July 23, 2023

When You Cannot Make Marketing Dollars Work Anymore

One of our intrepid readers sent me an email from the paper industry. The content in the message suggested that changing the quality of the paper being used could impact the response/cost relationship.

Or not.

When I was given responsibility for Catalog Circulation at Eddie Bauer in 1998 (my goodness, that's forever ago), our marketing dollars no longer worked. It wouldn't have mattered that a paper rep had a "breakthrough" ... the breakthrough was meaningless. The brand had overspent on marketing for years. Each additional dollar spent was spent at a short-term loss. Each additional dollar spent did not generate enough long-term profit to overcome the short-term loss.

We couldn't make marketing dollars work anymore.

At this point, you have three options.

  1. Keep doing the same thing the same way and cross your fingers, hoping for luck to smile upon you.
  2. Cut back on marketing spend, take a top-line hit, but improve your profitability (hint - Business Leaders DO NOT LIKE DOING THIS).
  3. Improve merchandise productivity by 10% to 20% so that your marketing dollars work again.
Have you ever criticized a merchant at your company?

You better have thick skin if you're going to do it. Criticism is necessary. Your merchants (or your product team) are responsible for 70% of the success of your business. If your marketing dollars no longer work, it suggests your merchandise productivity no longer works.

Back then I'd present multiple scenarios to Management.
  1. Base-case, running the business as-is.
  2. Increased marketing spend based on a 10% increase in merchandise productivity.
In (2) the top-line surged, marketing spend usually increased modestly, and the p&l looked a lot better. That's where everybody would begin grumbling.
  • "How do you increase merchandise productivity by 10%?"
  • "If we could increase merchandise productivity by 10%, don't you think we would have already done that, idiot?"
Tomorrow I'll share a report I created back in 2013 ... having come out of the Great Recession, there were a few good years for my clients, and then ... businesses struggled. One fact stood out, repeatedly ...

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