Why Do Commission Sales Driven Organizations Not Understand the Need for Advertising Budgets?

Imagine yourself working in an insurance company as head of a division that sells individual insurance products directly by phone and the Internet. Now imagine that your internal direct marketing team exceeded both volume and ROI goals for 2007 by a wide margin.

Then something unbelievable happens. Top management decides to pull 100% of your direct marketing budget for 2008. Can such a thing happen? Actually, it just did.

What's worse, this top management expects the direct group to exceed their 2007 sales goals in 2008 WITHOUT an advertising budget. So this state of affairs begs the question. Why do top managers make these kinds of decisions?

Here are some of the probable reasons they happened in this case.

1.    The company leader only understands the product he grew up with. In this case the leader knew group insurance, but had little to no knowledge about what it takes to market individual products through either agents or direct to the consumer.
2.    As a group insurance driven insurance company, the sales model relies 100% on independent agents who receive commissions on all sales AFTER the product is sold. In direct marketing, the model requires fronting the money to drive sales at a later date once the advertising runs its course. Some companies possess such a strong culture of spending money after the sale that they cannot tolerate the “risk” of spending the money first to make the sale.
3.    Companies that promote top leaders only from within inherit the culture these leaders grew up with over the years within the company. This encourages inbreeding that looks at the world through clouded lenses. Needed change and innovation cannot overcome the status quo.

This company will continue to prosper so long as the agency force that focuses on group sales does not loose ground to the Internet and other direct sales. This has already happened in the individual products arena.

What advice would you give to this company? Have you experienced a similar scenario?

Posted on November 30, 2007 and filed under General.