CEO in a Box

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Product

I place product second in the hierarchy of CEO responsibility, second only to finance. While some say channel is king, product is still on the throne of direct marketing. The CEO has to be the primary champion and driver of product and needs to devote huge amounts of energy and attention to the following product strategy components.

Product selection and development. Product managers and merchandisers are important, but somebody has to be in charge. The best CEOs have a seemingly infallible understanding of their products and a laser-like focus on the customer's use and application of those products. You can give up much of the product sourcing and development responsibilities to product specialists, but the CEO is wholly responsible for the company's product soul. Product direction is a term that implies absolutism in product selection and development, and the CEO is the source of that absolute direction. The answer to the question, "Where do we want to go with our products?" is a question that ultimately must be decided by the CEO. Interestingly, the most successful owners and CEOs I have encountered in the catalog world have been product people, not financial people.

Market selection and development. In the same way, market managers are important, but somebody has to be in charge. Again, the best CEOs have an equally infallible understanding of the market or markets they take their products to and the customers that populate those markets. You may not do all of the contact planning or circulation planning, but the Master CEO can do it all if necessary. More important, because they can do it-and know it cold-they understand when the market selection, development and contact strategy is wrong. And that's why they are the CEOs. Think about this: How can you know product better than anything and not know about the market in which the product is sold? It's like being able to drive a car but not knowing how to go anywhere.

Competition. Something very interesting happens when I visit with CEOs, especially about acquisition targets. The CEOs of the very successful companies tell me all about what their competitors are doing; the CEOs of the not very successful companies ask me what their competitors are doing. The good ones have the whole product profile of their competitors in their heads; the mediocre ones have unanswered questions. Great CEOs study and master their competitors and learn to think like their competitors.

Profit margin. Among the product responsibilities is the genesis of product management for CEOs: In the beginning, there was margin. Every product has only one job: to create a profit. That only happens when someone imposes the requirement. I once worked for a not very good CEO who possessed few of the people or professional skills needed to be successful in the catalog business. But, he did know the precise margin of every single one of over 6,000 SKUs and he knew the precise margin at every quantity break for every product. He was a walking calculator. He managed the company by profit margin and profit margin alone. The company was very profitable. It wasn't a nice place to work, but it was profitable.

Product Value Comparison. The CEO has to be able to judge the perceived and actual value of all products and reconcile that judgment against competition, customer demand, customer retention, and pricing. For all products. In all markets. Across all channels. In short, the 'value proposition' is the domain of the CEO.

Pricing. Pricing strategy and pricing analytics are absolutely the responsibility of the CEO. Pricing is an art and science of its own and the Master CEO delegates pricing responsibilities very carefully. Beginning with pricing position and extending through pricing display, the CEO has total oversight on all elements of pricing. When to take a price increase or decrease is a top-level decision. What products to change prices on is also a top level decision. How to take price changes and over what segment of the product or market span is in the domain of the CEO. The individual product price is where the tactile connection to the individual customer and the marketplace as a whole is maintained. What point of customer contact can be more fundamental to a company's success? If you want to begin the process of losing control of the business, begin by giving up control of price.

Product lifecycle. Today's CEO is faced with actively managing and optimizing the product lifecycle for all products. At any given time, there are products in different stages of development: R&D, introduction, growth, maturity, obsolescence. The question that must be asked and managed is, "What percent of all products are in each phase of the product lifecycle, what does this mean for individual product ROI, and what is the optimal management tactic for each product?" When the product lifecycle gets away, it is extremely difficult to get it back on track. When all of the products tip over into maturity, the prognosis is grave; when all the products tip over into obsolescence, the prognosis is death. I have in mind the ultimate specter I stumbled across several years ago while on an acquisition search: A catalog company doing $20 million with $14 million in inventory of which $12 million was obsolete. Valuation? Liquidation value only. Pennies on the dollar.

Not only lifecycle management is critical, but in a just-in-time environment where many products are being imported, managing inventory turns is, perhaps, management of the largest asset of the company. Today, there are huge multi-channel direct marketing companies managing for thirty-five turns a year and higher. With that degree of financial utility, the CEO is compelled to devote significant time and resources to supply chain performance.

