|
|
21 Trends To Watch
By: Plan B Associates
Issue: 2009oct
This report is the result of extensive interviews, discussions and surveys with a broad cross-section of suppliers, distributors and other service providers conducted by Plan B Associates, LLC, an industry consulting group comprised of partners Dennis Burnham, MAS; Jon A. Dubbs, MAS; Scott A. Nussinow, MAS; Stuart G. Putnam, MAS; and Joel Schaffer, MAS.
About a year ago, Plan B Associates took an initial sobering look at the state of our economy and, more specifically, of our industry. In mid-2009, the data was updated to reveal some modest indications of stabilization in the economy and in our business market. While there is no cause for celebration, those who have survived thus far must now look to returning a profit for their investments of time and money.
PPB spoke with one of the authors about the catalyst for the report and what the group hopes the industry will take away from it.
“There was so much industry speculation about the economy and the effect on our industry that it begged further investigation and discovery,” says Scott Nussinow, MAS, senior partner with Plan B Associates LLC. He says most of the responses received from promotional products businesses were what they had expected. Additionally, the research “seems to have resonated with a significant number of industry professionals,” he says, and Plan B intends to make the report an annual project.
Nussinow adds that he hopes promotional products professionals see the potential for better business that can come out of the recent slump.
“The economic conditions that prevail are not all negative, and with planning and forethought they actually offer some hidden opportunities,” he says. “Those consumed with the doom and gloom will not be disappointed, and those with an ability to see beyond the obvious will adjust their businesses accordingly.”
In a statement accompanying the survey results, the authors added: The industry is certainly not out of the woods, and it is unlikely that we will see a return anytime soon to the good old days. The new economy will likely be devoid of any significant changes to factors such as the PhRMA codes and the limitations placed on marketing expenses, and it will certainly be impacted by regulations such as CPSIA. As always, the volatility of energy costs, especially petroleum, could at almost any time derail a trend toward recovery.
1. Financial
The global financial crisis has taken a toll on the economy, and the promotional products marketplace has been more vulnerable than in previous recessions. The end result is a vastly diminished market for our goods and services. The ripple effect has decimated sales for both distributors and suppliers.
Effort by the Fed to stimulate growth by easing interest rates has had little downstream effect. Despite lower rates, favorable credit remains elusive for almost all but the strongest of borrowers. Industry response is best illustrat¬ed by dramatically reduced inventory levels, which is highly problematic for distributors who hope to fulfill orders with the same fast production times they have become accustomed to in recent years. This reality will continue throughout 2009.
Craig Nadel, CAS, vice president of operations, Jack Nadel, Inc. (UPIC: NADELINC)
Jack Nadel, Inc. saw a significant financial impact during 2009. Some of its long-time clients didn’t survive, and others dramatically reduced their purchasing. “Even reasonably healthy companies are buying less,” Nadel says. But the company is developing new sources, new sales tactics and looking to cut costs. It’s also coming around to a sunnier outlook. “I’m now the most bullish person, and I was one of the most bearish,” says Nadel. “I think things will feel a lot better, a lot sooner than people think.”
2. Credit
Credit is an issue for all, and with several high-profile bankruptcies and talk of many others to follow, both distributors and suppliers are all the more wary of their exposure.
As payments from end buyers to distributors lag, so too will payments from the distributors to the suppliers. The trend will continue for at least the next six to 12 months.
Managing credit and collections will require more attention and diligence for both distributors and suppliers. Given the typical staffing reductions, this will be a challenge. Failure to do so, however, could be fatal to businesses.
Danny Sirmon, MAS, president, Zebra Marketing (UPIC: ZEBRAMC)Zebra Marketing is finding it more difficult to buy products because suppliers who traditionally never asked for deposits now do. “Some suppliers have always been tight with extending credit, but if a supplier is asking for a deposit because they don’t have money to place the order, I’d be wary,” says Sirmon, who at times challenges deposit requests with Zebra’s good credit history. He also says this trend could cause trouble for distributors who use working capital as income.
To stay above water, Zebra watches its accounts receivable and engages in more prospecting. “It’s like fishing,” says Sirmon, “you have a lot of favorite sites, but you have to spread out, too. We’re still trying to harvest fish in our regular waters.” He advises other distributors to watch their finances and to not rely on credit cards. “And pay the supplier before you pay yourself,” he adds. “Even if you’re tight on money, look to your ‘fishing buddy,’ your supplier, for help and ask for some slack.”
