Saturday, December 13, 2008

"Purpose Brands"

Customers dont buy products, they "hire" products to get a job done.

A "Job" is the fundamental problem that customer needs to resolve in a given situation- a concept that was introduced by Clayton Christensen.
Think about this for a while. It is an important concept to understand because many marketers think of "need-based marketing" when positioning products. According to this school of thought, a product must meet customers' needs. Problem is that needs are not static. Customers' buying behavior change far more often - function of situation and environment.

When a product does a job well, it creates a potential for marketers to create "purpose brands". A purpose brand links customers' realization that they need to do a job with a product designed to do it. Think of powerful brands - FedEx, Starbucks, BlackBerry and Google. Each of these brands is associated with a clear purpose and pop into customers' minds when they need to do the jobs that these products were optimized to do.

Without specific purpose for their products, marketing executives must attempt brand building through expensive advertising. But given the high fixed cost of building new brands through advertising, it deters many companies to build new brands at all, so the acquire and consolidate brands instead.

Positioning products to do specific jobs help companies target their advertising more effectively. To give you an example, a chain of scuba diving shops marketed its diving classes and gear by segmenting customers by "demography"-primarily people who subscribed to scuba diving magazines - and zip codes to market locally. However, they still failed to succeed. But when they asked their customers in what situations they "hired" scuba gear, they found that most of them were engaged couples and planning wedding trips in tropical destinations. No surpises then, the company started purchasing mailing list from Brides instead of Dive magazine.

RECOMMENDED READING: For further reading, I recommend following books on this subject available at Amazon Store. Simply click and buy!

Learning to Love Recessions

Recession strikes different sectors in different ways, and at different times - but it is not always bad for everyone. Studies show that some companies emerge from recession stronger and more highly valued than they were before economy soured. By making strategic choices that defy conventional wisdom, these companies outperform their peers and doing so increase their market valuations. But if past is prologue, many companies would also lose their market leadership during this recession while others wouldn't last longer and fail.

McKinsey Quarterly studied the impact of last recession in 2000-01. Many companies weren’t prepared for the recession and nearly 40 % of leading US industrial companies toppled from the first quartile in their sectors during the recession, and a third of leading US banks met the same fate. At the same time, 15 % of companies that had not been industry leaders prior to the last recession vaulted into those positions during it.

So what distinguishes winners from losers? Are there certain attributes of successful companies, both during the recession and healthier economic times? Definitely, yes.
There are certain characteristics that successful companies have exhibited both prior to recession and during recession, which might help explain why they outperformed their peers.

Preparedness: Recessions strike different sectors in different ways and at different times. But the post-recession leaders across sectors had one characteristic in common - they were better prepare than others.

Pre-recession strategy: Successful companies enter downturn with a great degree of strategic flexibility which becomes even more valuable during the recession. Before the recession, these companies have made good decisions to:

  • Maintain lower leverage on their balance sheets - lower Debt-to-Equity (D/E) ratios
  • Control operating expenses better
  • Diversify product portfolio and geographic presence.

By comparison, their unsuccessful peers leverage heavily as they try to expand through acquisition and alliances, before the recession. Not only that most companies would leverage to increase dividend payments or buy back share in good times.

Successful companies follow a conservative strategy in good times. These companies increase their asset-base through capital expenditures but with a different growth strategy - they rely more on organic growth rather than M&A, joint ventures etc. Also these post-recession leaders avoid excess capacity through restrained spending.

Recession strategy: Recession strategy is simply reverse of pre-recession strategy. Unlike their conservative peers in recession, successful firms are not afraid to spend their cash reserves. They leapfrog the competition by continuing to invest and grow inorganically through M&A - possibly buying cheaper assets from distressed sellers.

Also for most companies, selling, general and administrative (SG&A) costs are typically difficult to cut in the short term. However, successful firms are better positioned because of their increased operating flexibilty before the recession. It gives them immense advantage to cut spending selectively. Note that these post-recession leaders continue to focus spending on 3 key areas -even during recession: innovation (R&D), marketing programs and customer service for key customers.

