Here are some simple solutions to some problems that we have accidentally observed from outside. We encountered them when we go about our daily life, and these problems just happen to catch our attention because it is our natural character to notice every business/system/process problems.
Please note that we were never asked to solve the problems described here.
If your business happens to experience the same problem, or potentially face similar problem, feel free to copy the solutions provided here or contact us for better-tailored solutions.
- Problem 1: Appointment of wrong personel to the position of president director
- Problem 2: Agency problem in corporate governance
- Problem 3: A senior sales manager works for customer
- Problem 4: When low-tier product is designed to destroy the money maker
- Problem 5: Copying inappropriate route to market
- Problem 6: A senior manager pockets customer’s discount
- Problem 7: Sales promotion management team pocket the sales promotion budget
- Problem 8: Restaurant invoice is printed multiple times for different customers
- Problem 9: Ramadhan program along ‘mudik’ route isn’t executed properly
- Problem 10: Products for sample aren’t accounted for
- Problem 11: Price war between channels
PROBLEM 1: Appointment of Wrong Personel to the Position of President Director
Team, Strategy, Leadership
A Subsidiary of a Large Corporation that sells high-end products.
President Director made decisions that made the company missed its profit target by more than 30% which was lower than it’s profit 5 years earlier.
The President Director used to be a successful Business Director for an impulse-purchase product by implementing discounts at Point-of-Sales counters.
- A new president director from a completely different industry was instated and he put all previous strategies aside and implemented new strategies copied from a completely unrelated industry
- The product is high-end big-ticket item, but with the new strategy, it was sold the way candies are sold: With huge discount at the point-of-sales.
- Never let the position of President Director vacant at all. If it is possible, hold the old PD in office until the replacement arrive.
- The transition from old to new PD should be at least 1 month.
Some President Directors are smart people who are quick to learn. Some others are just lucky to get appointed. In the perfect world, we would be able to screen people correctly.
PROBLEM 2: Agency Problem in Corporate Governance
Team, BOD, Management, Control, Corporate Governance, Leaderhsip
A Joint-Venture Company
The board of directors, led by a new inexperienced President Director, launched a sales promotion program that cost the company more too much money and slowed down sales to distribution channels.
The other members of BOD are experienced people, but had little to no authority in stopping the program as it was proposed by Sales Director and approved by President Director.
Sales Director made sales promotion proposals with false numbers and false projections
- Place someone who cares about looking after share holder’s interest or a strong family member in the BOD to avoid agency problem.
- Make sure to have a robust internal audit / process audit every year to weed out such BOD members
Agency-problems in companies come in all shapes and sizes at all level. That’s why operations audit is always necessary.
PROBLEM 3: A Senior Sales Manager Works for Customer
Team, control, sales
A Mutli-National Company with Multiple Distributors
A Regional Sales Manager coalesced with a large distributor to get company’s money through unreasonable discount
The Regional Manager has been with the company for more than 25 years handling the customer
- The company believe that ‘long-term’ personal relationship with customer is good for sales
- The Regional Sales Manager has become such a good friend with the distributor but instead of making the distributor buy more products from the company, he often made the company give money or additional discount to distributor.
- He even asked for IDR20,000,000,000 discount for one particular distributor.
- When his proposal was not approved by President Director, he persuaded Sales Director to talk to President Director and finally his proposal was approved.
- After the discount for 1 customer was approved, other Regional Sales Managers asked for their own customers and in the end, the total cost of the discount turned out to cost the company IDR70,000,000,000.
- There is an unchecked suspicion that the first Regional Sales Manager got some thank-you money from the distributor.
- The company missed their profit target that year for the first time in many years.
Never let a sales manager be responsible for the same customer for more than 2 years because a truly good sales person would be able to sell to anyone anywhere.
PROBLEM 4: When Low-Tier Product Is Designed to Destroy The Money Maker
Strategy, route to market, distribution
A multi-national manufacturing company
The National Distributor of the premium-brand went bankrupt after trying for 10 years
The distribution of the cheap-brand is done by a different distribution company.
- The manufacturing company releases products to cater several market segments including: Top and Low.
- The price of the Top-tier product is more than 2x the price of the low-tier product
- The quality of the products are different but the design (shape and color) of the products are similar (almost the same) and only experienced people can tell the difference.
- The marketing investment was done only for the top-tier products
- The top-tier products were always specified by architects but the contractors always bought the low-tier products to cut costs
- The products were distributed through different distributors
- And therefore the top-tier product distributor was the one who made the effort to market the products but the low-tier product distributor was the one who made the sales
- The design of low-tier product must never be the same as the design of top-tier product
- Both top-tier and low-tier products must be distributed through the same distributor
- Company should’ve invested in non-specifier market segment as well.
PROBLEM 5: Copying Wrong Route To Market
Strategy, route to market, sales, marketing
A Global Company
A global company tried to sell their products in Indonesia by cloning the route to market that they employed in Singapore when the market ecosystems in the two countries are completely different for the industry.
The product is a building material product
The product is considered premium product in the market
The product is sold through specifiers (architects and contractors) in Singapore and focuses on high-rise buildings for big volume. Unfortunately:
- high-rise building sales often takes 2-year process from introduction to actual purchase
- It requires many visits and a lot of time to close the deal
- They always request high discount due to the planned high volume
- It is good only for ‘marketing’ purpose but not for profit-making purpose
- It takes much more effort for less profit
- Products specified by architech is often changed by contractors (especially premium products) to make more profit, without any consequences
- Building owners never actually use the building (less involvement)
- Buildings are built to be sold (must make profit).
