Wednesday, December 10, 2008

Discounting Diapers

Interesting article from Kellogg Insight about how consumer product companies - like Diaper and Soup makers - also play the end of the quarter, make your numbers game. It's well known in the software, and probably other capex oriented markets, that the best deals come at the end of the quarter. Vendors are desperate to make their numbers, and Buyers have a lot of power. However, this new research from Chapman & Steenburgh shows that these practices are widespread. Interesting quote from the studies' author:
“The more I’ve presented the paper, the more it’s clear that everybody—from software companies to cars to contractors—is doing this to make their financial targets,” Chapman says. “It’s a basic tool of business.”

What I find interesting, is that cutting numbers is not a "basic business tool." It's something that companies do to the detriment of their long term business. They train the customer to expect discounts. Here is a cool quote by Barry Diller, CEO of Interactive Group, where he talks about both the responsibility to not cut jobs if they don't need to be cut, but also how trying to "beat the quarter" is the wrong way to think. “It’s not that you don’t want to earn as much money as you can — it is your obligation, of course — but companies have obligations beyond that and they certainly have obligations beyond that at certain times, in the times in which they operate. And they also certainly ought to know that meeting and beating expectations is probably yesterday’s game and it will be increasingly so, which would be by the way very healthy for companies. Running a company that meets and beats expectations, and that runs their company accordingly, are companies that I would question why anyone would invest in.”

I'm with Barry on this one.