Take for instance the local fitness center that is struggling to increase their membership base as customers have moved to a newer less expensive nearby competitor and others have just decided there was no longer enough money in their personal budgets to pay dues.  There are three ways this business could have made an effort to make up for the lost revenues.  The first and easiest method would be to increase the per person revenue.  In this setting that would be accomplished by extending the services offered such as opening a juice bar or adding equipment or classes that require additional fees.  Other opportunities would exist in terms of selling promotional gear to clients but that ship has sailed so to speak and the days of "cool" gym gear are gone.  Another option is to simply raise monthly rates which in good times might work but in the recession it would simply result in customers either forfeiting their memberships or going elsewhere.  That leaves the third option which is the age old method of increasing sales which is to obtain new customers.  This is easier said than done and most gyms have already exhausted potential clients in any given area.  After newspaper ads have failed and signage in the streets have blown over the only way to draw people into the gym are special offers.  The problem with any second tiered pricing strategy is that it will inevitably alienate the customers that have stayed with you all along.

In this case new customers off the street or those that have been gone for a few months are rewarded with paying one third of what steady clients are required to pay.  It may increase sales initially but it will create a significant amount of negativity amongst old members and will cause some to outright leave and go to other facilities.  The only way to pull off this type of discounted membership is to offer existing clients something in return which is either a discount on premium classes or at the juice bar.  Perhaps giving them a piece of clothing with the gym logo would also help but all too often the gym owners blinded by the influx of what will mostly turn out to be short term customers see the money coming in the door without realizing they have won the battle but lost the war.  Newspapers are littered with stories of these types of programs going bad and facilities vanishing.  In fact many States have now adopted laws that protect citizens with insurance in the case that a facility were to vanish. 

Consider your sales activities closely and weigh the possibility that an existing client may not view it as favorably as new clients.  In the end it is customer retention that will keep you profitable not new customers constantly jumping from vendor to vendor shopping only on price.  No business will ever survive catering to clients that shop purely on price.

Studies have repeatedly shown that the least loyal customers are those that shop purely on price.  Although times have changed the traditional rule of 80 percent of your business coming from 20 percent of your customers is still consistent to some degree.  Knowing that a majority of your business comes from a small portion of your customers typically means your most loyal customers are the basis for your success.  The other 80 percent of your customers continually change as customers come and go.  Studies have also shown loyal customers are much less sensitive to price so long as they are not being gouged and are instead interested in the business relationship, consistency and meeting of mutual goals.  When a new customer calls or emails asking for your business to participate in a time consuming and lengthy bidding process that will come down to the lowest bidder you have to ask yourself is it worth the cost?  Do you really want to establish a relationship and tie up financial resources on a customer who values you only for your price and what does that do to the industry you operate in as a whole?  Take for instance the story relayed to us today of a customer that asked four different distributors to participate in a sealed bid.  One distributor refused to participate probably having previous experience with this organization.  Three others submitted bids.  Two "finalists" were selected each likely being played off of one another and asked to bid again.  The final outcome was a friend of the company President getting the order at between 0 and 5 percent profit not including carrying costs.  The customer may think they have "won" in this case but in the end they too lost as there is no way that distributor can continue to effectively service that account at those margins and will either be out of business in a year or will be like the distributor that refused to bid.  By the time they reorder that distributor will refuse to take the order or be out of business which means they'll incur new costs associated with acquiring a new distributor and likely expensive setup costs.  If the customer saved $500 in real order costs but spent 10 hours of manpower to do it they too had a net loss as those hours should have been spent on revenue producing activities.   Meanwhile in this era of decreasing credit the distributor that took the order at 5% is chewing up valuable capital resources to produce an order that they make little money on and are potentially on the hook for a five figure loss if payment is not made.

We will discuss this in more detail tomorrow, meanwhile take a look at earlier entries such as the arrival of custom bpa free sport bottles that we wrote about last spring and our post on retail brands crossing into the corporate channel.

