By Camille Schuster
Congress passed the Sarbanes-Oxley Act of 2002, in response to a rash of corporate scandals, to make business transactions more transparent. Essentially, Sarbanes-Oxley ensures that businesses reflect sales that actually occurred. Soon, your marketing department will face the challenge of bringing their documentation into compliance with the new legislation. But don't panic, because although this requires some additional paperwork and systems monitoring, with a little planning, your organization can use the new compliance regulations to its advantage.
How Sarbanes-Oxley Will Affect Marketing
Sarbanes-Oxley hits the trade promotion area because it requires documentation of all marketing expenses, including where the transactions occurred, how many times and how much the marketing services cost. It also requires businesses to implement internal systems for keeping track of this detailed information, and for monitoring whether the contracted services actually occurred.
For example, say your company participates in co-op advertising, and you give a retailer $10,000 for marketing ($5,000 for the cost of the co-op ad, plus $5,000 designated for "marketing expenses"). The unspecified "marketing expenses" are where the problem lies. Before Sarbanes-Oxley, you could deduct the entire $10,000 as a business expense, regardless of how the retailer actually spends the unspecified $5,000. But now, to prevent companies from using marketing funds for other operations, everything has to be documented in detail to be eligible for subtraction from your revenue.
"In detail" means that when Sarbanes-Oxley takes effect, your company’s data warehouse must include the following information:
- A process capable of objectively identifying the value of any promotion spending
- A plan that specifically identifies what promotion activities for which money is allocated
- A process for identifying whether the money was actually used for those planned promotion activities
- A way to determine whether the promotion occurred at the designated time and place
- A designee who is responsible for identifying any deviation from the plan
- A plan of action in case the contracted promotional activities did not occur as planned.
Once all these reports are filed, your chief sales officer and your chief marketing officer, as well as the CEO and CFO, must sign-off on the accuracy of the information. If the numbers aren't accurate, they face a $10-20 million fine and 10-20 years incarceration.
How You Can Use Sarbanes-Oxley to Your Advantage
The process of bringing your company into Sarbanes-Oxley compliance poses a great opportunity for learning a huge amount about the people who use your product or service. Because developing internal documentation and monitoring systems for compliance will already disrupt your organization, why not tailor your new systems to respond to consumer demand? Instead of creating compliance systems based on your organizational goals, use the following process for developing a consumer-centric system that gives your company a competitive advantage:
1. Identify Your Most Valuable Consumers
Which consumers give you the best business? Depending on your organization, they could be the most profitable, the most loyal or the consumers who generate the most word-of-mouth business for your company. However you identify them, base your selection on your organization’s criteria of "valuable."
2. Get to Know Your Most Valuable Consumers
Once you've identified your most valuable consumers, you need to figure out everything you possibly can about their needs, tastes and lifestyles. Find out where they live, the size of their families, their professions, recreational preferences, etc. Then, rather than choosing media vehicles based on generic demographics, identify the outlets that reach your most valuable consumers. Locate key opportunities for getting your message about your product or service to your most valuable consumers during their normal day-to-day activities.
3. Identify Consumer Response
By monitoring your company’s marketing activities, you should be able to identify which promotions get the most response and who’s responding to them. For example, maybe your organization placed an ad in The Wall Street Journal, then one in BusinessWeek a week later. When compared with the sales information from those two weeks, the compliance data will show you which ad elicited a higher response.
Also, after a promotion has run, monitor how many consumers call with questions and what kind of questions they have. Then send these consumers a follow-up note in response to their questions and offer an incentive for their business. Add all this information to your database, along with the regular compliance.
4. Plan Your Promotions Accordingly
Now that you know whom you need to reach and how to reach them, plan promotional activities with your business partners to meet these needs. Use all the extra information to target your most valuable consumers. Remember to specify what amount of money will be used for what activities, and create the internal processes necessary for compliance with Sarbanes-Oxley.
Your Competitive Advantage in the Future
You must comply with Sarbanes-Oxley—you don't have a choice. So why not make the best of the situation? If your organization uses the approach described here, it will successfully create a consumer-centric, demand-driven organization, creating a competitive advantage that will last far into the twenty-first century.
You can learn more by taking these AMA Seminars:
Or click here for a complete list of AMA Marketing Seminars.
Author Bio: Dr. Camille Schuster is a consultant, speaker and professor of marketing, international negotiations and consumer-centric business practices. She is the author of two recently released books: The Consumer or Else! and The Rise of Consumer Power. She can be reached at info@globalcollaborations.com or (480) 473-4741.
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