Example (from McKinsey Quarterly): Starbucks used these tactics successfully in holding its market leadership before and after the recession. It maintained a low D/E ratio of 8% compared with average of 14% for restaurant sector, in 1996. The company consistently reduded its leverage every year until 1999 - to a low of 2% compared to industry average of 31%. Strategy was to grow by licensing outlets- expanded proportion of licensed outlets from 7% in 1998 to 23% in 2000. The company continued to build on its strategy of licensing and international expansion through alliances even during the recession (Exhibit). Currently, Starbucks' alliances contribute 14 % of the company’s revenues but account for 39 % of its profits.

When the recession struck, Starbucks avoided price cuts by offering innovative value-add services (WiFi internet access in Starbucks stores), Starbucks card and improved customer service.

If you have followed my previous posts, you might have noticed a consistent theme and common characteristics of successful companies. Their strategy defy conventional wisdom as they play conservative in good times and grow aggressively through acquisitions and product innovations-during recession. Such contrarian strategies have helped these companies beat their competition and in the process, create more wealth for its shareholders.

RECOMMENDED READING: Following books are recommended for further reading.

Friday, December 12, 2008

Pricing in Economic Downturn

These are tough times. In an economic downturn like this, decreasing demand combined with excess capacity and greater price sensitivity continue to drive down prices.

In most downturns, it is seen that the cost of raw materials, feedstocks, and other upstream supplies tends to stabilize and even decrease as the overall business activity slows. As a result,decreases in downstream prices are at least partially offset by lower upstream costs.

But in this unusual donwturn, not only is weaker demand from the end user making it harder to maintain prices, but significantly higher and more volatile input costs mean that companies are getting hit from both sides. What’s a business to do?

According to McKinsey research, in the current downturn, companies need to manage the profitability of individual customers and transactions with greater precision (read: "Concept of Pocket Price Waterfall"),develop richer insights into their customers’ changing needs and price sensitivities, and understand more clearly the microeconomics that shape their own industries and those of their suppliers.

McKinsey & Co assembled five tactics to find the best balance possible between sales volume and profit margins in the current challenging environment

1) Watch for sudden shifts in price structure: Companies should be vigilant in monitoring pricing policing that reduces revenues - such as volume discounts, rebates and cashbacks- as well as cost to serve their customers. Good companies are reviewing their pocket margin waterfalls closely and more frequently - to understand how much revenue company is really keeping from each of their transaction and adjusting pricing policy accordingly. Read my previous blog on pocket margin for more specifics.

2) Monitor customer-level profitability: By analyzing transaction-level data, companies can measure customer profitability. By doing so, companies can detect if cost to serve particular customers and/or declining volume (or sales) are nudging those customers below desired profitability levels. Based on this insight, companies should selectively raise prices, where possible, and reduce cost to serve by finding alternate and cost-effective channels

3) Adjust to changing customer needs: Customer needs and buying patters change during economic downturns. And, say, if your company operates in B2B environment and your customers are businesses, it is crucial to understand how the downturn has affected them. It is likely that their business is as slow and struggling as yours - orders will likely fall and cost of serve could increase if you do not find better ways to do inventory management.

4) Analyze price sensitivity models: Update price sensitivity research by re-running your costing and pricing models for all products and services. Inflationary downturn has made consumer more price sensitive than before - dramatic increase in food prices and gas has cut a little more from discretionary budgets, sharply increasing price sensitivity

5) Industry microeconomics: Extreme volatility in a downturn demands that companies reexamine not only the microeconomics of their own industries but also the microeconomics of their suppliers' industries.

Get your company's pricing right !

RECOMMENDED READING: Beating the Business Cycle (Lakshman) & Pricing With Confidence(Reed)

Tuesday, December 9, 2008

Make This Blog Work for You!

Hi everyone, couple of things about this blog. This blog is for everyone in business today. Whether you are a senior executive or small-business owner, brand manager or product manager, marketing manager or sales executive - you will likely gain from shared perspectives on business and marketing. Content is the key to success of any blog - therefore, I spend a good time in researching different business models and marketing strategies before posting them at this blog.