3. Staffing
In light of the financial implications facing them, many companies have reduced their executive and managerial staffs to quickly reduce overhead. While the short-term effect may improve the bottom line, complaints are growing about customer service, inadequate performance and an overall frustration of being expected to produce more with less, but lacking the means to do so.
More companies are turning to outside vendors for contracted services, but are often faced with the reality that these providers do not understand the nature of their business.
Fewer companies are actually staffed to train the new employees who will need to be hired when the economy improves. Companies continue to cut staff and the trend will intensify if holiday sales do not recover from the devastation felt in the fourth quarter of 2008.
4. Energy
Oil prices returned to acceptable levels before the 2008 election, but have begun rising again. Look for continued instability in raw materials costs for such things as resins and downstream products such as nylon and other synthetics. OPEC is likely to manipulate production so that it can continue to maximize oil revenues, further complicating the global crisis. Many oil experts are seeing this recent spike in prices indicative of a $200 per barrel price after this recession/depression ends.
5. Shipping
The cost of shipping a container from China to the U.S. has more than doubled in recent years. This will continue to be a moving target, subject to the fluctuations of the commodities markets. Air freight, once a staple of the industry for expedited movement from east to west, has become unaffordable for many products. Moreover, with the airlines in a state of financial distress, the cost of air freight is likely to continue its ascent. Domestic freight rates are also difficult to peg, but will follow the rising cost of diesel fuel. Heavier products—wood, paper, glass, ceramic and metal substrates—will continue to be subject to serious buyer resistance because of the associated transit costs.
U.S. Postal Service costs are no exception, with increased postal rates affecting the delivery of not only products but also bulk mailings such as catalogs, samples and collateral literature. At best these prices will stabilize for the coming months, but more likely they will continue to rise.
Rebekah Baumer, customer service supervisor, AITG Business Gifts, Inc. (UPIC: AITG)
“In the face of rising shipping costs, AITG works with its clients to keep expenses down. The company offers UPS retail rates, U.S. mail for items that don’t need special handling and will ship products using personal UPS or FedEx account numbers. And as always, customers with large orders can request free estimates.”
“On overseas shipping, AITG works to obtain lead times for containers but doesn’t charge extra fees for expedited orders.”
6. Catalogs
Catalog production costs will continue to rise. Despite suppliers’ pleas for change, distributors still insist upon printed catalogs that include pricing, and the expectation is as strong as ever for those prices to remain constant throughout the life of the catalog. In their 2010 catalogs, suppliers will more conspicuously than ever declare that catalog pricing is subject to change, creating the potential for strained relations between long-time trading partners. Distribution costs for these catalogs are unlikely to abate, as most distributors prefer to not physically take catalogs at tradeshows. New bulk mailing rules will complicate in-house sorting of 2010 editions.
Glenn Oyoung, vice president of marketing, Tri-Mountain (UPIC: TRIM0003)
Tri-Mountain saw a slight decline in demand for print catalogs as the economy cooled last year, yet traffic on the company’s website went up. “We interpreted it as a sign that our distributors were trying to find more ways to get in front of their clients virtually,” says Oyoung, who adds that in 2010 the company will launch a digital catalog that links back to its website. “Leaders in our industry will be the ones who understand how to leverage both print and digital catalogs,” he says. “Those who can create catalogs that tell stories, rather than just being telephone book-sized data repositories, are going to do well.”
Despite economic shifts, Tri-Mountain maintains pricing through the life of its catalogs. “Price changes are incredibly disruptive to the sales process,” Oyoung says.
7. Pricing
In light of the economy, most buyers are pushing for dramatic price reductions or they are expecting concessions, all of which will have a profound effect on the bottom line. Fixed pricing requests will be met with greater supplier resistance and even greater distributor and end-buyer insistence. Breaking the expectation that pricing can be guaranteed for programs that may last up to 18 months will prove difficult but, in most cases, necessary. Pricing strategies and negotiations will need to be reinvented.
8. Risk
Risk management expenses will drive policy costs higher, and these costs will be passed along in product pricing to end buyers. Insurance costs will continue to increase and it is reasonable to expect more insurance exclusions. Look for this trend to continue throughout the year.
Costs for employment will continue to rise, and even the layoffs that were made to minimize expenses will have a downstream cost in an increased ex¬perience modification assessment. If and when business improves, companies will need to carefully analyze the relative merits of adding personnel to their payroll versus the advantages of outsourcing.