Build brand awareness to sell to retail market
With specifier market contributing less than 20% of total market size, the company should instead focus their marketing effort directly to small-building owners (e.g. premium houses) because:
- Sales-cycle is shorter
- It requires less sales effort to close the deal with the same number of effort as high-rise, the company can create as much profit
- Usually doesn’t require high discount
- Building owner’s involvement is high because owner often use the building themselves prevents substitution by contractors.
- Selling directly to many building owners can also help increasing brand awareness to more building owners (compared to only few specifiers)
- Sell directly to small contractors = more brand awareness among small contractors
- Small contractors require less effort to maintain them.
- When brand recognition is higher, it will be easier to sell to high-rise as ‘side business’ instead of focus.
Problem 6: A Senior Manager Pockets Customer’s Discount
A National Company
A sales manager would extract company’s discount to the maximum only to be split between himself and the customer.
The company has multi-channel and different channel was managed by different sales manager
A sales manager would make a deal between himself and customer that when he can get additional discount, the value would be split between himself and customer. The customer was then expected to transfer him money
- Make sure to have operations audit / internal audit at least annually
- For companies that sell through multiple channels: Must have proper channel management that include pricing control and discount structure.
Unfortunately, this is a problem that also happens in many other companies.
Problem 7: Sales Promotion Management Team Pocket The Sales Promotion Budget
A Large Multi-National Company
Sales Promotion Managers hired contractrs from a company owned by one manager’s family members to supply the items used for the sales promotions
- The contractor companies are legally owned by their cousins or one-off family members, which doesn’t constitute as ‘family members’.
- Similar to Business Case no, 9, this is a marketing spending that has never been audited.
- The price of items bought from contractor company is noticeably much higher than the market price for similar items
- Sales promotion team chooses the suppliers themselves without any vetting from purchasing department
- There is only one supplier used for the entire year promotion, eliminating opportunnities to compare price and quality of service
- Other companies can get similar service/product for a fraction of the price paid to the said supplier
Conduct operations audit focusing on purchasing prices and bidding process for suppliers
Problem 8: Restaurant Invoice is Printed Multiple Times For Different Customers
Sales, Control at POS
A Chain of Restaurants / This actually have been seen at many restaurant chains.
Costs are high but income is low
- The restaurant is located at a premium location with high traffic
- The cashier machine allows the invoice to be corrected and reprinted for unlimited number of timesp
- This is a typical principal-agency problems.
- The cashier machine doesn’t log all of the changes made to every invoices
- The workers apparently are of the dishonest bunch who collude together
- Have only one-step bill that doesn’t allow corrections
- Or have one trusted employee to man the cashier
- Send mystery shoppers to come to the restaurant
If the restaurant insists on having “bill to check” make sure that it shows only the ITEM and the VOLUME of the order but never the price so that it can never be used to bill the customers.
Problem 9: Ramadhan Programs along ‘Mudik’ Route isn’t Executed Properly
Large FMCG / This has been observed multiple times on many companies
Marketing activation programs didn’t happen the way it should
Many Ramadhan Consumer Activation Programs done along the Mudik Routes in Indonesia weren’t conducted according to plan with many booths are actually empty, leaving only the flyers, with many of the gimmick and the free samples are actually taken by the contract workers.
- Some marketing spending are done during Ramadhan season because ‘tis the season’.
- Many consumer activation programs are conducted along the Mudik Route through marketing agencies that often hire short-term contract workers to perform the program.
- The workers, being short-term contracted, know that whatever their performance level is, they will not be contracted beyond the two-week period of the program.
- The supervisors, who are supposed to monitor their work, also are contract workers with similar term of contract.
- There isn’t enough mechanism to check if the promotions were actually done everyday the entire hour of contract.
- Have the contract with the agency are in two sets: Fixed and Variable, with the variable being contingent to the performance of the program.
- With the technology today, have the workers send pictures and videos of their works.
- Set their payments to have two sets: fixed and variables with the variable being contingent to the number of customers who send photos or videos or streamline or Facebook live their experience.
- If the company doesn’t have the resource to do the review, as they often don’t, have an independent company do the review of the performance of the marketing program.
Problem 10: Products for Sample aren’t accounted For
Large FMCG / This has been observed at multiple years and many companies
Promotional items are not kept properly and lost
Promotional items are found in the wet market, sold at cheap price to the people
- Promotional items are considered ‘cost/expenses to be spent’ instead of ‘asset’ and therefore sometimes little attention is given to safeguard it.
- Promotional items often aren’t kept at own company’s warehouse and instead kept at 3rd party warehouse with minimal record-keeping.
- Some items are missing and landed on the traditional market, sold at cheap price
- Understand that paying one administrative employee dedicated to look after these items is considerably a small amount of cost compared to potential loss of billions of rupiahs-worth of promotional items.
- Choose 3rd party warehouse more carefully to ensure not they provide not only physical warehouse but also the handling services that include regular stock taking and proper record-keeping.
- Assign one person at company to be responsible for the stock and accompany the 3rd party warehouse employee during stock-taking process.
Problem 11: Price War Between Channels
A Multi-National Marketing-Focused Company
Huge disparity in discounts among channels created arbitrary activities from one channel to another, creating the privileged channel to grow even stronger while the other channels weaker, and then creating even higher dependency toward the privileged channel and further weaken the company’s bargaining position with the said channel.
The company has multi-channels and different channels were managed by different sales managers.
- Different channels are managed by different people AND the different channels have different promotion allowance.
- There is no coordination process to manage the promotion activities and therefore one channel can suddenly get bigger discount for the same product, hence other channels buy from them instead of from company.
- The country director was evaluated based on market share points instead of profitability
For every product, make sure that there is product manager who coordinates the promotion schemes across all channels to make sure that the promotion program in one channel doesn’t cannibalize the sales in other channels.