MANAGING YOUR BOTTOM-LINE
Let’s bottom line it. The bottom-line is it. That’s why senior managers slash marketing budgets that don’t generate a favorable ROI (return on investment) and deliver on the bottom-line target—often early in the budgetary year.
The stock market will crush companies that do not grow the bottom line. Senior managers who fail to increase bottom-line profits are either displaced (i.e., “fired”) or hang on to their positions by jettisoning lower-level managers.
You can be sure that when the bottom-line is under attack, companies will reorganize to reduce costs and raise prices to pad profit and, importantly, margins.
What is currently the biggest threat to your bottom-line? No, it’s not imports from China. Nor is it a major initiative from the competition. It’s inflation!
I’ve written before that I detest when companies raise prices without adding value to their offerings. However, in an inflationary period, which we are now experiencing, it’s a must. It’s all about survival and competitiveness in both the short- and long-term.
Yes, we are in an inflationary period. If you doubt it, check what you’re paying to fill your tank. Several months ago, I could fill my gas tank for less than $35. Just this weekend, I filled my car, and it cost me $49.10 for 12-gallons of premium gasoline.
I purchased prime steak from my neighborhood Publix, their premium Greenwise brand. The price is up to $18 per pound. It’s getting far more expensive to eat well. My wife and I will choose to cut back on the frequency of enjoying a steak or, perhaps, dropping a grade or switching to non-premium offerings. (The latter are the ones that treat the cattle with antibiotics. So, we really won’t consider it.)
Someone posted a photo of two boxes of Barilla pasta, Rigatoni, on LinkedIn. They were purchased just one week apart. The price was unchanged. The posting individual (I wish I remembered who it was to give her/him credit) asked if the reader could identify a difference between the two packages.
Can you identify a difference?
On the surface, there does not appear to be any different. The logo is unchanged. The photo of the pasta posed on a fork is identical. However, on closer examination, I spot a difference in the net weight of the product.
The more recent box of Rigatoni contains 44 fewer grams—410 versus 454. This practice is known as a weight-out—reducing the amount of product to bring down costs, preserve profit and margin. We’re talking about a 9.7% reduction in product in this specific instance, which equates to a 10.7% increase in cost.
I recently enjoyed breakfast at the Coffee Cup, a Pensacola mainstay since its founding in 1947. The front wall above the breakfast counter, where I sat, is adorned with memorabilia. It heralded a bottomless cup of coffee for 5-cents. Today, that same cup is $2.50, a fifty-fold increase—albeit over 74-years.
Inflation is nothing to ignore. It can get out of hand if it hasn’t already. Inflation is not merely a function of limited supply, increase in labor costs, etc. Expectations regarding anticipated future costs also fuel it.
Where will inflation go? I don’t know, and neither do the so-called expert economists. What I do know is that when my wife and I purchased a home in Atlanta, Georgia, in 1980, the interest rate was 17.5%. This percentage is not a typo. It’s a fact. Insane!
Employing the “rule of 72,” my costs were doubling every four years. On a thirty-year mortgage at 17.5%, a $100,000 home would cost more than $12,800,000—a 128-fold increase! Now, this is really insane!!
So, despite my intense dislike of raising prices without adding value, it’s imperative to do so to protect margins and your bottom-line. The question remains how to do it, and do it now, without retarding demand, competitiveness, or alienating your customers. A weight-out, where you can do it, is a less intrusive way to protect both. However, not every business can take a weight-out, nor does it answer my question.
Regardless, get ahead of the curve. Take price before it’s too late. It’s a matter of brand survival.
Proposed Action(s) for Implementation (Crossing the chasm from learning to impact):
- Identify the impact of inflation on your personal purchasing power.
- Identify the impact of inflation on your brand’s bottom-line if you do not take pricing to counterbalance current and anticipated inflation.
- Identify what pricing you need to take to preserve profit margins and bottom-line profit.
- Brainstorm ways to take a price increase without retarding customer demand, competitiveness or alienating your customers.
- Test to determine the best solution.
- Get ahead of the steepening curve. Act now.
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Are you interested in improving the likelihood of marketing success? Read Richard’s most recent book, AVOIDING CRITICAL MARKETING ERRORS: How to Go from Dumb to Smart Marketing. Learn more here: http://bdn-intl.com/avoiding-critical-marketing-errors
Peace and best wishes,