Read new and archive posts from the list under "Blog Archive". Blog posts include key marketing and management topics. This blog focuses on discussion of some of the most complex but insightful concepts and theories of marketing management. Most articles discuss strategic aspects of business and marketing - wherever I can, I'll share my experiences to back it up. And I invite you to comment on these posts and share your experiences.

Contribute to this blog community by posting your comments and starting a discussion thread. Feel free to share your experience at work as relevant to topic of the post.

Again, if you have questions or disagree with the content in the post, please use the "comment" feature at the end of the post. If you would like me to write on topics of your interest - in marketing or business - I will be glad to post articles of your interest.

At the end of each post, I recommend interesting books and literature for further reading. More often than not, I have studied books that I recommend. In some cases, when I post these articles, I make reference from the same books.
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Have fun Reading and Learning!!

Monday, December 8, 2008

Economic Value Added (EVA)

This is a follow-up to my earlier post: What's Your Profit? I recommend reading that post first to understand the nuts and bolts of Economic Value Added (EVA).

EVA (or economic profit) is found by taking the net operating profit after taxes (NOPAT) for a particular period (such as a year) and subtracting the annual cost of ALL the capital a firm uses. EVA recognizes all capital costs, including the opportunity cost of the shareholder funds.
EVA Example: This example illustrates how a company's economic profit differs from its accounting profit. It also explains application of EVA in calculating "true" profitability of business.
Let us review the formula for EVA:
EVA = NOPAT - After Tax Cost of Total Capital
= EBIT (1- Tax Rate) - (Total Capital) (After Tax cost of capital)
Total capital used here is total assets minus current liabilities. Hence, it is long term liabilities plus equity (preferred stock and common stock)

Say, a company with $100,000 in equity capital (stated at fair value)and $100,000 in 8% debt (also at fair value) had $60,000 in earnings before interest and taxes (EBIT). Assume that $200,000 equals capital employed. The corporate tax rate is 40%. Company's weighted average after-tax cost of capital is 14%.

EBIT =$60,000
- Taxes (40% x 60,000) = ($24,000)
NOPAT= $36,000
- Capital Charge (14% x 200,000) = ($28,000)
EVA = $ 8,000
The company's traditional income statement reports income of $31,200 calculated as follows:
EBIT =$60,000
- Interest (8% x 100,000) = ($8,000)
Income Before Taxes= $52,000
- Income Taxes (40% x 52,000) = ($20,800)
Net Income After Tax = $31,200
Initially a 31.2% return on equity ($31,200 or net income/ $100,000 of equity capital) seems favourable, but WHAT IS THE COST OF THAT EQUITY CAPITAL?
Given equal amounts of debt and equity, the cost of equity capital is calculated as follows:
14% = (1/2)(4.8%)+"X"(1/2) : after-tax cost of debt capital =8% (1.0-40%)=4.8%
=>Cost of equity capital ("X") = 23.2%
Thus, $23,200 of $31,200 of net income is nothing more than the opportunity cost of equity capital. The $8,000 (31,000 - 23,000) of EVA is the only portion of earnings that has created real value for shareholders. Accordingly, if net income after tax had been only $20,000 (a 20% return on equity), shareholder value would have been reduced because cost of equity capital exceeded returns.
RECOMMENDED READING: For further reading, I recommend two books - simply click and and purchase from Amazon Store.

What's your Profit?

Recently, I was working on an assignment that involved analyzing financial statements for a company. It does not take a finance-major to calculate profits of the company - it is that simple!
However, calculating "economic profit" can be tricky as it is not same as the "accounting-profit" we are accustomed to seeing in corporate profit and loss statement.
Economic profit is a term used for "Economic Value Added (EVA)" - a registered trademark of Stern Stewart & Co. To many, the EVA metric is shrouded in complexity - and therefore, wanted to spend some time explaining this concept in very simple terms. Moreover, in this post, I will try to give you a perspective on the importance of this metric - as I found it during my financial analysis of the company which reported net profits in their annual report but had a negative EVA; in other words it incurred "economic loss".