Product sourcing. So many CEOs report they are spending one, two, three or more months a year overseas negotiating product sourcing contracts. What was once the responsibility of the 'purchasing agent' (a position that has all but disappeared), now the implications of 'Deep China' sourcing are so great that the CEO has had to accept responsibility for this major portion of profitability.

Logistics. Because of the importation of so much of the product line, the need for high turns, the need for improved profit margins, and the need for enhanced fulfillment due to channel migration and customer demand for speed, the CEO must focus on the in-and-out logistics of product management. Freight-in and freight-out has become highly specialized and contract-driven. Other aspects of logistics, such as systems requirements for drop-ship programs, stock purchase order management, automated order transmissions, order acknowledgements, advance shipment notifications (ASNs), invoicing and order changes, require a focus of technology such as VendorNet (www.vendornet.com), a web-based supply chain collaboration that removes the chaos of contact and paper management and replaces it with a web-based, automated, full supply chain coordination 'suite' of systems management. This is CEO-level stuff. And it saves tons of money.

Product-level concerns. The foregoing product responsibilities are quite 'Big Picture.' There exist a host of 'Little Picture' concerns for the CEO to manage regarding the individual products. Most of these are where the rubber meets the road: the customer level. As a result, they are equally important and may be even more of the 'soul' of the company.

Someone has to be looking at the overall packaging protocols and efficiencies for each product and for every product. This also entails shipping costs, packing materials, custom or stock boxes, and efficiencies of shippers. Someone also has to look at overall product ease of use, instructions, warranties, guarantees, breakage, returns, percentage shipped complete, backorders, restocking costs, refurbishing costs, clearance outlets, and on and on. By product. By line. By channel.

Markets, Media and Circulation

Lists. Regardless of the size of the multi-channel direct marketing company, the CEO has responsibility for overall list selection strategies. If we accept that lists-of whatever type-response, email, subscriber, co-op, compiled are the heart of direct marketing, then it stands to reason the CEO must be fully informed and fully engaged in the list protocols of the company. Beyond selection, there must be an understanding of the channel contact strategies employed, including frequency, media and mix. Too few CEOs have an intimacy with the lists that are being used in the circulation planning and testing. If we continue to believe that lists are 60 percent of the success of a direct marketing business, then CEOs need to be proportionately engaged in list strategy. Any delegation of overall list selection and list testing strategy, as well as continuation selections, is a delegation that has to be made carefully and in close consultation with your trusted advisor, your list broker. There exists too much potential for loss of perspective when the CEO steps away from circulation management and delegates it to less experienced managers. The partnership directly between the CEO and the broker is one that must remain strong and absolutely trusting.

Markets and sub-markets. Under the 'adjacent tree ring' theory of market expansion, any direct marketer that is not expanding their market penetration is contracting. Therefore, market penetration becomes one of the most important leadership areas for CEOs. Where the company is going is determined by who is on the rudder. It can go straight, left or right. Captains give those orders. Because of every element you have read so far and following, the CEO (provided competency exists) is best positioned to determine where the business should go. It is the board of directors who determines whether competency exists and how much latitude or control the CEO should be given.

Circulation planning. Financial performance is directly influenced by circulation, regardless of the channel. Therefore, if financial performance is the primary responsibility of the CEO, then circulation planning and financial modeling requires CEO oversight and approval. This may well be the domain of the CFO, but the CFO models and the CEO approves.

Consider what this means. To be effective, both the CFO and the CEO must have an intimate knowledge of the norms of mailing lists, email lists, newspapers and supplements, inserts, broadcast, organic search, paid search, pay per click, whatever media in whatever channel the contact strategy calls for. This is a formulaic business and the formulas must be enforced and held to a financial standard. That is a CEOs responsibility.

Mix. The contemporary multi-channel direct marketing company, as opposed to the same company two, three or five years ago, is not about circulation; rather, today's strategy is about mix. The formula is media mix per channel and optimal channel mix to produce the most effective and profitable advertising plan.

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