Mark Ritson wrote an article for MarketingWeek titled Volkswagen is right to put profit before sales.
« Throughout his tenure, the CEO’s prime strategic goal was to ensure VW became the biggest car manufacturer on the planet. »
« During Winterkorn’s tenure, he doubled production from 6 million cars in 2007 to 11 million by 2016. That increase saw VW Group finally surpass Toyota to become the biggest car company in the world – two years earlier than planned.
The achievement was possible because VW Group is more than simply VW. The German holding company straddles more than half a dozen brands in addition to Volkswagen, in an automotive house of brands that includes Audi, SEAT and Skoda, as well as Bentley, Lamborghini and Porsche… Winterkorn pushed these brands to launch more models, aimed at more consumers, in more markets than ever before.
VW Group would often announce up to 60 new models a year. Niche brands like Bentley and Lamborghini saw production numbers increase by a factor of five. Bigger brands like VW and Porsche were pushed to sell record numbers of cars, year after year. »
« Sales are usually the ultimate corporate measure of success, not just at VW but at most large organisations. We celebrate when a company breaks a billion dollars in revenues. And yet, once you break that focus on sales down, it becomes embarrassingly evident just how dumb an objective it usually proves to be. »
« My argument is that sales are of course important but that they are not the lifeblood of a company, profit is. »
« The sales signpost points towards lowering prices, targeting the bottom of the funnel, running extensive sales promotions, making more products, creating more brands, geographic expansion and the relegation of the bottom line to an ancillary role within the business. I would argue each of these precepts makes perfect sense in a sales-orientated business, and yet each is very often a stupid move. »
« When you look for that second profit signpost, it will invariably point you in a more difficult, but more successful direction. It directs you to maintain a price premium and the branded differentiation that justifies it. It compels you to look for more profitable, protectable target segments and higher-priced, profitable products to service them with. It tells you that most sales promotions are a slow suicide and that, if you do make a sale at a special price, you should feel bad, not good, about it. »
« The profit signpost tells you to slow down and sometimes step back; to understand strategy as sacrifice. It leads you to kill products and brands in massive culls that severely impact the top-line of the firm, while liberating the bottom. For the surviving brands, the signpost tells you to invest in big, long-term, TOFU-boosting efforts on their behalf. To follow the profit path does not mean we ignore volume, but it does mean we relegate it to page six in the marketing plan, and put gross margins and operating profit on page one. The purpose of sales is to provide profit, after all. »
« Any idiot can sell something. To sell it at a profit, a good profit, a sustainable profit, is a different thing entirely. »
« “The key target is not growth,” VW’s new group CFO told the Financial Times last week. “We are more focused on quality and on margins, rather than on volume and market share.” VW Group has just announced it will kill off at least 100 different car models, about 60% of its portfolio, in the coming years. »
« When you kill products, you invariably take out the less profitable ones, leaving behind higher-margin and higher-potential products. I should underline ‘less’, because this is not a naïve attempt to close down loss-making parts of the business. Any moron can do that. When you kill products and brands, you are usually shutting down things that turn a quite decent profit. They key issue is the resources required to generate that profit and how they might perform if freed to be invested elsewhere. »
« A good marketer should see their product remit not just as a licence to create, launch and grow but also to kill. These survivors get more attention, more investment and more undivided long-term focus. That usually results in better, more satisfying products. Then in growth, profitability and – yes – new products. The companies following the profit signpost ultimately find themselves in a much better place than the ones still racing down the volume path. »
« One of my favourite ever chief executives was the brilliant Jean-Andre Rougeot at Benefit Cosmetics. He might even have been the best I ever worked for. He managed an incredibly diverse and creative product team at Benefit who were always brimming with new ideas and formulas. His stock response when anyone came to him with a hot, new, sure-thing product was to respond in two stages. First, he congratulated the marketer on such an innovative new product and gloried at its likely impact. Then, he asked for the product SKUs in the portfolio that would be cut to make room for the new launches. It was a smart, systematic way to ensure that Benefit maintained a tight product portfolio and – with it – supreme profitability. »