So if you are scratching your head over this, you are not alone. It is a new concept so many business leaders do not know about this and those who understand it (i.e. CFOs, CEOs, COOs) do not necessarily care about it as much because financial markets still use "account profit" or coporate earnings as a key performance metric for public companies. However, recently, I have been reading about companies such as Eli Lilly (a pharma-major) reporting "economic profit" in the financial highlights section of Annual Report. Not only that, more and more companies are using EVA for internal reporting and bonuses.

Why is it important for you to know about "economic profit"? Besides, the fact that it should make you feel smarter! You should understand it because it is at heart of the business- measure of operation's "true" profitability. And did I tell you that it has generated a growing interest among financial analysts who are often comparing company's reported "accounting profits" with their true "economic profits".
UNDERSTANDING EVA (ECONOMIC PROFIT): If you have looked at the income statement, you would know net earnings (net income or profit) is measured as follows:
or "Accounting Profit") ..........................(A)

SO WHAT IS WRONG WITH THIS? The cost of debt capital (or interest expense) is deducted when calculating Net Earnings, but no cost is deducted to account for the cost of common equity.
Hence, in an economic sense , net earnings overstates "true" income. EVA overcomes this flaw in conventional accounting.
EVA (or economic profit) is found by taking the net operating profit after taxes (NOPAT) for a particular period (such as a year) and subtracting the annual cost of ALL the capital a firm uses. EVA recognizes all capital costs, including the opportunity cost of the shareholder funds.
EVA = NOPAT - After-tax cost of total capitaL
= Earnings before Interest and Taxes (EBIT) * (1-tax rate)
- (Total Capital) * (After-tax cost of capital)
WHOAAA!! If I lost you in this financial "jargon" of the cost of capital, debt and equity; let us take a moment to review few basic concepts of financing:
Companies often invest in growth projects and operations. These projects require external or internal financing to fund these projects or investments. Internally, companies use their cash and retained earnings. Externally, companies generate this capital either by DEBT or EQUITY financing. If a company apply for a bank-loan or issues corporate bonds, it is terms as debt financing. The company incurs a cost of debt capital (referred as "interest expenses" ) in addition to principal amount due in fixed term.
Alternatively, a company can also issue stocks (equity) in exchange for shareholders' funds. This is called "equity financing". Just like cost of debt capital, equity capital has a cost because funds provided by shareholders could have been invested elsewhere where they would have earned some return. The return they could earn elsewhere in investments of equal risk represents the cost of equity capital. This cost is an opportunity cost rather than an accounting cost, but it is quite real nevertheless.

Unless you are in finance or accounting, I doubt if you'll ever use EVA calculations at work. But as a business leader you should always remember that EVA is a measure of company's "true" economic profit. Such economic profits are the basis of shareholder value creation - purpose and goal of any business.

RECOMMENDED READING: Following are two books, I recommend reading on the subject of EVA and its implementation.

"Pocket-Price Waterfall"

In 2003, McKinsey & Co introduced a concept of "Pocket-Price Waterfall" (see: chart below). In the booming years of the 1990s, robust demand and different cost cutting programs drove up corporate earnings. Therefore, managers didn't pay any attention to pricing- they didn't have any reasons to worry about it then.

But now in these times of economic downturn - weaker demand and declining earnings - it has exposed shortfall in pricing capabilities. Many companies have already completed much needed cost-cutting and are struggling to sustain their earning-levels in these turbulent times.

In this post, I explain what it is the concept of "pocket price waterfall". And then how you can use these concepts to develop pricing strategy. Before reading this post, I recommend you to read my previous posts on "Power of Pricing" and "Pursuit of Premium Pricing".

Let's get started with concept definitions:

POCKET PRICE: The "pocket price" is a measure of the effective price paid by the customer in a particular transaction after accounting for all relevant discounts, promotions, rebates and allowances.

POCKET PRICE WATERFALL: The "pocket price waterfall" reveals how price erodes between a company's invoice figure and the actual amount paid by the customer--the transaction price. It tracks volume purchase discounts, early payment bonuses, and frequent customer incentives that squeeze a company's profits

Now why is it all that important? Right pricing is a more subtle game than setting list prices or even tracking invoice prices. Significant amounts of dollars can leak away from list or base prices as customers receive discounts, incentives and other giveaways to seal contracts and maintain volumes.

