By Duane Sprague
Just about every financial decision we
make in our businesses has a ripple effect (good or bad)
on marketing, advertising, sales, PR, product quality or
customer service.
On Marketing
Budgets:
Seemingly positive accounting decisions can have the most damaging effect on
your company’s growth. For example, one of the biggest marketing mistakes
almost every business makes is that of tying this years marketing budget to
a percentage of last years sales.
Now this may sound perfectly normal and
acceptable, after all, “it’s acceptable business
or common accounting practice.” However, if this
years marketing budget is based on 3% of last years gross
sales, and this year you want to grow sales by 15%, than
how are you going to do that when your budget is based
on where you were, and not on where you want to go?
A marketing plan, strategy and budget
must be based on your future objectives and goals, and
not your past performance and sales. Too much focus on
the past keeps us there.
Unfortunately accountants don’t
understand advertising, nor do they like it, trust it or
believe in it. They don’t understand the concept
of forward equity, top-of-mind awareness, branding, creating
credibility through repeated exposure, and that more advertising
is required, not the same or less, in order to increase
traffic, leads, sales and profits. After all, as the old
saying goes, “nothing in business happens until a
sale is made.”
I qualify this by saying that more advertising
is required for increased sales, assuming that the advertising,
message, media buy, and internal training and processes
are all professional grade and effective. If not, more
advertising will certainly not increase sales.
When people say, “I tried advertising
and it doesn’t work.” It’s because they
applied a faulty advertising message or media plan, or
their faulty internal processes and systems could not close
the increased leads.
Every organization exists for two reasons:
To make sales and serve customers. All profits salaries
and jobs are created only and as a direct result of making
sales and servicing customers.
Therefore, every available dollar should
be directed toward marketing and customer service. This
is how you build a growth machine. Well-funded and aggressive
marketing strategies bring customers in and excellent customer
service retains them.
Ironically however, many business owners
don’t see it that way, or they allow the accountants
to take control. How many times have you heard, or even
said, “sales are down,
cut the advertising.” That’s like saying, “I
can’t breath, cut off my oxygen.”
What if the owner of a winning NASCAR
race team said, “We didn’t win the last race,
so if we cut our operating costs with cheaper fuel, a less
seasoned pit crew, and we bought re-capped tires, and only
re-built our engines after they blow-up, we could reduce
our overhead and increase our profit margins.” Yes
they would increase their profit margins for a short period,
and then they would be out of business.
One of the nations largest retailers
and mass-merchandisers is in dire-straights, closing stores,
and seeking bankruptcy protection as a direct result of
just such a decision. When K-Mart’s CEO saw an economic
slowdown ahead, he immediately cut the advertising budget.
He decided to “wait and see” what happens with
the economy.
The result was that K-Mart lost more
in sales than it saved in advertising. Wal-Mart and Target
maintained their advertising, and increased their sales,
profits and market share. Say good-by to K-Mart.
It’s a sad but common story in
American business. All too anctious to satisfy Wall Street,
the investors, or the short-term profit goals, advertising
and customer service budgets are cut, and quality controls
are abandoned. Poor decisions are made and not corrected
while they wait and see what the ripple effect will be.
More often than not, the ripple becomes a tidal wave and
it tanks the ship.
On Quality:
Cheap quality is very expensive, and good quality is cheap.
A slip in product quality, customer services,
or reputation all has a direct and negative impact on initial
and repeat sales. As well as stock value and profits.
Speaking on quality, GE’s CEO said, “Quality
is our best assurance of customer allegiance, our strongest
defense against foreign competition, and the only path
to sustained growth and earnings.”
Siemens, a giant electronics conglomerate
says, “Quality is when our
customers come back and our products don’t.”
Too much cost cutting can lead to corporate
anorexia. Sure your thin…but not very healthy. Nor
are you positioned for growth and aggressive warfare in
the battlefields of marketing.
Don’t let the accountants erode your product quality or styling (because
that’s what people buy), or your customer service (because that’s
what keeps people coming back), or your marketing budget (because that’s
what brings them in to begin with) in an attempt to increase short-term profits.
And never base this years-marketing budget on where you were last year, unless
that’s where you want to stay.
On R&D:
George Eastman, founder of Eastman Kodak, was an R&D and marketing guy.
And he built a massive company and empire. The CEO in the late 80’s and
early 90’s was a numbers guy. Instead of producing and marketing VHS
cassette tapes, which is a market they could have owned, they took a “wait
and see” approach. TDK and Maxell came in and stole the market.
Instead of investing in digital camera
technology, they waited. Sony, Olympus and Cannon came
in and stole the market.
In the early 1970’s Kodak introduced
the worlds most reliable and highest quality high-speed
high-volume copier. Which was sold by their newly developed
Office Imaging Division and by itself was a Fortune 300
company. They competed directly against Xerox and were
absolutely blowing the doors off of Xerox for several straight
years.
Xerox eventually gained their composure
and outsold Kodak, even though the Kodak product was far
more reliable, produced better quality copies, it was easier
to use, came with a better service program, and produced
larger volume capacities than the Xerox equipment.
Xerox won because they out-marketed Kodak.
Xerox created a better sales training program; they leased
a prominent building in each major market and placed their
name right on it, big and bold. Xerox hired at least two
salespeople for every one of Kodak’s.
Where Kodak had one marketing assistant
for every four sales reps, Xerox had one marketing assistant
for every two sales reps. The Kodak reps had a very small
expense account for client entertainment, and the Xerox
reps had a sizable expense account. Kodak never advertised
their products on TV or in business magazines. Xerox advertised
heavily and constantly.
Xerox invested in the new digital scanning
technology, while Kodak did not. When the sales and market
share figures began to drop, they decided to “wait
and see.” They did this for five years before they
reacted.
Kodak was forced to react by selling
the Office Imaging Division in 1994 for a fire sale price.
Despite having a superior product and superior service,
backed by one of America’s oldest, wealthiest and
most trusted companies, Kodak simply got out-gunned in
the marketing battlefield, while they waited to see. They
rested on their laurels of initial success and a superior
product. But they failed to maintain momentum with aggressive
marketing and advertising.
I predict that given the pace of the
digital revolution and Kodak’s lack of share in that
space, they will cease to exist as a film company by the
year 2010. Kodak always took the position that they wanted
to wait and see what happened with this new technology
before they jumped in. By the time they realized it was
a viable market or technology, it was taken by their competitors.
Motion begets motion. And stagnation
begets stagnation. Dynamic sales and marketing people are
attracted to companies who are cutting-edge, aggressive
and on-the move. And they leave companies that are stagnating
while they wait and see.
Advertising creates motion and not advertising creates stagnation.
Most companies are so afraid of losing
what they have, that they never leave the safety of 3rd
base to make the run to home. Their fear of loss or ridicule
keeps them from scoring.
Marketing is so critical to every aspect
of business and life, that the multi-millionaire speaker,
author and consultant Robert Kiyosaki in his best selling
book “Rich Dad Poor Dad” said: “The most
important specialized skills are sales and understanding
marketing.”
He said that because
nothing happens until a sale is made, and no matter how
smart you are, or how good you product is, or no matter
how well you control costs, if you don’t know how
to market advertise and sell consistently, efficiently
and aggressively, your company has virtually no future.
When things are slow, don’t pull
out of the market and “wait and see.” Light
it on fire and make it happen.