9. Product Safety
Product safety and compliance issues, such as CPSIA, will dramatically increase the cost of goods and services. End buyers are increasingly aware of liability exposure, and more distributors are seeking suppliers who can address these fears. Many savvy end buyers are now asking questions about product toxicity and disposal requirements. Expect continued concerns and outright fears associated with certain product categories including food, drinkware and powered devices.
Testing may now be required on a more frequent basis, and there are concert¬ed efforts to add markings on all items so that a product can be tracked not only to a specific factory, but also to a specific batch and/or date. There is ev¬ery reason to expect more such regulation in the coming year, and significant penalties for non-compliance. It is unlikely that there will be any exemptions for smaller companies.
The request by distributors for indemnification will pose significant hardship and add to suppliers’ risk exposure.
Rick Brenner, president and CEO, Prime Resources Corp. (UPIC: PRIMELINE)
Brenner, who says Prime offers its own in-house, comprehensive compliance program to distributors, adds that his clients are more aware of products safety issues than ever but are still confused and misinformed. “Distributors don’t want to spend their time studying and policing compliance issues,” he says.
Brenner says the CPSC’s slow response to working out many open issues in the CPSIA has left the industry in a state of upheaval. The lack of specific guidance from CPSC, Brenner says, leaves companies to devise their own compliance strategies and interpretations of Congress’s intent. “The other challenging thing is that ensuring compliance all the way through the supply chain is a massive job—not a one-time event. It requires constant vigilance and testing,” he says.
On the debate over in-house testing vs. third-party labs, Brenner doesn’t take sides. “You need both. You might identify a manufacturer that has good, safe processes in place. But while you might go to a third-party tester once or twice, sending something out takes two weeks—what about the hundreds of products arriving in your warehouse every day?” He also adds that testing products overseas eliminates return shipping costs.
“It is critically important for the survival of our industry that all suppliers implement compliance initiatives,” says Brenner. “If major corporations stop buying promotional products from our industry because they perceive it as too risky, then we all lose.”
10. Tradeshows And Exhibitions
While some tradeshows report modest increases in attendance, many are down. Most show producers have attempted to stabilize booth prices, but the lion’s share of the associated costs that are most likely to increase include freight, drayage, labor, ground and air transportation, hotels and meals.
Because some of these same costs affect distributors, many have opted out of the larger out-of-town shows in favor of the regional shows and local traveling events. Virtual tradeshows, while conceptually not new, have made another debut. The industry should see a growth in this type of program, but the ef¬fectiveness is still unproven.
Look for flat or even lower overall attendance in the coming months, and for suppliers to limit booths and staffing.
Sadie Schlief, director of promotional products, American Solutions For Business (UPIC: AMER0005)
In light of the tough economy, ASB sales associates are staying close to home and attending more regional shows. “Scaling back has its cons, but we’ve had to look at what shows we attend,” says Schlief. “I would go to most of the larger ones; now, I still go to the big one—PPAI’s—because it’s a one-stop shop for us. I make many more contacts in the course of three days than I would all year.” To combat the negative effects of attending fewer tradeshows, ASB encourages its reps to reach out more and build relationships.
11. Travel
Travel and entertainment costs have risen dramatically, and while not likely to change a great deal in the foreseeable future, for many these constitute a substantial percentage of the sales expense. And while airfare costs may be a bit more stable today, flight selection choices and rampant cancellations are insidiously driving up costs, forcing travelers to anticipate additional time margins for error and absorb unexpected hotel and per-diem costs.
12. Sales Representation
Multiline reps continue to consolidate, and the more progressive ones are morphing as the market dictates. Old-school reps are facing the challenges of confirming appointments based on their name and reputation, and they experience an increased inability to schedule fill-in visits with smaller and mid-sized distributors. Additionally, few distributors are willing or able to successfully corral their most productive sales reps to attend many of these sales presentations. Any distributor opportunity to make client sales calls is a higher priority.
Suppliers continue to demand more accountability from their reps, and many have renegotiated everything including draws, house accounts, written call reports and commission rates.
Mark Shinn, MAS, president, Incentives West (UPIC: IDEAWEST)The economy has been tough on supplier representative firms. “Promotional consultants are becoming predominantly independent,” says Shinn. “The ‘cube farms’ are not as prevalent, and there are so many [independent distributors] that if they work with a business, it’s more of a hoteling situation. They’re somewhat of a moving target.”