The single biggest factor that argues for continued difficulties is the rapid contraction again of available credit to both consumers and small businesses.  For various reasons this critical issue remains under the radar of the major media outlets and most financial reporters likely because they are disconnected from that segment of the economy.  When they report from the floor of the Dow they are not capturing the pulse of a majority of the economy that produces a majority of the new jobs over the last few decades.  What they instead see is the one portion of the corporate sector that can borrow which  is large corporations.  Last week I had "Fools Rally 2009" stamped on an Alicia Klein Bookmark and sent it to an associate in the markets.   Why do I say this with certainty?  Because the lifeblood of the economy is being cut out of it as credit to small businesses has already contracted 25-30% or trillions of dollars since last year.  Even worse leading expert Meredith Whitney reported in a recent Wall Street Journal article that another 1.5 trillion will be chopped from available credit to small businesses and consumers by the end of next year.   Some may shrug off this news thinking they are immune as their customers pay via cash or check but that does not account for the fact that your customer may pay you with a check but they likely pay at least a few vendors with credit cards or lines of credit.  When those vanish entirely or are decreased they now have less spending power and the previously rapid paying check customer may be on a restricted cash flow.  Worse yet the psychological impact of reduced lines or the fear of reduced lines changes consumer behavior and will have a negative effect on commerce as the dismal September retail sales figures show.

So what is being done to support 38% of the US GDP?  Not a thing is being done.  There are no government programs providing direct loans to small businesses.  Banks are not lending which means the engine that drives a third of our economy and 50% of our employment is being strangled.  The pace is accelerating and anyone reading financial forums such as creditboards or myfico forums will see that in the past week many big name banks have been furiously chopping lines.  Their favorite tactic is slashing lines right after payments are made in full.  It's a trap as they don't want to see high balances but the moment a consumer pays off the line to avoid interest they are sometimes being closed out entirely.  This can be absolutely fatal blow to a business that had expected to be able to use that credit again the following month.  Profitable businesses are failing all over the US not because sales are poor but instead because the recent changes have left them without the cash to operate.  Take for instance recent reports of a new tactic by the banks that involves them holding the available credit for up to two weeks after a payment is made.  In essence a customer makes a payment today prior to the due date or statement date expecting to be able to use it the next day.  Instead the payment is made and credited against the balance but the bank does not release the funds for 7 or sometimes 14 days.   No doubt it is a temporary mechanism for reducing potential exposure without directly cutting the lines.

It is likely that banks are about to accelerate the credit closures to prevent the potential exposure that the holidays bring.  This may be good news for their losses but it is terrible news for the economy and for anyone running a small business in this country.  The question now becomes what will it take for Washington to offer support for small businesses when trillions have been given out with little explanation to major corporations foreign and domestic?

The promotional products industry started decades ago from the concept that there was a market in the corporate arena for branded items.  For most of the last few decades that relationship involved three parties, the end user, the distributor and the supplier.   Distributors worked to open new accounts by traditional means of cold calling, knocking on doors and networking.  They relied on small groups of suppliers to provide product for them and the average distributor historically did well under $200,000 in sales.  Along came the associations to act as the de facto referees and central database for the industry.  All of these associations would require a membership fee and in turn provide the distributor access to information that would be difficult to obtain elsewhere such as catalogs, pricing, ratings information on the suppliers and credit services for the suppliers.  In short they provided a useful service and acted as a go-between greatly reducing acquisition costs for both sides of the aisle.   Distributors that did not have entire sourcing departments now had access to hoards of information they would not otherwise be able to gather and suppliers had a targeted and priceless mailing list. 