In the chart above, McKinsey studied a case of global lighting supplier who saw different customer discounts and promotions itemized on each invoice pushed average invoice price by 32.8% below standard base price (or list price). As if that wasn't enough - more revenue leaks beyond invoice prices are not detailed on invoices. These off-invoice leakes include cash discounts for prompt payments, cost of carrying account receivables, off-invoice promotional programs and freight expenses. In the end, company's average pocket price was half of its standard price - drop of 16.3% point in revenue deductions that did not appear in invoices!!

POCKET PRICE BAND: Pocket price waterfall is created as an average of all transactions. But in reality, amount and type of discounts vary on a customer to customer basis. It may even vary by order. Therefore pocket prices can vary a great deal. "Pocket price band" plots the range of pocket prices over which any given unit volume of a single product sells.

STRATEGY: Smart companies look at this band and identify "costly" and "unprofitable" customers. It is important to direct sales force to bring into line- or drop- these customers getting ungodly high discounts. At the same time, it is important to get more share of profitable customers. Launch intensive marketing programs to stimulate sales at customers generating higher pocket price for the company.

Remember a 1% increase in price will boost company's operating profits by more than 11%. (read Power of Pricing)

RECOMMENDED READING: Two great books on pricing and competition- "Pricing Strategy" by Morris Engelson and "Blue Ocean Strategy" by Kim and Mauborgne.

Sunday, December 7, 2008

The Power of 'Pricing'

"Pricing" is the biggest of 4Ps of the Marketing Mix (Product, PRICE, Place and Promotion). Yet so often businesses are reactive in their pricing strategy - largely founded on competitive pricing pressures. It is no secret then that market-share in mature markets is often won by waging price-wars with your competition.

By reducing prices, businesses would probably win market-share. But such a pricing strategy would dimish value of premium products, commoditize brands and, ultimately, hurt the bottom line. It is the latter that most companies haven't understood quite well - how much a pricing strategy could affect the bottom-line.

We all understand that increasing pricing improves Revenues. What most marketers do not understand is that "pricing" is a profit lever - directly impacting company's bottom line.

Consider this: By increasing Price by 1%, the "operating profit" rises by more than 11%. (based on Compustat survey of 2463 companies).

No other profit lever matches Pricing's impact on Operating profits:
1) a 1% reduction in variable costs, improves profits by 7.8%.
2) a 1% increase in sales volume (units), improves profits by 3.3% only.

Reducing "price" for premium product should not be a strategy - not even your last resort. Companies like General Motors (GM) have been market leader in the US but unprofitable. The sole purpose of business is to ensure profitable returns for its shareholders- GM was bleeding cash even when it was a market leader and now it is at the brink of bankruptcy. How did that happen? Well! put it simply, regardless of the top-line, if companies dont make enough profits and under pressures from analysts, they will trim marketing budgets and cut operational expenses to achieve targeted profits (EPS).
Classic example of "downward spiral": blind cost-cutting results in inferior product quality and limited marketing resources - which in turn results in drop in sales/revenues. In order to maintain their top-line, companies would cut their price again falling into the trap of "shrinking" profitability.

But then you might ask, and rightly so, how can businesses maintain current price-levels and leave alone raising prices for products/services in these times of economic downturn.

Follow my next post on "Pursuit of premium pricing" for answers to these questions.

RECOMMENDED READING: For those interested in further reading on pricing strategies, I'd recommend two books:


3) Basic Marketing (Kenneth Wong)*

[* Ken Wong is professor in marketing at Queen's University. He is one of the best marketing minds and thought leaders in Canada. I had the fortune to be taught Advanced Marketing courses by Ken during my MBA class at Queen's in 2005. I majored in Marketing and I still use lessons from Ken's classes to date - at work.]

Saturday, December 6, 2008

SWOT and Strategic Marketing

If you have worked on business-case development, you know that "SWOT analysis" is central to analyzing market opportunities or any business investment for that matter. SWOT is an acronym for Strength, Weakness, Opportunity and Threat analysis. It is a tool used to analyze external factors (opportunities/threats) and internal factors or capabilities (strengths/weaknesses). I am not going to explain here how to do a SWOT analysis - that's easy.