Shinn says now supplier reps are a resource for distributors and considered part of the brainstorming team. To stay in touch with distributors when money and credit are tight, Shinn looks to social media. “The meet-and-greet still happens, but more often at mutually attended events such as shows,” Shinn says. “Visiting offices and sharing lines as a team just doesn’t happen as much.”
13. Communications
The backlash to the overload of e-mail blasts and campaigns will continue. This will not diminish the use of the vehicle. E-blasts will grow in volume during the next six months, as suppliers continue to seek any exposure on smaller budgets. Suppliers will face the cut lists of services such as Constant Contact as more frustrated distributors will report e-mails as spam. Many distributors are setting their spam filters such that important, order-specific information from a given supplier could end up in a spam trap.
Webinars continue to gain favor, both with distributors and suppliers, as a lower-cost alternative to in-person visits and presentations. Unfortunately, many suppliers who are quick to engage their distributors using new tools are prone to failure because of questionable content, poor presentation skills and failed delivery systems.
14. Marketing And Sales
Virtually all companies have scrutinized and reduced expenditures, and suppliers in particular have slashed their marketing and sales budgets. Faced with difficult decisions, many have made what could be characterized as unsustainable cuts: In the short term these may save money, but they can damage a brand and a marketplace reputation. Successful companies must be even more mindful of their go-to-market strategies, and even the most entrenched of brands will be required to undergo a review of their message delivery systems.
External forces will continue to plague sales with the proliferation of influ¬ences such as the PhRMA codes, CPSIA compliance, proposed sunshine legisla¬tion and others. Market segments that continue to be at risk include insur¬ance, healthcare, automotive and the not-for-profit organizations, many of which saw their portfolios decimated by fraud and poor investment deci¬sions. Additionally, downstream market segments will stand to suffer, and the trend will continue into 2010.
Wayne Greenberg, MAS, account executive, JB Of Florida/Geiger
Since the economy turned south more than a year ago, Greenberg says budgets and lead times have shrunk. “People held back their budgets to see what would happen,” says Greenberg. As budgets started to grow again, Greenberg says people moved cautiously, saying things such as, “This is what I have for the month, but it’s the 28th and I need it by the first.” This decreased lead times.
To mitigate the effects of shrinking budgets, Greenberg got back into an old habit—prospecting. He also gets to know client companies more deeply. “Where I may have once dealt with just the human resources director or the marking director, now I get introductions all the way around,” he says.
He’s also making product safety a priority. “It will be one of the defining subjects of our industry over the next two years. Concerns about product safety in our industry may drive clients away from using promotional products, unless we’ve got the full story,” he says.
Where will he be when the economy builds back up? “If I’m going to be there when they start to put the pieces back together, I need to be there now,” he says. “Even if they’re not buying from me, I’ve got ideas in front of them.”
In the meantime, he’s staying up with the trends. “Our industry has begun to use the lingo of commerce and the lingo of the economy. That’s been a trend for me,” he says. “When I start using those terms, clients start understanding what we’re all about. Use basic marketing speak, not product speak.”
15. Green And Environmental Products
Green awareness and the environmental impact of promotional products remain focal points, but premium pricing for such goods continues to hamper sales. Without a clear characterization of what “green” represents, many marketing campaigns leave advertisers and distributors less enthused about so-called green alternatives. Additionally, our industry will continue to be targeted as producers of one-time-use stuff that contributes to landfills. Look for many green initiatives from publishers and show providers as they seek to provide awareness forums and vehicles.
Julia Wright, owner, Wright Choice Promotions (UPIC: wcpaz)
Because of its niche, green products haven’t been as adversely affected as other product sectors, says Wright. “Overall business is down a bit, but the audience I cater to is in the eco-friendly business, so they can’t afford to buy something that isn’t eco-friendly.
Wright says her clients are most concerned with product quality—how their green items compare to conventional items—and verification of green claims. “It boils down to there being different shades of green. I applaud suppliers who are straightforward [about their products]. Nothing is perfect; it’s about knowing a client’s values and selecting what’s best for them,” she says.
Going forward, Wright only sees more green offerings. “We are definitely getting more stylish products,” she says.
16. China Syndrome
The fallout of the economic downturn in the West heralded the failure of many Chinese factories. The resulting effects include diminished capacity (fewer facilities producing similar goods), less price competition between manufacturing entities (hence generally higher prices) and, in many cases, longer lead times.
China, still the world’s toxic dumping ground, is under increased scrutiny for its carbon footprint, and more and more products manufactured both domes¬tically and elsewhere will take their afterlife into consideration.