This all began to change in the late 1990's as major online distributors like Branders began to appear.  At the same time the use of the internet for sourcing products began to skyrocket circumventing the need for expensive membership services that often did little when subscribers needed them most.  Indeed most played a hands off role even in blatant abuses of the system such as suppliers stealing customers directly from distributors.  As suppliers began to ramp up their online product listings the ability to jump online and search for the needed product information began to trump the need for expensive and non-eco friendly catalogs.  Along came Sage which provided the same basic services as ASI but at a much lower price and the fight was on for the remaining market share.  Sadly what the increase in competition did was drive the desire to report success within each association.  However the PPAI annual survey has probably summed up the trends most appropriately.  Prior to 2000 the industry had experienced consistent and rapid growth.  After 2000 the industry has been contracting 50% of the time.  Sales are probably still being grossly overestimated as the few companies that reported publicly have taken a huge beating.  Several like Norwood and Broder Bros.  which occupies the number one spot in the industry for supplier size either threatened bankruptcy or have gone bankrupt.  Major suppliers such have Cyrk have also gone off the grid and are no longer in business.  Sales for 2008 were atrocious dropping at least 10% and most major suppliers are reporting 20-40% drops in 2009.  I am sure the major associations will spin it as just a slight drop but when two of the top 5 suppliers were in danger of or went bankrupt and most of the top 10 had significant staff layoffs the situation is grim.  Actual sales will likely be down more than 20% in the promotional products industry in 2009.  There will be more failures on both sides of the aisle as distributors collapse under the weight of shrinking credit and increasing delinquencies of customers.  Suppliers face the same concerns as distributors are increasingly stressed.   Although the data is rarely released it is obvious the credit departments of many suppliers are under strain trying to deal with collections.  In general the business credit reporting agencies report the average days beyond terms has extended to 10 up from 2 earlier in 2009.  That's a rapid descent and with credit availability scheduled to shrink in the trillions this year and next it will only get worse.

First consumers and distributors were burned last year with horribly underestimated inventories.  With some manufacturers the Spring of 2008 saw entire lines back-ordered for the critical Earth Day celebrations.  Other products had serious quality control issues including melted buckles and inferior fabrics.  Distributors had to deal with both of these issues in unmet expectations on delivery or worse angry customers when the more expensive recycled products proved to be of lesser quality than their non-recycled counterparts.  Adding insult to injury some industry players such as Norwood suffered through inclement weather and flooding at some locations only making the problems worse.  Manufacturers rushed to address these issues and the lack of color choices for the 2009 season.

Which leads to the next problem - collapsing sales the result of the ongoing recession.  Everyone wants to promote eco friendly options but when budgets are severely cut customers are left with two choices, spend less money or spend no money at all.   Although there is nothing official yet released by the major suppliers a quick look at online inventories shows excess quantities and also demonstrated no shortages this year leading up to Earth Day.  This is partially the result of the economy but also directly reflects the increased costs associated with these products.  Recycled apparel has been a major dud by most accounts with end users not liking the feel of recycled shirts and fleece.  Taking a look at second quarter sales from suppliers there is an abundance of recycled and organic items which would again indicate an overstock situation.  Higher prices and the recession explain much of the decrease but an overall change in buyer behavior may be behind the shift.  It is too early to draw any conclusions but the 2010 "green" season will likely determine the fate of recycled promotional products in general. 

Manufacturers need to bring to market some sub $3 items in popular categories to help continue the shift to recycled items.  They also need to source some in the USA versus bringing them all in from overseas factories.  Given the state of the economy and particularly domestic factories United States sourcing would help sell recycled items.

Broder Bros.appears to have dodged bankruptcy.  Although there is no official word as of tonight it would seem they secured the needed percentages to prevent their filing.  This is good news for the industry as the recent filing of Norwood already had the industry on edge.  Changes are already underway at Broder with Columbia being dumped from the product offering.  Once they sell through the remaining inventory it will be the first time in decades that Columbia has no presence in the industry.  Meanwhile Callaway has landed at Perry Ellis.  Once Ashworth officially exited the business Callaway was left orphaned until the announcement was made last week.

We do have an update to the Major Retailer Provides Lessons in Poor Customer Service but will update that story Monday morning.  Suffice to say the demonstration is ongoing.

First a quick detour as we discuss some new custom coolers.  There are many ways to keep your food and drinks cold.  Some choose portable mechanisms such as the Gemline Party To Go Cooler which provides for storage of up to 32 cans.  With a mega 16" opening even the largest of bottles or containers will fit easily.  The less bulky Life In Motion Collapsible Cooler is also heat sealed and has a front zippered pocket.  With a top grab handle and sporting PEVA lining it is a safe alternative to less expensive and less safe coolers promoted by some organizations.   The limited size of the cooler will make it less popular with the beach crowd which is where the Life in Motion Cooler comes into play.  With a huge 36 can capacity it can also hold about any size container.  It is also useful in carrying bottles and has an attached metal bottle opener.   When in doubt by a PEVA cooler as they do not contain PVC which requires the use of environmentally dangerous materials in production.

