While many seasonal businesses accept revenue and profit swings as their fate, the best find ways to smooth things out or turn seasonality into competitive advantages. You probably can’t change the underlying seasonality of demand. But you can choose whether to ignore, mitigate or leverage it.
“Sales were below plan because of the Chinese New Year holiday.” We’ve all seen this or a variation of this with floating holidays like Chinese New Year or the Fourth of July – which floats to the nearest Monday or Friday.
My personal favorite was the year I had to explain to senior management that Thanksgiving had fallen in December that year. (Not on the normal calendar, but in the Nielsen market share reporting months.)
Still, you would think people should be able to account for holiday shifts in their plans. But many don’t. They ignore holiday shifts. They ignore seasonality. They are victims of the calendar.
Ted Karkus, CEO of Prophase Labs, makers of Cold-EEZE® Cold Remedy, has mitigated some of the inherent seasonality of cold season. This has involved leveling out revenues, curtailing costs and engaging in complementary efforts.
Level out revenues
Off-Season Campaigns. Idea one is to run an off-season campaign. It’s not so much that Prophase Labs wants you to get more colds, but that they want you to take care of the inevitable summer colds. So they continue a reduced level of marketing during the off-season.
Other examples of this would be cranberry sauce manufacturers pushing cranberry sauce for summer salads, as an ice cream topping or condiment for clam bakes. (I might have made up the last idea.)
Other approaches include off-season pricing. Amazingly enough, Caribbean hotel rooms sell for less in the summer than in the winter.
Complementary Products. Prophase Labs just launched an allergy relief medicine. Because the manufacturing process, operational and organizational demands are similar to those involved with producing and selling the cold remedies line, additional overhead is negligible. But the seasonality is opposite.
There are a gazillion other examples of this. Think about the landscapers that plow snow in the winter, ski shops that sell surf boards in the summer, schools that run summer camps and turkeys that dress up as Easter bunnies.
Prophase Labs manages its off-season costs by minimizing marketing. They keep some elements going all year to maintain presence (and push use with summer colds), but it’s at a greatly reduced cost. Additionally, they smooth out any potential glitches in manufacturing by building inventory ahead of peak season and utilize a flexible work force in some cases.
Other ways to smooth out costs are to apply resources to complementary efforts. In Prophase Lab’s case their sales force engages in follow-ups and then pre-sales efforts leading into the season. Other organizations conduct necessary maintenance, off-season training or just rest and recovery like bears hibernating.
Turning seasonality into a competitive advantage
Coca-Cola product sales skew to warmer weather. Coca-Cola’s UK bottler had the largest soft drinks share in the UK and chose a counter-intuitive approach that gave them a surprising competitive advantage.
Instead of building manufacturing capacity for peak months, they built only enough capacity to supply off-season demand. Then they tied up all the soft-drink contract manufacturers’ peak season demand. The downside of this was that their average cost of product supply was marginally higher than it could have been.
On the other hand, all their competitors had to build capacity for the peak months. This meant a far greater capital investment and far higher total costs of doing business than they could have had.
The result was superior profitability for Coca-Cola’s bottler at the same prices as everyone else – a sustainable competitive advantage.
Implications for you
1. Understand the peaks and valleys of demand for your products and services and plan accordingly.
2. Find ways to smooth out revenues, costs or engage in complementary activities.
3. Look for ways to zig while others are zagging that can turn your seasonality into a competitive advantage.