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‘Sell More Stuff’ Isn’t a Long-Term Strategy

Despite continued worldwide uncertainty, manufacturers are putting their collective short-term hope for growth into new products, strategic acquisitions and alliances, and emerging markets, according to a recent report from KPMG.

The firm's annual Global Manufacturing Outlook, which surveys 220 executives from global companies, pegs the top priorities for the coming two years on top-line growth, research and development, customer relationships, and cost containment.

Perhaps not surprisingly, 80 percent of the respondents are cautiously optimistic about prospects for growth in the next couple of years. Also, because of concerns about raw material pricing volatility, increased competition, and uncertain demand, manufacturers are aligning their business models with growth plans that hinge on M&A and joint venture activity, stepped-up production capacity, R&D innovations, improved supply chain visibility, additional cost reductions, and shorter product development lifecycles.

It's good to see companies plan for brighter days, but I would add that, of course, manufacturers want to have to a rosy outlook. The last few years have left them with bleeding balance sheets, and obviously they want to shake off any remaining softness by focusing on whatever delivers quick results.

The optimism, as I see it, seems to be rooted in a strategy that always leaves me scratching my head. When those polled were asked to compare the main focus areas of their growth strategies in the next two years with the two previous years, there appeared to be a “marked shift in focus.” According to KPMG, 56 percent of manufacturers globally are planning to sell new products in new and current markets over the next two years, up from 37 percent.

I can't be the only one who filters reports like this through a historical (and, admittedly, cynical) screen. Why is that the often automatic corporate reaction to worldwide economic weakness involves major cost-cutting initiatives that tend to include thousands of layoffs and then, soon after they believe the darkest hours have passed them by, turning up the noise about selling more products to more people? Does that really solve financial problems over the long term, or is it simply a bandage to keep shareholders happy with the near-term top-line numbers? Maybe all this does is feed another unavoidable bull and bear cycle.

Consumers — large numbers of whom remain unemployed or underemployed — don't need more stuff to buy. They need jobs so they can feed their families and keep a roof over their heads. Yes, I get that if companies want to sell more products, they will have to restart their production lines and expand their footprint, and that this in turn creates additional work. However, I don't believe that it goes far enough.

Wouldn't it be great to read a report one day where manufacturers actually came up with a novel approach to balancing market uncertainty, risk, and volatility with a sustainable growth plan that wouldn't fizzle out when it runs up against market softness? If I'm missing manufacturers that have actually developed innovative strategies, feel free to name them here.

18 comments on “‘Sell More Stuff’ Isn’t a Long-Term Strategy

  1. Himanshugupta
    September 28, 2011

    I remembered a recent article by Thomas Dinges titled 'Is the EMS industry facing another recession' and he wrote that industry is trying to move towards enterprise oriented products as this can help them in bearing the short term glitches. Can this strategy work or we need to revisit part to find a working strategy or we need a modern and futuristic strategy to cope with slow growth?

  2. prabhakar_deosthali
    September 29, 2011

    In today's times the consumers are used to see  newer and newer products every now and then being introduced in the market and a lot of product promotions being pushed onto them. In such a scenario “Sell more stuff” strategy may be required for the companies to keep market continuity and keeping their name afloat in the marketplace albeit at a loss at times.

  3. Jay_Bond
    September 29, 2011

    I'm with you completely. Why is it that company’s always use the “sell more stuff” approach, particularly after they have made cuts to their bottom lines? You would think at some point the executives would realize that people without jobs don't buy things other than necessities. I agree that wouldn't it be nice to have these companies put a collective head together to solve the issues rather than put bandages over them. Then again, look at the U.S. government and how they handle problem solving.

  4. Jennifer Baljko
    September 29, 2011

    Thanks for the comments.

    You what's even stranger is my own inability to hold firm. While I truly believe consumers don't need more stuff  and the corporate “sell more” strategy doesn't go far enough to address many issue, I've got to admit I was excited to see Amazon's Fie tablet announcement yesterday. My first reaction: Wow!Great! I can buy a tablet for $199. My second reaction: Yeah, but you don't actually need a $199 tablet. You already all the devices you need. 

    It's undecided which voice in my head will win and which argument will stick.

     

  5. William K.
    September 29, 2011

    Of course ANY publicly held company would assert that their plan is to sell more stuff and return to at least the previous profitability. What else could they possibly say? The board of directors and the stockholders would have no mercy at all if they were to say anything else! 

