What makes a Brand Management role exciting is the cross-functional interface, with its diversity and scope to learn different aspects of the business. Most Brand Managers I have met will rap easily with Sales Teams and enjoy the road less travelled, cracking wholesale markets, fighting the good fight to push up sales forecasts and partying with the Sales boys and girls after targets have been delivered, and then some. Equally the relationship with R&D and Ops teams is always energized and Brand teams enjoy the whole cycle of prototype development, trying samples, watching consumers tear apart concepts and the thrill of the first finished product, hot off the line.
But when it comes to Finance, things are a bit different. The same Brand Managers who have sales and inventory numbers at their fingertips, are not as enthusiastic about diving into a P&L. The financial impact of Marketing decisions and the world of margins, cost structures, overheads and payback periods does not exactly send Marketing’s adrenaline racing.
As I teach at a Business School, I sense the discomfort some students experience when working on the financials of a case study. Here are a few things about the financial dimensions of business that Brand Managers should learn to love and master. No General Manager ever managed a business P&L while being allergic to numbers.
Let’s take an example.
Gross margin is a critical business metric and is impacted by cost of goods and price. COGs are an outcome of product design, volumes, material costs, wastage in the manufacturing process and the firm’s procurement and negotiation strategies. The brand’s pricing strategy is the other variable in this equation. Many of us lean toward discounting our brands as a default strategy to grow volume and market share rapidly. In doing so, we may saddle our business with lower gross margins, leaving the brand vulnerable. For example, market price erosion may quickly turn a low margin-high volume business into a loss making one, since a slim gross margin leaves no cushion for adverse events.
Understanding this lets the Brand Manager take a more strategic view of product design and price, thereby potentially adding valuable gross margin points. When designing the product, business teams often load up on features and functionality that customers don’t care much about. Why bother if it has no value to the customer and for which they will definitely not pay a premium.
Thinking this through means extra margin and that represents a firm’s best insurance when circumstances turn negative. To be sure, you will be noticed as the Brand Manager who played it smart and added lean muscle mass to the P&L. Not something to scoff at and usually that helps you win valuable brownie points with Senior Management.
Firms usually have norms and standards for financial metrics like cost of capital, payback period, plant utilization factor, EPS and so on. While Finance functionally manages the overall discipline of meeting these norms, every non-Finance Manager makes decisions that contribute to delivery of financial results. A sales leader who meets volume targets through aggressive price discounting is creating downward pressure on the company margins. Brand Managers who constantly monitor costs and partner with the Manufacturing and Supply Chain teams to eke out a few extra margin points are greatly valued by the firm, much more than those who drive business with poor financial payoff.
As with all Marketing plans, a range of initiatives are identified every year to create demand and meet sales goals. Marketers who constantly question the true worth of an initiative and the resultant ROI, will be highly effective in business terms. Such Brand Managers will ruthlessly eliminate the “nice to do” programs that are noticed by colleagues and peers in the industry, but do not deliver incremental sales and market share. Eventually, this cohort of high performers have the greatest impact on the overall health of the business and build powerful financial foundations that create sustained business growth.
Finally, here is a small anecdote from my prior life that should give direction to all you Marketers out there who are shy working on financial matters.
During a business review with one of our Global Vice-Presidents, we asked the million-dollar question that every business team struggles with endlessly while trying to make ends meet.
“Boss, do you want Sales or Profits?”
To which our wise Boss cryptically responded…
“Yes”