The difficult part is to know what to do with SWOT analysis. In other words, you have just completed SWOT - now what? In my own experience, I have seen people jumping from SWOT analysis to defining their value proposition and product-fit (with opportunity). They have missed the point though - SWOT analysis is as good as its application....

What is SWOT's application - you might ask. Well! in simple terms SWOT results should define your marketing strategy.

Strategy is about choices. Strategy demands a focus of effort, deciding where your priorities lie and, by implication, deciding what you will no do. SWOT helps define that "strategic focus" and therefore allow businesses to market strategically - define their competitive turf and build capabilities to beat the competition.

From my days at business school, I remember key lessons from our marketing class - and one such lesson was on "strategic marketing" and the "right" use of SWOT analysis. "Opportunities and Threats" help define market attractiveness. At the same time, "Strengths and Weaknesses" analysis explain how well the company is positioned vis-à-vis competition.

Armed with this information, business leaders should apply different strategies depending on competitive position in both potential and/or existing markets (see chart above). [This strategic framework was shared by Prof. Ken Wong of Marketing at Queen's University. He is an award-winning professor and frequently cited marketing authority. He is a Professor of Business, expert in marketing and business strategy, and co-author of Canada’s largest-selling introductory marketing text, Basic Marketing]

1) INVEST - Build/buy capabilities if your product/business unit is positioned strongly in an attractive market. (These are your "Star" products or businesses)

2) BE SELECTIVE - Given medium-to-weak competitive position in a flat-growth market market, companies should invest their dollars selectively. Game theory would tell us how companies would still invest in weak categories and declining markets to distract their competition from investing in their turf.

3) HARVEST/ DIVEST - Milk your "cash cows" and sell-off "dogs" (or sick units). Harvesting strategy calls for increasing prices, halt product development and cut down on customer-service. This is done to strategically wind down business and move customers away from and towards "stars" products/units.

By applying SWOT analysis to develop a marketing strategy, companies would be able to leverage market opportunities effectively and invest to build a strong competitive position.

RECOMMENDED READING: For better grasp of strategic marketing, I'd recommend one of the best books on this subject- Basic Marketing, written by Ken Wong. Another book is SWOT Analysis part I and II - from Harvard Business School Press.


This is a follow-up to my earlier post: "Tough Times Call for Tough Actions- Not Panic".

Small and large businesses are struggling to survive this recession. But SMART businesses continue to thrive (and not just survive) in these tough times. Of course, it isn't easy -else it wouldn't have been a problem for many. But SMART businesses take smart and BOLD measures -sometimes even challenging status-quo of "recessionary" thinking. It requires business leaders to undertake a new strategic thinking rooted in courage and hopefulness - not fear and rejection.

STRATEGY: Strategy is about choices. Understandably, not many businesses would plan for growth in a time of recession and decline. Their response is instinctive and fearful -"let us cut our losses". They are "preparing to die: slowy but surely".

Shouldn't their response be : "let us find ways in which we could maintain steady growth" that is needed to weather-out the tough storm.

Strategy demands a focus of efforts - deciding where your priorities lie. Three key areas of business operations - Marketing, Finance and Operations - require strategic re-thinking...explained below.

MARKETING: Marketing is all the more important in tough times as it directly contributes to the top-line (Revenues). Following actions are required:
1) Identify your niche: If you haven't found it already, it is about time! Niche marketing optimizes market efforts and budget. Once a niche is found, it secures your customer-base from competition. Your target customers identify with your product/service brands. I don't think people who buy iMacs would start buying DELL notebooks -even during a recession.
2) Analyze your marketing ROI: Make sure you are getting most bang for your buck (dollars). It is important to measure marketing's ROI and optimize your marketing programs.
3) Re-negotiate sales compensation/bonuses : Rather than laying-off your sales team and guarantee revenue losses, take this opportunity to re-negotiate sales compensations.
4) Show "Love" to your Key Customer : Hire key account managers for your large customers. Depending on industry, most companies find 80% of their revenues coming from 20% of customers (it is a generalization of Pareto's80/20 rule --- could be 70/30 or even 60/40 mix between large and small customers)

OPERATIONS: Responsible for cutting costs and improving the bottom line.
1) Cut wasteful spending: Cut unwanted and wasteful expenses - for example, corporate travel expenses could drop by as much as 50% if companies use remote web-meeting tools like WebEx or GoToMyPC
2) Consolidate assets: Lease and not buy fixed assets like office computers, furniture etc. Consolidate your data-center, storage and other IT assets.

