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Deal or No Deal?

china business - mr. miguel p. suterio Jun 11, 2010

By Miguel P. Suterio – Managing Director/ Trade Dynamics Consulting Int’l Inc.

“We’re spending millions on trade deals and yet our sales figures even show a net decline!” This is a familiar comment heard in the Fast Moving Consumer Goods industry wherein cutthroat market competition necessitate constant deals to the trade with often disastrous results.

Many manufacturers large and small, local and multi-national, fall into the mindset that the more money you spend in trade deals the higher the resultant sales revenue. Typically, this kind of thinking comes from a perspective wherein in past experiences, a great deal of money was spent in the form of generous trade deals and immediately sales to the trade increased substantially. Unfortunately, manufacturers conveniently forget the aftermath- a severe decline in sales thereafter. The result of which is a large amount of wasted funds used to make the trade purchase inventory today which it would have otherwise purchased tomorrow at the regular price.

Aside from the outright costs of a trade deal, another horrific repercussion of this is price distortion. This happens when the trade discounts for certain stores allow them to sell at prices less than the acquisition cost of other stores. This is then brought to the attention of many other traders who then demand for the same discount to be granted to them and the virus spreads and the cycle continues.

Furthermore, this year’s overstated sales figures are the basis of next year’s sales growth targets. This means that if the manufacturer ‘borrowed’ 10 weeks of inventory from next year, next year’s performance must sell an extra 10 weeks on top of the regular sales just to match last year’s bloated figures. Add to that the yearly growth targets and you have a figure that can only be achieved in dreamland.

This situation is not difficult to understand – it is actually elementary. Furthermore the cost involved is not negligible, it is indeed substantial in relation to the manufacturing margins of many companies. Yet despite this, the situation still continues to persist through several generations across many organizations. Why?

The answer lies deep in the organization’s recruitment, remuneration, development and career promotion structure.

  • Recruitment – Despite the fact that the trade has evolved tremendously in the past decades, the standards for recruitment of manufacturers’ sales personnel has remained relatively unchanged. The confident go-getter with the gift of gab gets the job. Forget the fact that he has difficulty in doing intermediate level mathematical computations and he may bungle a large percentage of the company’s trade budget in one harebrained deal.
  • Remuneration – Across many sales organizations today, incentives and rewards are still based purely on the amount of sales that flow from a manufacturer’s warehouse into the trade warehouses (Sell In). Unfortunately, this system of measurement rewards people who don’t mind loading the whole supply chain such as the national distributor, the regional distributor, the wholesaler, and the retailer’s warehouse. Ideally sales targets must be based on sales that flow out of the entire extended supply chain system and into the shopper’s basket (Sell-Out). These are the sales that are truly sustainable as this impacts the end-consumers.
  • Development – The skills that are currently being taught in many sales organizations are archaic. Many organizations still continue to espouse a curriculum of purely rudimentary selling skills developed in a time when the trade was the mom and pop stores of old with the owners being the all around hands on entrepreneur. Today’s retailer is a sophisticated and technologically advanced enterprise. Yesterday’s skills will in no way be adequate to engage today’s trade successfully. Skills such as organizational navigation, business planning, trade investment, trade specific negotiation are among the prerequisites for today’s sales professional.
  • Career Promotion – In still a number of organizations today, the method wherein sales professionals are promoted unfortunately are based on achievement of design-flawed targets (Sell-In based, No accountability on trade expenditure, No true trade-promo evaluation, etc.) as well as a system of feudal patronage of a sales lord who typically is a product of and a firm believer of perpetualizing the ways of the ‘old school salesman’. This creates a culture and a system of old school mediocrity that if left unchecked will cause the entire organization to rot from within.

In the final analysis, the way our organization uses or abuses trade deals is in effect a reflection of the state of advancement or stagnation of the organization itself.

Does your company celebrate the mediocre? Does it reward the short-sighted? Does it equip its people with skills that are outdated? Does it perpetuate a culture of underachievement?

Does your company sacrifice tomorrow for today?

Deal or No Deal?