Your Target's CFO Could be Your Inside Champion

Published: Dscoop Quarterly (A Cooperative of Indigo Users and HP) - Vol 4/Issue 2 - April 2010

"You've exceeded what you promised, saved us cash flow beyond what we thought possible, increased our revenues and customer base, and allowed us to increase the number of marketing promotions, with lower required break even points. And what won't show on the income statement is that you've radically changed how we work with our marketing folks."

Those statements, as reported to me, came from the CFO of a national chain as a result of an ongoing marketing campaign now in its third year.  The digital supply model they are using is relevant for any size organization that uses multi-level and widespread distribution of digital print, including restaurant and franchise chains, hardware chains, national real estate organizations, national education and training organizations, retail chains and more.

Doing the Research for an RFP

Four years ago, the digital print service provider (PSP) I worked with became qualified to receive a major request for proposal (RFP) from the supply chain headquarters. In doing his research (going well beyond the specifications he had given to quote), he learned:

• The RFP was focused on awarding work to the lowest cost per thousand supplier for static print pieces in seasonal promotions, with an approximate total budget of $750,000.
• Distribution would go to more than 1,000 retail locations and be serviced by more than 100 sales representatives.

Through personal visits with sales representatives, regional managers and numerous store managers, the PSP also learned that:

• Stores would not receive promotional products when they ordered them, so they ordered more than they needed; at the end of each seasonal promotion, they quietly trashed unused promotional items.
• Stores, which were sometimes privately owned but promoted by the national name, did not always participate as requested by the national headquarters.
• No personalization occurred for the local store. Options eventually discussed including signage with the store owner's name and personalized mailings to the local store's confidential mailing list, which often came from their active customer files.
• Cultural values of the national chain's home office could be summed up by increased revenues and cash flow.

When he submitted the RFP, it included testimonials as well as the financial and cash flow implications. In addition, the supplier offered an optional program with prices for products and services clearly connected to expected increased revenues and reduced cash flow.

The RFP got the attention of the marketing department. But the finance department was even more interested in the optional program, which included pro forma projections for how cash flow would be radically improved (showing the reduced risk of promotions), and how the second and third year repeat programs would cut the amount of print required per dollar or revenue generated while continuing to increase the return on investment for the promotions.

Evaluating the Marketing Campaign and Effects on Cash Flow

First, seasonal promotion printed materials were not purchased in single orders and sent to a central warehouse for redistribution. Instead, they were produced and shipped direct as requested by store and sales representatives. Industry studies indicate that 30 to 35 percent of bought print materials are never used, and another three to five percent are damaged from too many shipments and handling. Sales representatives and store managers quickly experienced that when they placed an order for personalized promotional materials, those orders were fulfilled within the promised 48 hour window.

The company ran three major seasonal promotions each year. This approach cut promotional cash flow requirements by over a third and allowed early revenues from the promotions to adequately cover promotional costs.

Second, the supplier created a store front website that allowed individual stores to order the size and color promotion combination they preferred, including personalization on their store materials and direct mail coupon cards. Sales representatives were trained to use the site and given a 24/7 help hotline to call for any problems and for guidance in using the ordering system.

Third, since people love recognition, a weekly electronic newsletter went to every store about progress made by participating stores. Store managers and sales representatives were encouraged to share successful sales stories. These were logged and used with each succeeding promotion to refresh the sales force. The results showed several unmistakable trends:

• Mores stores participated in the first year's three promotions than ever before. The home office that funded the promotion was ecstatic.
• On average, stores that participated experienced a 17 percent increase in overall revenue above the previous year and 31 percent increase in revenue from promotional items.
• Participating stores gained additional revenue on sales beyond the seasonal items promoted, indicating that the promotion helped sell all items in the store.
• Participating stores picked up on average 1.3 new fleet and wholesale customers per week. Those customers tend to generate long-term revenues.
• With each successful seasonal promotion, more stores would participate.
• Print requirements in the first season cost less than in the previous year, while generating more revenues.
• Print requirements for the second and third year, per revenue dollar, were lower each year. For the first time ever, the marketing campaign generated cash flow for additional promotions.

So how did this program get sold, and was it based on the lowest price wins?

Looking back, when the CFO saw the projections submitted to marketing and how much cash would be freed up because they would not be needed to create an increase in revenues, his first question was, "How soon can you make this program happen?" His second question was, "Can you live with these prices if your projections are too ambitious?" The digital supplier responded: "We've put it in writing, and we fully believe in what we can achieve for you."

In today's cash-starved environment, it's more important than ever to present a compelling proposal based on the opportunities for improving a customer's cash flow that digital capabilities can provide.