By Rich Bond
One of my clients was a hugely successful premium bottled spring water company. But when it came to their value brand, they were not so successful.
Because the finance people I had already placed with them had worked out well, they came back to me to find someone to work on their value brand.
After I recruited and placed someone, I discovered from him that the value brand for this company and all their competitors was simply municipal tap water! Yes, it was filtered and purified, but it was still out of the tap, not from some pure spring spouting from deep within the earth.
The person I placed did an analysis no one else had. He challenged the company’s operational principles and made the value brand highly profitable.
One of the most important roles finance can play is determining if the assumptions your business operates under remain valid.
Over time businesses change. That means some of the operational principles need to change, too.
My client had assumed that the same manufacturing strategy would work for both the premium and popularly priced market segments. They were wrong.
This organization had always purchased water rights in areas far from population centers, whether it was for their spring or purified brands. That meant their bottling plants were also far away from municipalities.
Meanwhile, their competitors, Dasani and Aquafina, were bottled locally out of municipal water systems and delivered in a relatively small area.
That meant our client’s delivered-product-cost was far higher because of the freight cost of shipping the product hundreds of miles. Previously, they had only analyzed costs at the plants and ignored any shipping costs.
The person I helped my client hire analyzed the delivered cost and recommended a new bottling strategy, using plants near or in cities. He got permission to set up a test plant in Houston. It was hugely successful.
With this new perspective, our client realized that different brands with different price points can require different manufacturing and shipping strategies.
The company switched all their purified water bottling to local, municipal plants, following the Houston model, making the value brand a highly profitable success.
This was a case of “Fearless Finance” – taking the initiative to go against the way things had always been done and recommending a new strategy, based on solid financial analysis and management.
Is your company suffering from assumptions that are no longer working?
Have you challenged any of these assumptions?
Do you think finance can and should evaluate operating assumptions?
Email me and share what you think. Richard.Bond@BondandCompany.com.