Equally dangerous is trusting a major retailer.  Sears sells all manner and types of appliances including refrigerators.  The recent purchase and subsequent disaster is a perfect case study in how not to conduct the servicing of a client.  As an example a fridge is purchased for $170 and lasts exactly three months before the compressor fails.  Under warranty for one year as part of the stores premium brand name the refrigerator is repaired.  In order to facilitate the repair a technician is first sent to the location.  A normal service call from the same company runs at least $125.  The technician determines a compressor is needed.  The cost of shipping the failed part and installing it runs over $300 per the slip.  The part is installed and the refrigerator works for another month before failing under the same circumstances.  Another service call is made at presumably a similar cost and another compressor is sent this time overnight.  Compressors weigh a substantial amount so this was not an inexpensive shipment.  The servicing technician determines the compressor is fine and instead believes another part has failed which is replaced.  Total cost to date of repairs in terms of shipping and labor totals over $700 per the slips provide by the servicing firm.  Customers suggestion that the refrigerator be replaced after the first failure are ignored.   The customer believes there is no justification in repeatedly repairing a refrigerator that costs the store less than $150.  After the second repair the refrigerators lasts approximately three days before failing yet again under the same circumstances.  The local store realizes how fruitless the situation is and agrees to replace the item with the identical model.   The customer has no problems with the identical model but new refrigerator.  Total cost to the retailer is over $700 and in the end they ended up replacing the item and taking a dead loss of $150.  But they also lost the customer for life but did manage to acquire enough bad will to steer dozens of customers away from the store for years to come.  Somewhere along the line executives need to use some common sense and realize the costs of fixing an item repeatedly both in terms of loss of goodwill and hard costs far exceeds the costs of replacing an item and appeasing a customer.   As the economy continues to contract retailers of all types are sharpening their pencils.  The above example illustrates how an over zealous pencil pusher can inadvertently cost a company dearly down the road.  Once a legitimate problem is identified and repeated attempts to resolve an issue have failed sellers need to find and provide alternative resolutions.  As the saying goes in this case this particular retailer won the battle but lost the war.  They held their ground and may have won the battle initially on getting an item replaced but lost the war in the end as not only did they end up replacing the item but all faith is lost in the business.

You can follow updates to this blog on our twitter page as well as reading previous articles such as Green Promos in time for Earth Day.

An item such as the Quest Wheeled Cooler will run between twenty and thirty dollars depending on the distributor offering the product.  The cooler is huge and will ship by what UPS calls dimensional weight.  That means the cost of shipping will end up somewhere on the higher side of $30.  Any vendor that ships this item without restriction would need to sell 7 to 10 of the same item just to break even on the one given away.  Now repeat that by dozens of products a day and you get the picture the true cost of free samples is higher prices.   A year ago online distributors advertised their very generous sample programs as a bullet point for doing business with them.  As the recession deepened those policies have become much more restrictive.  An increasing number now require a deposit that is credited to a future order within a set time frame.  Otherwise the customer is charged for the item and shipping which seems very reasonable.   A quick look at many of the top retailers this evening shows no evidence that those sample policies are still in place. 

We talked recently about building custom promotional packages for success in a downturn.   With the news now dominated by the spread of a potential pandemic consumers and businesses are rushing to find sanitation products.   Bundling opportunities now exist in this area and the wise distributor would begin to combine inexpensive cleaning solutions with higher priced packages.   As we highlighted earlier in safety goes mainstream in ad specialties there is a growing focus on product safety.

