Repacking Reduces Prices by 10%+ – #56
Most businesses are constantly struggling with pricing, the cost of product, and have no means of getting a positive impact on net profit without major considerations being weighed. Refer to Blog #13 that shows the numbers impact of Sales & Expense, CGS increases/decreases on Operating Income. However, most of the savings in this article are gained by the Customer, but certain areas such as product, and net profit will be affected by this excellent externally generated move. The management strategy that I am sharing with you provides an excellent example of how you might have similar opportunities as a leader in your department or company.
How did Ann Sophie Claus, Co-founder of a start-up called Female Company, located in Germany, come up with an idea for this company of repackaging product that sold out the first day of launch and within a week had sold 10M copies?
She and her product team looked at every product’s tax system and came up with a revealing fact. That since 1963 the German Government had been taxing women’s Tampons at a “luxury product” rate of 19%. Next, she had the staff compile a list of taxes and quickly identified books being taxed at a rate of 7%. The German Finance Minister indicated that he was not planning to lower the taxes on –Tampons –because the Government couldn’t ensure how the Consumer would benefit from lower taxes. I am sure that Ms. Claus is very glad that the German Finance Minister talks gobbledygook in the same manner as the politicians do in the U.S.
Ms. Claus introduced a Book containing 15 Tampon stories about menstruation from Biblical Times, as well as illustrations from two leading artists. The characters in the book came alive about a subject that has been full of rumors and suppression. These, plus a whole host of other reasons, is why the period became taboo in the first place. However, during the last years the women are standing-up against such characterizations.
The book is taxed at a 19% rate. To offset the effects of this tax on her net profit margin she will now have 12% from tax reductions in the cost of product plus savings related to volume increases due to more purchases of Tampons and related supplies. The book including illustrations, royalties and printing costs will represent an added cost in the CGS column. If Ms. Claus is smart, her retail price of E3.11 will not only cover labor, overhead, material costs, and profits, but add some net profits to her net margin. Remember that a 1% decrease in gross margin leads to a 5% profit increase. The description of a startups fresh thinking processes resulted in an immediate increase in sales and profitability of a product that has been in existence for a long time, but treated in a taboo manner. Please review your product line or segments (one – at – a – time) and allow the imagination and innovation of your employees go to work on all the products. Make it interesting, let them reap the same line of rewards (smaller) that would accrue to the company. Subjects you might want to consider?
- Are you serving your key markets in the target markets that you have identified NOW
- What measurements are you using in identifying generational shifts or new ones such as Gen-“Z” coming to life. What impact will that have on your products in existing and potentially future markets? Japan and China are getting older along with birth-rates declining in the U.S. which will shift labor demands in twenty years.
- What effects will automation have on aspects of your business?
- What will increases in Government actions such as Taxes , Tariffs, and Wars have on your business?
The world is changing rapidly, and when the 19% Tax Rate was passed in 1963: 499 men and only 36 women voted with many not being there due to entering another stage of a woman’s life. Its time we question such decisions from a new perspective of the modern, independent woman. Ms. Claus you are an inspirational leader- good luck in growing the Female Company.