FINANCING/INVESTING: Recession is a great time to make smart purchases. More companies would sell-off their non-core businesses and/or assets in economic downturn- as everyone is selling off, buyers get a bargain for their purchases.
1) Buy or Build "Stars": Invest more in your profitable business line (unit). Even purchase assets that offer strong strategic-fit.
2) Sell-off "Dogs": If you could not turn around a sick/unprofitable business unit in good times, it is clear that bad times would make things worse only. Sell off unprofitable and/or non-core assets. You may end up settling for cheap sell but you will save money by focussing your resources on the "stars" and "cash cows" of your company.
3) Financing strategy: Look for both public and private financing options when you need funds to purchases needed assets. Remember that cost of capital (debt+equity) must be below hurdle rate of your investment for a profitable venture.

These are strategic choices and require strong management decision-making. But in all this, you know, companies can grow without laying-off people or other assets. Tough times call for strong introspection and stronger decision-making.

RECOMMENDED READING: Couple of interesting books on this subject.

What Is M?

"M" is for Marketing!

Thought about it for a while - "M" could be Me, Money, Maserati, Mars or simply..... Marketing?

Why "M" for Marketing?

Marketing creates more economic value for business than any other activity, yet it is too often seen as a marginal activity, a support function and a tactical cost line. Through this blog, I want to inspire you to think differently - and to do great Marketing!

This blog is for everyone in business today. Whether you are a brand manager or product manager, communication specialist or market researcher, CMO or CEO, this blog is for you.

I am not a subject-matter expert of marketing. But I am an avid reader and follower of marketing trends and management theories. Through my own work experience in marketing arena - as a manager of strategy and business development- I can share with you what worked for me and what did not.

It is important to note that markets have changed, therefore, marketing is changing, and marketers need to change further if they are to achieve high performance.

Please free to comment on posts or email me your questions. Also if you think differently, please share your marketing experiences so that all readers benefit from discussions and conversations on this blog.

Read on!

Tough times call for tough actions - not panic!

Tough times call for tough actions!

It is no secret that we are already in recession in US, Canada and elsewhere in the world. And I have heard pundits criticize our governments, insurance companies and banks who were irresponsible in lending us what we couldn't pay back!

I agree, in most part. But what next? How should we respond in these times? What should businesses do in these tough times?

Well! that's a $64,000 question. Most companies have responded by cutting costs (a.k.a laying off people!). Truth be told- that is an EASY decision for management to do! Remember, "Tough times call for tough decisions" and not panic. To lay off people across the board and put a hiring freeze, cut sales and marketing budgets, spend less on IT and infrastructure- these are "easy", "self-defeating" and panic-struck decisions. By cutting cost this way, companies would lock their fate as a "losers"- management guru have called this phenomenon as "downward spiral" when companies lay-off their valuable assets in bad times only to make things from "bad" to "worse".

Need explanation? Understand how each business unit or function works. Sales and marketing is responsible for the top-line (revenues). Operations is responsible for lowering costs and ultimately accountable for a healthy bottom-line (profits). So when companies cut into their marketing and sales budget, they ensure revenues will not be the same as before - and the top-line takes a downward trend. With decreased revenues, operations team face need for cutting cost to maintain the bottom-line. They do so by laying off operational staff and infrastructure and that helps in keeping the company out of red (losses) in short term. But overtime, operation team faces drop in productivity. Asset turnover decreases and bottom-line is soaked in deep-red (losses)!

So what should we do? Respond in toughness. Do what other people are afraid to do. "Grow" and not shrink in these tough times. In other words, companies should learn how to BOOM IN RECESSION! HOW? Read my blog : "BOOMING IN RECESSION"

RECOMMENDED READING: For further reading, refer to following books