Quote:
Originally Posted by Average Punter
Question for me peck is this.
Do some of these companies see sponsorship of V8 racing as a "last resort" to right their sinking ships?
Do they therefore expect a miraculous turnaround to flow on from that sponsorship?
Are they, as you suggest, merely poorly managed groups that make dud decisions? By inference their V8 sponsorship was another dud decision...
Are they successfiul companies in the early stages who throw money around left right and centre and break themselves?
Or are they simply fraudsters, hoping race fans are gullible lemmings?
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In some businesses, advertising and promotions are a drug.. an addictive one..
.. one where the execution of a strategy for price, or promotion, or advertising or similar sees an incremental bump in sales on a short term basis immediately after the placement...
In a different life, I was part of a team that brought a number of new consumer products to market. A brand new product, untried by the general public, a genuine risk for consumers in that its not a small spend... saw the need to crank up sales in a hurry.
The levers are simple, advertise, promote with something free, knock around the price..
Or all of the above
So you do one of these deals, and sales kick up a bit. Say 40% in a good week. Awesome. But you are under pressure now. The sales in the week after the deal fall to near or slightly below previous levels, because you have firstly 'bought' sales with a low price (that smashes your own profitability) but you have also dragged forward consumer demand because when its cheap, it gets bought.
Presuming they trust your product to buy it..
So you do another deal. And get another lift. Then another. And another.
Everything looks great. Sales are popping, volume is going out the door. Margins are under pressure, but they always are.
Roll forward a few short months, and the investment in advertising, promotions and the like has been ingrained into the consumer's mind. They will only buy your product when you are 'giving it away' on special, or advertise heavily because they get used to your trade strategy.
It is a drug, because you are in a spiral now.. having to maintain sales on a product, which is fuelled by promotions and advertising spend.
Someday, time is called. Usually by a retailer who doesnt really like selling stuff on promotion every second week, as it damages the category as a whole... the other players in the category get poopy with the retailer because they bring genuine technical innovation to the category, only to get smashed by the unknown upstart, willing to sell $1 for 99c... or less...
But time does get called. When the financials just dont work any more. Not normally because the bank is at the door.. very few rational businesses stake their entire fortune on one 'big idea' and expect to survive the journey.
So with the likes of some of the genuine companies that sold real products and services in the list before... they used their affiliation with the sport to promote their products.. and when they got a little recognition... they spent a little more.. and more... and more..
Betta had 888, but it also took on the Sandown 500 for example. Wanting to increase the message spread. On the basis of 'if I spent $100 to get this level of sales, if I spend $200 on a similar risk weighted investment, then I will double those sales.
Until the theory of diminishing returns kicks in.. and it all goes pop!
Ego lives here too.. some people who supply Coles or Woolworths have an innate belief that their brand is so strong that they will be there forever.. Coke found out recently that to annoy one of these two is for their own peril... loss of sales, promotion of competitors to the detriment to your own product... while it never seemed to occur to the guys at GMC that Bunnings might just be capable to replicating their import a GMC-stickered electrical tool and slapping another name on instead... or the rocker surgeons at Bonds who never thought Kmart would de-list their underwear brands...
Business is a risk... you sometimes win, you sometimes dont.
But if a business relies 100% on a motor sporting activity to raise profile, and increase sales... without the sound fundamentals keeping the lights on today, and evolving for a new tomorrow... then there is a good chance the next POP! you hear is the knock on the door from Korda Mentha or their friends...