The only brand worth having is a profitable brand (even if it means losing customers)

Looking through the ‘archives’ of some of our early branding blog posts, I came across a reference to an article in Fortune Small Business.

The article talked about three companies that had for years pursued a traditional sales and market growth approach that saw them investing more in acquisition than retention whilst paying little attention to profitability.

One case study was of Skelton Tomkinson (now known as Skelton Sherborne), a heavy-machinery shipper based in Brisbane, Australia. At the time the company had one office in Brisbane and one office in the U.S. where Caterpillar was a major customer.

In 2000, because he was seeing little growth using a traditional sales and market growth approach, the owner deliberately raised fees on his least profitable customers, hoping they would leave. Some of them did and revenues dropped dramatically, from US$20 million per year to $8.2 million.

But profitability increased 98% and total revenues slowly returned to $20 million. Tomkinson’s motto: “I run my company with this saying: Volume is vanity, and profit is sanity.”

And it must be working because today, the company has 11 offices, up from 2 in 2000. The new offices are in South East and North Asia, with one in the Arabian Gulf.

Far too many companies believe that they must pursue sales or market growth and this generally means ‘spraying and praying’ – basically the act of spending as much money as possible trying to reach as many people as possible.

What they should in fact focus on is profitable growth, which most often results from identifying and retaining profitable customers and not trying to sell to evey Tom, Dick and Harry.

Another mistake companies make is wasting valuable resources finding out what their customers are doing and then wasting even more valuable resources fighting or trying to block or undercut those competitors.

This is an exercise in futility because in today’s dynamic, always on, constantly evolving world, the only focus should be on identifying the right prospects, creating the right customers (and getting rid, yes getting rid of unprofitable customers) and delivering value to profitable customers through engagement and personalisation.

The great branding graveyard in the sky is full of brands that played the volume game – think Rangers FC, Viyella, Blockbuster, Silverjet, Swissair, Habitat, Mobikom, MegaTV, Pelangi Air, PanAm – they all took a traditional approach to building their businesses yet they all ended in failure.

Seeing your name on billboards or in print ads everywhere and reaching lots of people may make you feel good but focussing on profitability will keep you sane.

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