June 14, 2023

When A Handful Of Vendors Put You In A Tough Financial Spot

The email said "will these constant paper and paper pricing issues subside?" The email was from a seasoned catalog veteran, somebody who has seen it all ... and in response to seeing it all, is shifting dollars as fast as she can into digital tactics.

In this Marketing Budget Experiment, paper/printing/postage costs increase 5% per year and just keep increasing 5% per year. If everything else remains constant, the p&l suffers.

Oh my goodness.

This brand (> $200,000,000 in annual sales) gives up a whopping $16,000,000 in profit over five years. It did nothing wrong - it's just going to hand profit over to paper/printing/postage folks who pass cost increases along to them.

Your CFO doesn't like this story. She's going to demand you make draconian cuts to "save the p&l". So you do that. You cut out 60% of the circ to make the p&l look GREAT next year. But then you end up in an ever-downward spiral where you never have enough customers to fuel the success of your brand. Now your p&l looks like this.

Your CFO did this to your brand. Without access to Marketing Budget Experiments, nobody could see that a ton of short-term decisions led to long-term pain. You literally optimize your way out of business over time. Oh sure, there's still profit to be had. But if you keep trying to optimize every-single-year instead of suffering the long-term consequences of vendors taking your profit, you toss your brand into the vortex - you swirl into oblivion.

Two years of emails from exasperated catalog leaders ... "how do we deal with these paper people?". 

You need to show them each scenario. If you let them take your profit, you are much less profitable. If you try to optimize and cut back as a consequence, you enter the vortex and have no future (which means they have no future).

Don't do the latter.

Have a stern conversation about the former.

Behind the scenes, be darn sure to shift your marketing dollars to modern channels, ok? It's time.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.

Your Low-Cost Items

In most of my projects in the past nine months, the importance of having "something" at a low price repeats ... a recurring theme ...