Jonathan Isaacson, CEO, Gemline (UPIC: GEMLINE)
China is not immune to the global economic situation, says Isaacson, and as manufacturing jobs have been exported, so too have layoffs. There has been a lot of cost-cutting and an enormous amount of capacity taken out of the Chinese system.
“China has been an export-driven economy, but over time the government’s goal is for it to be driven more by domestic consumption,” says Isaacson. “It will then be less reliant on exports to other areas.” The country recently implemented a $600 billion stimulus package, which Isaacson says is fairly large relative to the economy.
The Chinese government also has the ability to help businesses in a way the U.S. doesn’t through quasi-government entities, where the government acts as an investor, of sorts. Along with this it may make cash available to businesses to get them over the hump.
Yet Isaacson cautions promotional products companies before working with China. “[It’s] not something a company should do unless it really knows what it’s doing,” he says. “The current economic situation makes the risks even greater.”
And what about prices in China? Isaacson says there will be natural inflation, but the price driver in China is raw materials, not capacity. “The other issue for suppliers is managing supply-chain continuity,” he says. “A supplier needs to ensure its supply base is financially stable. The danger is that, in a time like this, there are a lot of incentives to cut corners.”
There are some basic questions distributors can ask suppliers to help identify which suppliers have reasonable quality and safety controls in place, Isaacson says. “Fair price is always relative, but nothing is free in this world, [including] compliance,” he says. “However, there is a difference between lowest price and lowest cost. Although a supplier may not always be the lowest price, the overall cost of doing business with a quality supplier is always lower.”
17. Pandemic Marketing
The Center for Disease Control and World Health Organization have alerted us to the potential pandemic in the fall and winter. The swine flu has the potential to dominate the headlines in the traditional flu season. Opportunistic marketers will see if and how their goods and services can fill a need in this marketplace. Already, hand sanitizers are hitting new sales heights. This trend is likely to continue at least through 2010.
18. Automotive Aftermath
The aftermath of the Chrysler and General Motors bankruptcies will see the two companies and their dealers marketing to build consumer confidence and sales. From direct mail to showroom visit incentives, the potential for substantial buying is on the horizon and is going to extend into the coming year.
19. Return Of The Banks
Troubled Asset Relief Program (TARP) funds are being returned and credit should open up by the end of the year. Banks should be among the early markets to rebound. Consumer advertising to rebuild consumer confidence has already begun and should continue well into the coming year.
20. Budget Shifts From Other Media
Orphan advertising dollars are increasing as marketers recognize the limitations of media such as newspapers and cable. An increased share of the advertising budget is available. Aggressive suppliers will furnish distributors with more case histories and data to help persuade buyers to use promotional products as a viable alternative.
21. Twitter, Facebook And Social Networking
Twitter, Facebook, viral video and other vehicles will see substantial experimentation through the end of the year. Learning how to integrate these in a sales or marketing campaign will be an evolutionary process. Suppliers will learn how to reach Gen X and millennials or lose market share to competitors. Generational marketing will become even more critical to an economic rebound.
Forecast Wrap Up
To survive and prosper, most businesses in this industry, and in all industries, will need to reinvigorate themselves, reinvest in themselves and, in many cases, reinvent themselves. Priorities will need to be reset to the new economic and marketplace realities, and many of yesterday’s basic tenets will need to be re-evaluated for their relevance today and tomorrow.
As some markets contract, others will likely open up. There are opportunities that exist today and more that will reveal themselves in the coming months. It will take vision, talent and commitment to exploit those opportunities. It will take far less effort to simply continue doing business the way it was done pre-2009, but the predictable outcome for those who choose this route is the demise of their enterprise.
Those who are agile and willing to adapt will be the survivors.
Plan B Associates is an industry consulting and performance management group based in Jupiter, Florida. It uses a collaborative team approach to understand and address marketing, sales, management, operations and technology issues for its clients. Partners in the group are Dennis Burnham, MAS; Jon A. Dubbs, MAS; Scott A. Nussinow, MAS; Stuart G. Putnam, MAS; and Joel Schaffer, MAS. For questions on the study, contact Plan B Associates at 207-240-1015, at scott@planbassoc.com or visit the website at www.planbassoc.com.
The industry quotes and asides found in this article were compiled by Jen Alexander McCall, former associate editor for PPB and an independent contractor who produces PPB Newslink.
|
|
|
|