Archive for the ‘Credit Crunch’ Category

Low Prices - Rule Or Ruin

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In her latest Thursday Night Insight article, Business Development & Research Manager Julia Cupman discusses the troubling impact the economic downturn has had on corporate positioning as so many companies take reactive measures to lower prices.

Society has suddenly become budget driven.  We are currently trapped in a maelstrom of decreasing prices and ultimately lower value goods and services.  A new economic order has become the new world order.  The media, which have played a dominant yet destructive role in reporting on the financial ruins of late, are full of manipulative messages to the public: Watch the bucks!  You can’t afford it!  Buy cheap!  Make your money last longer!

These meager attempts to freeze spending and educate on the subject of financial management are grinding society, leaving open and sore wounds that will take some time to heal.  The masses are becoming so accustomed to low price and low value that one cannot help but wonder when people will ever start to recognize and pay for quality and high value again.

Take the food industry as an example.  According to the Wall Street Journal:

1. Campbell Soup Co. is about to launch a multi-media campaign to trumpet its condensed soups as a bargain buy.  One of the company’s many print ads reads, “To save you money, we left one ingredient out (we figured you have plenty of water at home)”
2. The website of Kraft Foods Inc. is soon to list recipes for cheap sandwiches, and shows visitors how one bag of groceries filled with Kraft products can be stretched to make five dinners
3. On November 2nd, newspapers nationwide will carry coupon inserts pitching Campbell soups and sandwiches made with Kraft Singles cheese as the “wallet-friendly meal your family will love”

And Kellogg is going a step further by investing in search-engine optimization that will bring the company to the center of attention online when consumers type “cereal” plus “deals” or “value” into an Internet search engine.

Luring buyers into a low value mindset is dangerous.  Only last year, Campbell’s ads were highlighting their soups’ quality, but this month Campbell is launching multi-platform ads to tout its condensed soups as cheap eats.  A company that at one time was positioning itself in its marketing communications as a provider of quality has now denigrated its brand by changing its focus.

Chaos resides as businesses debate their strategies and along with consumers fall prey to economic forces.  The credit crunch, falling demand, globalization, oil price volatility, etc. all squeeze the economy, but cutting prices is no panacea.  In doing so, you are making the assumption that your market segments are price buyers, which is a dangerous trap to fall into.  Indeed, customers do not buy exclusively on price, but on perceived value, i.e. the trade-off between the benefits a product or service offers and the price tag attached.

Furthermore, not every company can sell on low price as it is a risky strategy that is only likely to succeed if it is implemented through proactive rather than reactive measures.  Sam Walton of Wal-Mart was successful in his price strategy as he sought innovative ways of achieving price leadership through effective supply chain management and an efficient distribution network.  Having recognized an unmet demand for low prices, Walton began to lead the market by example, rather than follow his rivals. 

Thus in times when the economic climate is driving so many to sell on price, businesses should think and act proactively, rather than simply react to environmental pressures.  In the words of Bill Gates, "When there is confusion in the marketplace, there is opportunity."  Hence rather than compete on price, you could seek opportunities in other areas of the marketing mix, such as place (location or distribution), product (quality or differentiation), or promotion (advertising, marketing, sales or PR).

It has never been more important to listen to your customers’ needs, for meeting the market’s needs is the key to success.  For sure, buyers will be interested in more than just low prices.  And although money talks, satisfied customers and the rewards they bring talk louder.

Posted in Corporate Positioning, Economic Downturn, Supply Chain, Credit Crunch, Julia Cupman, Marketing, Thursday Night Insight |
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Banking on Customer Satisfaction

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Paul Hague looks back at his personal experiences – both good and bad – with the banking sector to highlight the importance of building and maintaining relationships with your customers, whatever the industry you operate in.

As a penniless student in Durham, I needed a bank.  I had no conceptions or experience of banking and my choice was made entirely on convenience.  Walking down the Bailey in the centre of the town, I was attracted by the swinging sign of a grasshopper.  The bank was called Martins. 

Half an hour later as I left the bank, clutching my initiation pack and a cheque book, I felt that I was somebody and going somewhere.  Martin’s didn’t remain independent for long, however; it was shortly swallowed up by Barclay’s, with whom I did business for over 20 years. 

In the first few years of this relationship they fulfilled all that I needed from a bank in both my business and private banking capacity.  And then, things began to change.

The bank manager who I had got to know was abandoned as the bank rationalised and began its drive to greater efficiency and profitability.  It wasn’t long before I was just a number. 

One day this number received a letter through the post saying that a stamp collection that I had in their safe deposit would now be subject to a charge.  This was not especially unreasonable but, in the context of the amount of business I was doing with the bank, I thought it merited a phone call to tell me this rather than a snotty letter.  And it followed on from a constant series of initiatives to reduce services or find opportunities to charge for them.  At the time, my business and personal wealth should have been sufficient for the bank to have some slight concerns about losing me.

