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Feature: Boulder On the Hill

David Gordon and Neil Gillespie

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So: you completed your annual plans late last year or early this year. You met with your key manufacturers or distributors this winter. You developed action plans and are ready to implement them. Now you can confidently get down to the business of growing business – right?

If this is so, why is everyone so tentative? The channel, (manufacturers, distributors, reps and marketing groups) is in a state of unrest. Sure, questions about impending war with Iraq keep us on guard, but there's more under the covers. Most soothsayers predicted years of slow growth ahead, before the talk about war really heated up.

In that scenario, many businesses will look for synergies through mergers and acquisitions, some will look for product line and service expansion opportunities. Some businesses will fail if they shrink but fail to effectively manage headcount, expenses and assets.

It all adds up to a more fierce battle for market share, and the fastest way to get it is to buy it, or horn in on somebody else's action.

The combination of issues we face amounts to a boulder perched on the crest of a hill. It could roll down the other side with a little nudge or a brisk wind. One major move or event could trigger a whole series of other events as the boulder rolls downhill, knocking into other objects as it goes. Those other objects knock into others, and so on. Major events change relationships, and that’s major. Once a major relationship is changed, relationships between manufacturers, distributors, reps, marketing groups, and even end customers can change.

Everyone is feeling this state of unrest. If you’re not, you’re not in the game. If you are, you can stop wondering what's going to happen, prepare to deal with what may happen or make something happen! (It's a great strategy since your competitors are probably very tentative, too).

How? Ask three questions and field the answers:

1. What are the forces at work in the industry?

2. What other changes or major moves by industry players could they trigger and how?

3. What would the impact be on you and what should you do about it?

To answer these questions, collect some information, sit back and think about the different “boulders” that are perched over the industry and identify the chain of events they could trigger.

The next step is to consider appropriate responses or preemptive strategies to deal with them. For example: start thinking about these recent news bits and possibilities and think of how they may change the industry during the next five years... more

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Contributing Writer

FASB’s Damaging 01-9 Changes

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Editor's Note: FASB, The financial accounting standards board, says most co-op fund and rebate payments can't be accounted for as expenses anymore. They must be accounted for as reductions in sales. Though it doesn't affect bottom lines, resulting sales reductions will affect perception of a company's health and growth. Manufacturers won't like that, especially publicly held ones or those trying to merchandise their companies. It might even quench some of manufacturer's desire to offer as much co-op funding. And what about marketing group and other volume oriented rebates? They have accounting issues for both manufacturers AND distributors. If you don't think it's important, check out the recent woes of Food distributor U.S. Foodservice's parent Ahold.  Ahold - U.S. Foodservice article

By Rob Hand
CEO Hand Promotion Management, Inc. Austin, Texas

As if the pressure wasn’t already on top financial executives from the nuclear fallout of the Enron, Global Crossing and WorldCom accounting debacles, another huge bomb has been dropped on the razor-thin revenue line. After an extensive evaluation of trade promotion and how manufacturers are accused of “buying” sales through co-op and market development fund inducements, the “Emerging Issues Task Force” of the Financial Accounting Standards Board (FASB) released perhaps one of the most controversial, and damaging accounting rule changes known to man.

On Top of Recent Sales Woes, Changing Promotional Expense to Net Sales Reductions Won't Look So Good.

The rule (EITF/FASB 01-9) radically changes the way manufacturers must account for trade channel promotion payments or credits. As of annual statements effective October, 2001, these items will now be debited from actual top line revenue rather than traditional accounting methods of coding them as “expense items.” Worse, since this ruling came out late in the year, many companies had to restate their revenues downward significantly – especially those companies that had huge trade channel promotion expenditures.

What I refer to as trade channel promotion includes co-op advertising, off-invoice promotional discounts, market development funds, slotting and/or any discretionary fund paid to the reseller. It also includes payments directly to the consumer like rebates and coupons. Advertising your company places at a national and/or regional level still qualifies for expense treatment, but any payment made through your channel does not. Although this change really does not impact the bottom line, in this day of shareholder value placed on the revenues, you can imagine the impact this has on stock price!

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Take the Promotional Marketing Survey: Get a Free Executive Summary

Login to www.handpromotion.com/survey/ and take Hand Promotion Management's 2002/2003 promotional marketing survey. Each year HPM surveys its readership to identify its coop/promotional marketing habits.

This year, depending upon electrical industry response rate, HPM will segment responses solely for the electrical industry, and share these results at the 2003 North American Electrical Sales & Marketing Conference and will post them on Channel Marketing Group's website. 

Rob Hand, our contributing writer this month, has over 30 years experience in the co-op marketing arena. Because of the survey's detail, it will require about twenty to thirty minutes of your time. It may also require you to research information within your company that may not be at your fingertips. But to provide an incentive to you, as well as HPM's sincere thanks, HPM will send you the report's Executive Summary free. This report contains a brief overview of the major data elements, but packs a great value nonetheless. It is yours free for taking the survey and, of course, subscribing to the Monday Morning Memo, which you can do at www.handpromotion.com.

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