with insufficient documentation as to the validity of the charge-back. Organic
companies frequently compound the problem by not maintaining sufficient
records and documentation to fully understand the nature of the deductions or
to monitor or quantify their impact. Organic companies, if not careful, can easily
amass a “deduction ledger” of staggering size that is thorny and difficult to manage or to reduce. This accumulated deduction is cash out of the company’s
pocket, an expense that represents a significant drain on company cash flow, leaving it unable to meet other critical needs. One leading organic company recently
amassed a deduction ledger of nearly $1 million, which proved extremely difficult to eliminate.
An effective deduction-management plan is one that is accurate, documented,
tough, determined, dogged, unyielding and uncompromising, while always maintaining utmost poise and professionalism. For example, the deductions manager
can create a comprehensive Excel spreadsheet, with every outstanding or unidentified deduction listed separately along with the name and contact information of
the customer, the name of the broker, the name of the company’s regional sales
manager, and a “notes” field to input any updates or new information. The
ledger is reviewed weekly by the manager and the CFO, and monthly by the
CEO. If necessary, the CFO and CEO step in to make appropriate calls to the customer and the broker. The person or department in charge of this messy but critical function should be chosen carefully to demonstrate considerable skill in
protecting the company’s cash flow from unwarranted deductions, while effec-
tively documenting and clearing those deductions that are justified.
8.
Make Marketing Program Dollars Work Harder. When cash
is tight, marketing programs also need to “work harder” to make every
dollar effective. The all-too-common response of leaders to budget
problems is to eliminate consumer marketing programs altogether. However, the
cancellation of marketing leads to a decrease in consumer awareness, lower prod-
uct purchase rates and a decline in on-shelf velocity, leaving the company with a
weakened brand exactly when greater strength and growth are needed. Rather
than canceling marketing, a far better choice is to choose marketing programs
that work “double duty,” that is, programs that achieve two or more goals simulta-
neously. For example, consumer promotions can be mandated to be in-store
only, so that the marketing reinforces the trade program and the relationship
with the retailer.
Another technique is to join forces with other compatible brands to reduce
fixed costs. A good example of cooperation is to field joint in-store product sampling between two or three compatible brands. The high, one-time fixed cost of
the demo station is shared, cutting each brand’s expense by 50 to 75 percent.
This savings extends to brochures and coupon books, the costs of which can also
be shared among partners.
Recently three leading brands—Earthbound Farm, Santa Cruz Organic and
Horizon Organic—jointly created a promotion called “The Organic Lunchbox.”
The goal of the program was to create media awareness and in-store consumer
trial of the three products during the late August, early September back-to-school
period. The program highlighted Earthbound Farm baby carrots, Santa Cruz
juices and Horizon single-serve cheeses. A joint PR effort was launched, with extensive communications to parenting and family-oriented magazines as well as
newspapers. For smaller regional papers, “mat releases” (complete articles with
photos, ready for insertion in the paper) were distributed to make it easy for regional papers to insert the article in their weekly food sections. In-store sampling
programs were fielded with brochures
and coupon books for the three
brands, along with in-store displays. By
joining forces, the three brands shared
the fixed costs and cut the cost per
brand significantly. There was also
greater media pickup because the story
was more interesting to reporters than
having a single brand promote its
product.
Manage the Brand
9.Gr owth of Private
Effectively with the
Label. Today, private label
has become an integral part of most
leading organic categories. Mintel’s
Global New Products Database tracked
over 540 new private label organic
foods in 2007, a massive increase from
35 new products seen in 2003. Furthermore, when Mintel asked survey respondents about the difference
between name brand and private label
organics, three in five ( 60 percent)
said it didn’t matter, that they reached
for “whatever is available” when shopping. Organic companies have three
basic choices regarding how they respond to private label: “beat ‘em, join
‘em or coexist with ‘em.”
In the “beat ‘em” strategy, the organic brand maintains higher share
versus private label by investing heavily
in marketing and brand development
to create a special emotional and personal bond with the consumer. If the
brand “means” enough to the consumer, s/he will remain more loyal to
the brand. In mainstream products,
categories that invest heavily in marketing, such as cosmetics and major clothing brands, have far lower rates of
private label switching than poorly-marketed categories with low brand-equity development such as milk. In a
recent study by Information Resources,
only 22 percent of consumers would
readily buy a private label cosmetic,
compared to more than 80 percent
who would readily buy private label
milk.