But that does not mean you cannot create your own packages to keep your customers from straying.  Take for example a package that would be geared towards spring and summer marketing events.  Many consultants would simply suggest a cooler or similar item.  Why not put together your own custom package featuring some popular items?  The Front Pocket Koozie Kooler has been a mainstay of the lunch sack market for several years since it was first introduced.  By itself it makes a great gift by why stop at that point?  Instead combine that item with the Koozie King Kooler and you have one imprinted bag that can be carried inside of another.  I have even heard of customers buying multiple smaller items to fit inside of the single larger item but make sure you properly measure and that the promised package fits.  Offering a discount on the combination is a great way to keep potential customers in house.  Another example may be combining the ever popular and summer mainstay the Zip-Up Bottle Koozie Kooler with another popular item.  That may be a cooler if the budget is more limited or a custom bottle of one type or another.  But why not combine the koozie with a Captain's Chair and provide the customer with an end to end solution?  Rather than opting for expensive additional imprint locations on the chair have your client use that money towards an entirely independent item.  There are endless combinations above and beyond the traditional pen with pad and bottle with cooler and you do not have to wait for the manufacturer to provide the incentive.  Plus by self branding your own packages you have something others do not.

We received countless questions surrounding our piece on What Plastic Resin Codes Mean and as a result we intend to illustrate the differences in products in an upcoming article.  By this we mean we will take imagery of several different promotional pieces to demonstrate how some manufacturers continue to lead by example in terms of recycled and recyclable while others not so much.  Pay particular attention to the packaging materials your goods are shipping in as recently we ordered recycled goods that shipped in 100% new cardboard.  This seemed counter intuitive to us but undoubtedly it was less expensive for the manufacturer.  So far it has been unfortunate that some of the larger retail brands that are crossing into the corporate markets are still not shipping in an earth friendly manner.   Hopefully with continued pressure from customers and distributors that can begin to change.

The degree to which a plastic can be recycled is determined by both the properties of the plastic itself and by the market for the recycled plastic.  Some plastics just do not hold up to repeated reuse and have a limited value.  Others can be recycled but there is not much of a market for them so they are less popular.  Rather than leaving this determination up to somebody at a landfill or recycling center the industry developed the resin codes that you will see in the triangle stamped on your product. 

Starting with the most prominent, the "1" PETE stands for Polyethylene Terephthalate or PET/PETE for short.  It is one of the most widely used polymers in the world today and one that you will see in a majority of your plastic water bottles.  The bottle of SmartWater I am drinking from Glaceau is a perfect example as is just about any other water bottle from Poland Spring, Aquafina and all the other brands.  Although PET cannot be reused to make future water bottles it is used and sought after in the making of fleece apparel, luggage, carpet, tote bags and other fibers.  In short if it has a "1" on the bottom make sure you recycle it as it will be reused.

The "2" is HDPE or High Density Polyethylene is the second most commonly used plastic in water bottles.  It is significantly stiffer than PET and is therefore used in tougher containers such as laundry detergents, milk bottles such as Lactaid and other bottles requiring strength such as oil containers.  HDPE is highly recycled and can be turned back into plastic lumber that you will use on your deck, pens, benches, doghouses, floor tile and even your mailbox post.  A trip through any home store will show dozens of mailboxes most of which are made from recycled HDPE.  If your plastic product has a 2 stamped on the bottom make sure you put it in the recycling bin as it will be reused.

Resin code 3 stands for PVC or Polyvinyl Chloride.  The white pipes under your sink are made from PVC and it has the extraordinary property of resisting both fire and water.  You will see it used to make raincoats, shower curtains, water pipes and other rugged products.  It is very rarely used now in water bottles.  You will see it used in coolers although due to the nature of the material you will not often see it used for potable water or food products.  PVC is easily recycled into products such as garden hoses, gutters, decking and other lumber products.  Although you will rarely see it outside of interior piping it should be recycled if you do find it.  Most people do not realize the discarded and short/extra pieces of pipe from a home renovation are easily recycled.  Cut them in small pieces with a hand saw and bring them to your local recycling center.

Resin Code 4 or LDPE is something you come in contact with almost every day but have no idea it actually exists.  LDPE is transparent and flexible and is most often used in bread packaging, frozen food bags, your container of mustard or ketchup, dry cleaning bags and in some cases carpeting.  LDPE is recycled frequently into landscaping ties that replace traditional oil soaked wood ties, plastic shipping envelopes, garbage bags and other similar items.  Most people do not realize plastic bread bags can be recycled.  Check with your local facility or better yet stuff the bread bags along with the frozen food bags inside "4" items like mustard bottles.

