Background
FD Solutions was bought in as Finance Directors to a division which manufactured and sold fast-moving consumer goods to the UK market.
The business
The division supplied a range of products to the retail trade. It was in second place to a very strong market leader and a new entrant had taken a significant market share from both the market leader and the division with a new product.
The problem
The division was making a significant operating loss as it tried to regain market share by developing a product to compete against the new entrant’s product. It was also spending large sums on market support and advertising for the new product.
Action taken
Decisions were being taken based on information with insufficient detail. There was no detailed costing for each product line and marketing support and advertising expenditure was not being allocated to the individual product lines.
We provided a detailed analysis of the costs of each product line and allocated marketing support and advertising expenditure to each product wherever possible. Marketing and advertising costs relating to the brand as a whole were shown separately.
The results of this detailed analysis showed that the new product was making an operating loss in excess of the operating loss for the total division because of heavy market support. The volume sales of the mature products were decreasing at a faster rate than expected as they were not receiving any market support. These mature products were highly profitable but their contribution to the division was being eroded.
Result
Management made the following decisions:
• To control market spend on the new product against a tight budget.
• To increase market support on mature products to stop the decline in sales volumes.
• Advertise the brand and product family rather than individual products.
By taking these actions the significant operating loss became an operating profit within six months of taking up the role at the organisation.
The lesson
It is essential to have accurate, focused and timely information upon which to base decisions. Marketing and advertising spend should be controlled with detailed proposals showing expected outcome and then measured against the expected outcome.