tuesday, it introduced changes that make it harder for people to block ads from appearing on its desktop website.
“The cornerstone of our ad strategy is a mix of mass reach and personalized targeting that lends well to mobile consumption and is a strong complement to TV,” the Facebook spokeswoman said.
Not all big advertisers are pulling back on Facebook’s targeted marketing.
Priceline Group Inc. said it expects lower returns in the current quarter from bookings generated from its advertising, much of which goes through Alphabet Inc.’s Google. As a result the travel company plans to increase spending on Facebook’s targeted ads.
“We found that a number of things we’ve done on Facebook works well,” Chief Executive Jeffery Boyd said. “We would like to spend more money on Facebook going forward.”
—Suzanne Vranica contributed to this article.