“The Bagwan Marketing insights from every manager needs to know_6

Profits 143 A company that is short-run profit driven will not make long-run profits. The Navajo Indians are smarter. A Navajo chief does not make a decision unless he has considered its possible effects on seven generations hence. Some companies hope to increase profits by cutting costs. But as Gary Hamel observed: “Excessive downsizing and cost cutting is a type of corporate anorexia . . . getting thin all right, but not very healthy.” You can’t shrink to greatness. Here’s the story of one company that thought that its profits lay in cost cutting. The company, a manufacturer of hospital devices, suffered from flat sales and profits. The CEO was intent on improving the company’s profits and share price. So he ordered across-the-board cost cuts. Profits rose, and he waited for the stock price to rise as well. When it didn’t, he went to Wall Street to find out why. The analysts told him that his bottom line had improved but not his top line—they didn’t see any revenue growth. So the CEO decided to cut product prices to increase top line growth. He succeeded, but the bottom line now slipped. The moral: Investors favor compa-nies that can increase both their growth (top line) and their profitability (bottom line). Ram Charan and Noel M. Tichy believe companies can achieve growth and profitability together, and present that view in their Every Business Is a Growth Business: How Your Company Can Prosper Year after Year.51 This is a bold claim, given that top management al-ways faces trade-offs. But they make a compelling case. 144 Marketing Insights from A to Z Some companies have proven that they can charge low prices and be highly profitable. Car rental firm Enterprise has the lowest prices and makes the most profit in its industry. This can also be said of Southwest Airlines, Wal-Mart, and Dell. To understand the source of the profits of these “low price” companies, recognize that return (R) is the product of margin × ve-locity; that is: Income Sales R = Sales Assets A low-price firm makes less income on its sales (because its price is lower) but generates considerably more sales per dollar of assets (be-cause more customers are attracted by its lower price). This works when the low-price firm gives good quality and service to its customers. Profits come from finding ways to deliver more value to cus-tomers. Peter Drucker admonished: “Customers do not see it as their job to ensure manufacturers a profit.” Companies have to figure out not only how to increase sales but how to earn customers’ repeat business. The most profit comes from repeat sales. At board meetings, the talk focuses primarily on current profit performance. But the company’s true performance goes beyond the financial numbers. Jerre L. Stead, chairman and CEO of NCR, un-derstood this: “I say if you’re in a meeting, any meeting, for 15 minutes, and we’re not talking about customers or competitors, raise your hand and ask why.” Here are four Japanese-formulated objectives for achieving ex-ceptional profitability. Each deserves a textbook-size discussion: 1. Zero customer feedback time. Learning from customer reac-tions as soon as possible. 2. Zero product improvement time. Continuously improving the product and service. Public Relations 145 3. Zero inventory. Carrying as little inventory as possible. 4. Zero defects. Producing products and services with no defects. Too many companies spend more time measuring product prof-itability than customer profitability. But the latter is more important. “The only profit center is the customer.” (Peter Drucker) ublic Relations I expect companies to start shifting more money from advertising to public relations. Advertising is losing some of its former effectiveness. It is hard to reach a mass audience because of increasing audience fragmen-tation. TV commercials are getting shorter; they are bunched together; they are increasingly undistinguished; and consumers are zapping them. And the biggest problem is that advertising lacks credibility. The public knows that advertising exaggerates and is biased. At its best, advertising is playful and entertaining; at its worst, it is intrusive and dishonest. Companies overspend on advertising and underspend on public relations. The reason: Nine out of 10 PR agencies are owned by advertising firms. Advertising agencies make more money putting out ads than putting out PR. So they don’t want PR to get an upper hand. Ad campaigns do have the advantage of being under greater 146 Marketing Insights from A to Z control than PR. The media are purchased for the ads to appear at specific times; the ads are approved by the client and will appear ex-actly as designed. PR, on the other hand, is something you pray for rather than pay for. You hope that when Oprah Winfrey ran her book club, she would nominate your book as the month’s best read; you hope that Morley Safer will run a 60 Minutes segment on why red wine keeps cheese-eating and oil-eating Europeans healthy. Building a new brand through PR takes much more time and creativity, but it ultimately can do a better job than “big bang” adver-tising. Public relations consists of a whole bag of tools for grabbing attention and creating “talk value.” I call these tools the PENCILS of public relations: • Publications. • Events. • News. • Community affairs. • Identity media. • Lobbying. • Social investments. Most of us got to hear about Palm, Amazon, eBay, The Body Shop, Blackberry, Beanie Babies, Viagra, and Nokia not through ad-vertising but through news stories in print and on the air. We started to hear from friends about these products, and we told other friends. And hearing from others about a product carries much more weight than reading about the product in an ad. A company planning to build a new brand needs to create a buzz, and the buzz is created through PR tools. The PR campaign will cost much less and hopefully create a more lasting story. Al and Laura Ries, in their book The Fall of Advertising and the Rise of PR, argue persuasively that in launching a new product, it is better to start with public relations, not advertising.52 This is the reverse of most companies’ thinking when they launch new products. uality It continues to amaze me how many Americans accepted bad quality in the past. When I took my newly purchased Buick to the dealer one week after purchasing it, he said: “You’re lucky. We have only one re-pair to make.” General Motors’ theory of wealth creation ran as follows: Pro-duce as many cars as you can in the factory. Don’t fix them there. Send them to the dealer and let the dealer fix them. There was no thought about the cost to the customer who had to drive back to the dealer, give up the car, and pray that he or she could find alternative transportation while the car was being fixed. Who was responsible for poor quality? Management blamed the workers. But the workers were not responsible. The great quality ex-pert W. Edwards Deming declared: “Management is responsible for 85% of quality problems.” The Japanese are sticklers for high quality. When they detect a defect, they ask the five Why’s. “Why was there a tear in the leather seat?” “Why was the leather not inspected when it arrived in our fac-tory?” “Why didn’t the supplier detect the tear before sending the leather to us?” “Why is the supplier’s machine lacking a laser reader?” “Why is the supplier not buying better equipment?” These 147 ... - tailieumienphi.vn