    My point is that most projections are made with the sole intent of increasing share prices for the short term, since that is what brings in the money for top management, who are the only ones authorized to speak for a company. We have observed that these folks will lie to fedral investigators and to congress, so why would we think that they would feel compelled to tell us the truth?

    If they said that they were going to retrench and invest a lot of money in developing a better or different product, and that the dividends would be small this quarter, they would be on the street the same day. We all suspect this, but won't admit that we do.

  6. Anna Young
    September 29, 2011

    With all good intent these companies are not projecting “sell more stuff” on a long term profitability strategy. The aim I suppose is to keep the share holders and investors happy and will do whatever it takes to ensure the profit margin is steady and ever increasing.

  7. eemom
    September 29, 2011

    I agree with Anna.  In my experience, when companies hit a snag in sales, panic ensues and they do anything to “sell more stuff”.  Long term strategy and goals go out the window in favor of short term sales.  In my opinion, that is how they tend to shoot themselves in the foot.  It would be wonderful if companies had long term strategic plans that are flexible enough to withstand fluctuations in the market.  That may be easier said than done.

  8. Tim Votapka
    September 30, 2011

    Jennifer's questions and thoughts posed in the last couple of paragraphs are right on target. Selling more stuff is certainly the way to raise gross income, but reactive consolidation dilutes the effort. This is particularly true in promotion and marketing which ironically are among the first things cut when “things get tight.” On one hand, this creates tremendous opportunities for smaller players to rise above the surface.

  9. Eldredge
    September 30, 2011

    You have a point – in order for a 'sell more stuff' strategy to work, consumers have to be able to buy more stuff.

  10. Ashu001
    September 30, 2011

    Dear Jennifer,

    I remember reading a very interesting Economics study which directly blamed the US Federal Reserve and its easy money policies(&cheap credit) for creating both unsustainable booms and the consequent busts that followed.

    Do you think that angle needs to be looked at more carefully by the esteemed Team at EBN?

    Regards

    Ashish.

  11. Ashu001
    September 30, 2011

    Eldredge,

    There is an alternative. They need to have access to cheap credit(which the US Federal Reserve) so happily obliged them with for so long.

    Its only now that the Banks whose balance sheets are bleeding so bad from all the bad loans that they made during the past booms ;which is forcing them to pull back & shrink their loan portfolios sharply.

    The only alternative left for the US federal reserve today (to kick-start this economy) is to dump Dollars from Helicopters ala Ben Bernanke;even then I am not so sure it will create a lasting boom.The chances are much-much higher we will see most people using them to pay down their loans,become debt-free and more frugal in their approach.

    Regards

    Ashish.

  12. Ashu001
    September 30, 2011

    Tvotapka,

    I agree.

    Its a nice catch 22 situation to be in.

    You cut Advertising because Sales have fallen which leads to further falls in sales(because less consumers know about your product);which leads to further falls in sales.

    The thing is generic approaches to marketing to consumers don't work today.

    You need outside the box approaches which create brand re-call and value that is very-very effective in the long run.

    Will most manufacturers adapt to this reality of doing more with less(while still maintaining an out of the box viewpoint???).

    I don't think so.

    That's precisely what seperates the wheat from the chaff in a recession.

    Regards

    Ashish.

  13. Ashu001
    September 30, 2011

    Jennifer,

    You don't seem to mention anything about selling Services here.

    Is that a viable strategy?

    Sell a product once but sell so many services tacked onto the product so as to keep both the bottomline as well as Rank and file employees persistently busy.

    What do you think?

    Regards

    Ashish.

     

  14. Ashu001
    September 30, 2011

    EEmom,

    Very,very well put!!!

    I wish I could put it better myself here.

    Regards

    Ashish.

  15. Ashu001
    September 30, 2011

    William,

    That is all part of the Game of Managing Expectations on the Street. I guess

    that's why they call it “Management”!!!!

    Apple is a past master at this game.

    Very few companies are quite able to match the level of skill with which apple plays this game and plays it very,very well.

    regards

    Ashish.

  16. Ms. Daisy
    September 30, 2011

    Yep! Apple sets the pace and will probably continue to lead for sometime to come.

  17. Ariella
    October 1, 2011

    Well put, Tvotapka! You remind me of the saying I heard a long time ago. “when business is good, you should advertise. When business is bad, you have to advertise.”

  18. Ashu001
    October 3, 2011

    Daisy,

    Apple leads the street today for sure.In the future,I am not so sure.

    Both Android and Microsoft+Nokia can and will be formidable opponents.

    Regards

    Ashish.

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