Several common refrains about spending are often untrue. It is often untrue that grandfathered spending programs or trade allowances are simply “the cost of doing business”. In a similar vein, it is often not accurate when executives say that if “we stop that program our sales will dry up over-night”. Finally it is definitely untrue when some say that “all spending has some beneficial effect on my business”.
We often find situations where client spending actually hurts their business. In these situations, we usually find clients spending money against initiatives that are actually in conflict with their core competency or brand equities.
Examples of poor company spending i.e. spending that actually weakens a clients image and bottom line are unfortunately numerous.
- A specialty chemical manufacturer that wasted money on promotional spending in an attempt to compete with large bulk manufacturers. The specialty company could never match the prices of its huge competitors and in effect lowered its margins so far that it caused stress within the company. The solution for this client was to use its spending resources to create awareness for its unique ability to meet complicated, fast turnaround order requirements for a very large potential customer base.
- A consumer products company with the best reputation within its industry for innovation was nevertheless spending all of its available resources on promoting its products at retail. It spent so much in that effort that it was unable to launch a stable of innovative new products it owned. Eventually, the company successfully launched these new products, maintained its sales base and generated millions more from the new products.
- A contract manufacturer of nutritional supplements was the leader within its industry vis-à-vis delivering high quality, high compliance products. Yet, the company redirected sales, spending and infrastructure against efforts that targeted direct to consumer marketing and against the Rx manufacturing market. This strategy nearly bankrupted the company. When it returned to its competency, it was able to attract several new and lucrative customers.
The common thread in all of these cases was that spending against non core competency initiatives actually hurt the companies. Common as well was that walking away from some of these initiatives did not dry sales up over-night and was not the cost of doing business.
As you evaluate how to build your business via proactive spending initiatives, ensure first that you understand what your competencies are and how spending programs can best work when they support those competencies.