Marketing Series Article When the Economy Slows Is it a problem...or an opportunity? by Dick Barnes, Principal, The Freeland Group Only the most solitary of hermits could not be aware of the new economic indicators that foreshadow a slowing of economic growth in the US and Canada. It is an eventuality most of us expected, especially after a decade and a half of steady, if not exciting, growth in the North American economy. Pundits will certainly spend a great deal of ink and paper in the next few years trying to explain such changes in terms they understand, or think they do, and would like us to believe along with them. The reality is that ups and downs are inevitable, and wise business managers expect them, plan for them, and try to use them to their advantage. In that respect, marketers like to look at a firm, or an industry, within the context of a number of environments; including competitive, technological, legal, political, social and, of course, economic. In past columns we have dealt with issues of technology, competition, and social environments. The economy was so stable, almost boringly so, that we ignored the issue; perhaps to our detriment. With change taking place it’s time to remedy that oversight, particularly with a new generation of business professionals who may have never experienced an economic downturn and aren't sure how to react. What are some of the features of the economic environment that affect manufacturers and distributors of business goods and services? Consumer demand is probably the most important, as everything we do is based on producing and delivering something that will eventually end up in the hands of a consumer. Our immediate customers may be well up the supply chain, but at some point a lack of consumer spending will work its way uphill to reach not only them, but everybody in that chain including ourselves. Unfortunately, no one can accurately say what changes in consumer demand will come about in the next few years. We can only guess and then try to estimate how we will be affected in turn. When we look back over the last decade plus, we see that consumer spending grew a little more, each year, than the growth of incomes and the number of people entering the workforce. This indicates consumer confidence. If consumer confidence fades, it is likely that spending will decrease with it. How this will affect you as a member of a supply chain will depend a good deal on the products you support. Are those products the type consumers will stop purchasing immediately? Or are they necessities, or price-insensitive, products that consumers will continue to purchase at current volume? The answer to this one question can help you plan your strategic approach to a change in the economy. If demand for the products you support will remain the same, you have some opportunities open to you. Because of dropping prices or interest rates, this may be a perfect moment for you to consider upgrading machinery or capital equipment. It might be an ideal time to refinance property or buy-out weak channel members. You can basically take advantage of a weakening economic picture as long as you feel your core business is safe. If the products you support are luxury items, just as an example, and you are already noting a reduction in sales, you will have to react to change in a different fashion. It may be a good time to refinance high-interest loans, to get costs down and create a liquid cash cushion, or to be rid of properties or equipment that might drop in value or become outdated. Keep in mind that dropping interest rates might actually produce a shot-in-the-arm for luxury items, but it might also be temporary and have little endurance. You might be cautious, despite low interest rates, and hold off on upgrading equipment unless a fairly immediate cost-benefit can be seen. Interest rates, particularly those paid by firms for capital equipment or property loans, are also a major feature of the economic environment. Interest rates work hand-in-hand with inflation rates and both must be watched closely. Lowering interest rates often mean a lot of potential consumers, and channel members, will be refinancing and will have extra funds as a result. Whether any of that money comes your way will be partly up to your marketing efforts. Additional money in the market place should normally bring about inflationary pressure. Remind your customers of this fact. It might be a good time to procure incentive financing packages to help them purchase your product line. Get those customers to buy, using the low interest rates you can offer them, and emphasize in your marketing communications how future inflation will work in their favor; more so if they buy soon. Add that to any cost efficiency they may gain through having the newer gear, and you can build a potent financial message for purchasing capital equipment during an economic slowdown. You can show them that purchasing your products will be to their benefit whether the economy goes up or down. How about your own purchasing plans? Are you distributing a million dollars a year of equipment you import from Taiwan? What will inflationary forces or a slowing economy due to the foreign exchange rate and the value of your inventory? Should you be stocking up now, despite the costs of warehousing? Perhaps the interest you would pay as a result of building inventory will be balanced out by a dollar that loses its power overseas. What if the dollar goes the other way and gains strength? Then you would want to minimize inventory and hold off purchasing stock until the last possible moment. How do you use these tidbits of information to hone your marketing messages? This may be the real issue. An unimaginative marketing department will simply continue with the old messages, ignoring the coming changes. But change is inevitable, so why not use it to advantage? How do you use the knowledge of what is forthcoming to build a fire under your prospects? How do you utilize that knowledge to help you plan your own strategy for survival, or even better…success? We haven’t had real shifts in the economic picture for some years. Companies not prepared for such times may well find themselves at a great disadvantage. Don’t let your own firm be among them. Think about what may come and how changes could actually affect you. Then plan out a way to take advantage of change instead of letting it control you. (next article in series) |
