Fear is the Mind (and Business) Killer

After an extended and vigorous sales and marketing effort, a publicly traded software development firm closed a sizable project with a major aerospace company. Leadership at the firm was thrilled because they felt that the publicity value of working with the aerospace giant would open up new sources of capital and catapult them to the next level of growth. As a result, they were very public about the client relationship and milked it for all they could.

The project itself had been well specified with both a defined budget and timeline and work commenced. Over time, the aerospace firm modified specifications, but was unwilling to increase the budget to pay for the changes. Leadership at the consulting firm faced a dilemma. If they insisted on being paid for changes and lost the contract, their investor relations effort would suffer the consequences. Alternatively, if they continued to "invest in the relationship" they would secure new contracts with the firm and get capital and new clients from the publicity. In the end, they chose the latter alternative.

Over the next 18 months, the software consulting firm incurred $8 million in unpaid consulting charges and was operating at a loss. When high tech stocks took a beating in 1991, its hopes for increased capital were dashed as well. Sans earnings, sans investment, the firm filed for bankruptcy.

As one insider put it: "It was all about press releases. Publicity would drive stock prices and eventually we would make it up on volume. And the client, they knew we were stretched. They played us like a drum."

A.S., Colorado

CEO Follies

During a period of high energy prices, the CEO of an east coast energy company was invited to visit the governor of his firm's home state. Though we don't know exactly what was said during the meeting, we may surmise that the core message was: energy prices are too high. The CEO, in turn, with little analysis, directed a series of price reductions.

To quote a Vice President, "Since deregulation began in the mid 90's we have worked very hard to build value in the eyes of our customers. And our pricing strategy was an instrumental part of that. I feel like several years of work have just gone down the drain."

E.L., Maryland

You can't get blood out of a stone.

In July of 2000, the vice president of marketing for a Fortune 500 high technology firm sat stone faced staring out the window of his West Coast office. On the floor next to him rests the sales report from the last quarter. He was reminded of that old joke: "Yes, we're a non-profit organization, but not by design." It wasn't funny. The boom of the 90's was clearly over.

At the executive committee meeting that morning, he had been overridden. Sales needed pricing flexibility to maintain volume. And they got it. Frankly, he didn't believe dropping price would make any difference. Oh, they'd get an up tick in sales alI right, but it would be just enough to convince them they had made the right decision and prolong the insanity. If his suspicions were right, customers would accelerate purchasing to take advantage of lower prices. Then sales would plummet and a bad situation would simply become worse. In the end, the only lasting impacts of the price cut would be a devalued brand, lowered earnings and layoffs.

Fast forward to July 2001. Several members of the executive committee are history. The vice president of marketing is looking for a job.

T.N., Somewhere in New England

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