Type 5 or PP is most often being used now in dishwasher safe products.  It has an extreme resistance to heat and also resists chemicals.  Because of the resistance to heat it is also often seen in the medical field where heat is needed to sterilize equipment.  PolyPropylene has become incredibly popular in the promotional products industry and is often referred to simply as PolyPro.  You will see it used in totes and padfolios most often.  Around your home you will see it used for indoor outdoor carpeting since it cannot absorb water.  Your local miniature golf course will likely have a green putting rug made of this material.  PolyPropylene is often the end product of PET products being recycled and likewise can be recycled into less rugged items such as brushes, ice scrapers, tooth brushes and even flashlights.  Every recycling center will take "5" products.

"6" or PS for Polystyrene is used in television casings, computer monitors, toys, the interior plastic molded parts of your car and of course regular foam insulation and packaging commonly referred to as styrofoam (not to be confused with the branded product from Dow Chemical).  The foam packaging you see in anything you receive in the mail will be made of Polystyrene and is recyclable.  Plastic utensils, yogurt containers and most of your medicine bottles are made from PS and all should be recycled.  Plastic peanuts are made from polystyrene and are usually directly recycled.  Don't throw the out bring them to your local recycling center or visit the Polystyrene Packaging Council for more information.

Resin Code 7 is reserved for all other plastic products and is not often seen especially in our daily lives. 

The plastic water bottle you drank from and recycled a year ago may now be the keyboard you are typing on or the tote bag you use to carry your laptop in each day.  The oil container you recycled a few years ago may be your hairbrush and the plastic milk jug you recycled may now be part of your landscaping.  Essentially all plastics can be recycled and despite the economic downturn hurting the market for recycled products the innovations continue.  The more we recycle, and the more we purchase recycled products the better they will become.   A few years ago the promotional products made from recycled materials were plainly hideous.  Now many are as attractive as the first generation products.  Over time the prices should continue to drop as demand increases and technological improvements are made to the recycling process.  The results of years of recycling are now being witnessed as products come to the market.  In fact the items discussed in Retail Brands Crossing Over to Corporate Channels and Green Promos in Time for Earth Day are made from previously recycled plastics.  Other items discussed in Safety Goes Mainstream in Ad Specialties are 100% recyclable.  All of the items discussed in previous entries have resin codes attached.

Ping made a splash a few years ago when they decided to sell their popular apparel line in the corporate markets.  In choosing Sanmar as their main supplier for the industry they choose a business with a long standing reputation within the market.  By going with a top 5 ASI Supplier they essentially guaranteed maximum exposure and a deep network of sales and marketing reps.  There appeared to be tremendous upside but sales lagged and it was announced earlier in 2009 that Ping would be leaving the corporate market entirely.  One of the problems encountered stemmed from the need of Ping and subsequently Sanmar to strictly enforce prices in order to protect the retail golf network.  Those efforts are never popular with distributors and in the end the outcome was predictable.

Other moves into the market have been more successful.  Scripto partnered with top 5 supplier Leeds in 2009 to release a line of branded writing tablets and low priced budget pens.  Although sales have reportedly been going strong the potential cannibalization of existing product lines will be a going concern.   For instance the Scripto Jr. Journal Bundle Set is available with a decorated pen for far less than the cost of just a journal from many other vendors.  The problem may be that it is also much less than similar items within the same brand.  Where they may hit it out of the park is with items like the Scripto Constitute Click which is an ergo pen with large grip similar to much higher priced retail competition for significantly less.  For those looking for ergonomic pens the Scripto Scroll Click has the "pro grip" which mimics what is available from retail brands.  The idea behind the pro grip is comfort and style.  It is also an accent point on the pen which at this price is expected to compete directly against products from Bic and Sandfords Papermate line.  Other brands have been folded into the main lines and the result is products such as the Bamboo USB Flash Drive 1GB which are among the many products available in time for Earth Day.

It has not all been a success for Leeds.  Last year to much fanfare they released the Karim Rashid line of products.  This year they are down to just two and opted to not expand the line at all.  Although the brand has some distinction in the retail channel it failed to carry over into the corporate markets and fell flat.