1960s WORK
0169 Cussons - Financial Madness
Before Cussons much of my time as a brand manager had been concerned with maximising profit. The main device for this was, of course, maximising the sales revenue. But almost as important was cost reduction. As a result, I spent a lot of time considering cost accounting. In many products the allocation of the overheads is the main factor involved -- and that is an art not a science. The products I had usually been responsible for, though, had typically had their own production lines and it was much simpler to allocate overheads. This meant that, as brand manager, I was able to leverage the cost down as well as the sales up.
This was also true to a certain extent at Cussons, though the actual cost of the product only represented something like 10 percent of the overall price, and most of that was the pack; the actual carpet cleaner itself cost a fraction of a penny. The main cost, indeed, was the promotional cost -- especially advertising -- which accounted for almost two-thirds of the ex-factory price.
The summation of all these various movements in cost used to come at the end of each financial year. Thus at PST, and to a lesser extent at Gallahers, we looked at what we needed to do to make our financial targets for the year. We then manipulated the figures to do what was needed to reach this. If we were going to be over, then we bought in extra packing material and product. If we were going to be under, then we typically deferred purchases of the packing material, and got the agency to bill us late for media.
Come the end of the Cussons financial year, we found ourselves -- across the company -- short of the financial targets. Accordingly, I suggested that we deferred purchases of some packing material. I was taken apart by the MD (X), who said that would be dishonest; the accounting figures had to be correct. By then I knew X well, so I refrained from pointing out that the accounts are guesstimates rather than an exact science (he would never have understood the concept).
Instead, X put a very big sales promotion loader onto Imperial Leather. He offered 12 cases for 10, for the first time ever. As a quality soap, we had never promoted it on the basis of price; even to wholesalers. To compound matters, X also put a price-off sticker on the soap itself. It was tremendous success, and we made our financial targets. It didn't occur to X that loading his sales figures in this way was just as dubious as postponing the purchase of packing material. What was worse, in the process he hit his own profits. A cut-price was not needed to sell the product, after all it was the premium quality brand in the market, and cutting the price came straight out of profits.
Even worse still, it hit the brand in terms of its quality image. People, when buying premium brand, often judge its quality by a high price. Slapping a money-off sticker on the brand devalues it a lot more than that it might at first appear.
As it turned out there was worse than that to come. The trade, delighted with 12 for 10 bonus which they didn't have to pass on (they knew what a quality brand it was), stocked up. When the bonus ended, their buying stopped almost dead for a number of weeks. Desperate for sales, X was forced to put out a new bonus. The trade stocked up again, and when it ended once more stopped buying. This new pattern set by the trade - buying only on bonus and not when it was off - became the new pattern. It meant that, in effect X, had instituted a permanent 20 percent cut in price. Remember, there was only one place where this could come from -- the profit of Cussons - which is why they got into financial problems later on.
Even though I was interested in the cost accounting, at Cussons this really was not significant factor, and -- despite my interest in production -- I very rarely walked out on the production floor; even though it was less than a hundred feet from my desk. All it involved was pouring liquid into a bottle. Even the managing director was rarely seen on the factory floor, but there was a lovely story told about one New Year's Day. At that time, New Year's Day was not a public holiday, and X was upset that -- almost traditionally -- half the workforce didn't turn out on New Year's Day. This was understandable, since they would have had massive hangovers. On this particular New Year's Day, X was seen on the balcony around the factory floor with his arm outstretched as he counted how many people were on the floor. Up from the floor floated a very Irish voice which pronounced “Begorrah he's blessing us”! At least humour was not killed completely by his management style.
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