Since my patience had by this point snapped, I dialled the bank, was answered by an automatic answering machine, and was ultimately directed by a series of numbers to someone I could speak to.  If, at this time, I had been offered an apology or indeed if any interest had been shown in retaining me as a customer, I am sure I would have still been doing business with Barclays.  But it was clear that they were indifferent; I really was just a number.

After much tedious changing of standing orders, I moved to NatWest Bank.  It wasn’t long after joining that bank that I received a phone call that invited me to move to a private banking facility within their banking group.  There I was introduced to real people who knew my name and who gave me their business cards, inviting me to contact them if ever I needed their financial services.  And I have to say that they haven’t let me down.

As I look back over this experience I cannot believe the stupidity of Barclay’s to give up the loyalty I had shown them over the years.  As a lifetime customer, my business was worth millions and yet to them I was still just a number.

I am reminded of this story following a recent survey that B2B International carried out into banking services among SMEs.  Less than a third of SMEs believed that Barclays fulfilled the role of being an important business partner.  This compared with the Royal Bank of Scotland (which headed the league table), where over three quarters of respondents thought that it fulfilled the status of being an important business partner.

Banks get kidded into believing that they have loyal customers because they have a relatively low churn.  It is not because they are satisfying their customers, rather it is due to the considerable difficulty a customer faces when switching banks.  Customers are effectively hostages.

So what is it that creates a relationship with a bank or indeed with any other supplier?  Relationships are nearly always between people rather than inanimate objects.  Getting rid of the bank manager and having a constant stream of different people supplying services destroys any opportunity to create a relationship.  People value someone to talk to; someone who will actually listen and who will genuinely want to help.

The second point to make is that relationships are built up over time.  A relationship that has satisfactorily endured a number of years is capable of withstanding problems – and problems are inevitable in any business service.

As we watch the financial services sector move into meltdown, we know that the greed of bankers has played a big part.  But in the High Street, and particularly with business customers, it has been the banks’ lack of understanding and unwillingness to listen that has been the cause of their demise.

The moral that I draw from this blog today is that understanding customers and building relationships are the two most important elements of the marketing task.  This is not difficult; it is not rocket science.  In fact it is blindingly obvious and yet it is so often ignored.

Posted in Banking, Credit Crunch, Paul Hague, Thursday Night Insight, Customer Satisfaction |
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US Beer Sales Far From Flat

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As one of the principal b-to-b markets we research, how is the drinks industry faring in these troubled times?  Well, since you ask, pretty well indeed!

Whilst other sectors may be reporting tough trading conditions, it would appear that business is better than ever for beverage manufacturers, distributors, and retailers.  One of the possible reasons for this is that whilst consumers are cutting back on the number of meals out they eat, they are instead opting for cooking at home accompanied by an alcoholic beverage or two.  Similarly, when consumers do venture out, they seem to be cutting back on more expensive tipples such as cocktails in favor of a cold beer.

According to a recent survey by the Beer Institute trade group:

A mature industry, with around $50 billion in annual sales, beer is America’s favorite alcoholic drink, with more than half the available market share.  However, trade groups for the liquor and wine industries have reported similar increases in consumption so, all in all, things are looking good for the US drinks sector.

To read more about this industry trend, please click here.

Posted in Drinks Industry, Credit Crunch, Market Research USA, Market Monitoring / Tracking |
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Economic storm in a teacup?

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In a week of undoubted economic turmoil across the globe – and in particular for American and European markets – Alaric Fairbanks, General Manager of B2B International’s Beijing office, gives us a timely analysis of how things are shaping up in China.

Over the last few months and particularly days, many of the conversations I’ve had with friends and colleagues in the UK and Europe have, at some point, unsurprisingly centred around the seemingly never-ending series of crises affecting the major economies of the West: credit crunch, fuel prices, Northern Rock, Wall Street Crisis, I could go on.  So how do things seem in China? Is the pessimism that I sense being felt in the business community here?

Firstly, let’s have a very brief look at overall economic forecasts: this week the Asian Development Bank adjusted its forecast for economic growth in China in 2009 downwards, by 0.3%. There are a number of factors behind this, including, of course, decreased demand in export markets resulting in a reduced trade surplus, increased production costs, an increase in the value of the renminbi and rising commodity prices. Bear in mind, however, that this reduced growth forecast for next year still stands at 9.5%. A slowdown, maybe, but the economy is still developing at a rapid rate.

Taking into account this backdrop, how are things on the ground? Recently we conducted the first British Business Climate Survey for China with the British Chamber of Commerce. 17% of members were represented, ranging from large multi-nationals with years of experience in this market to newly established branches of SMEs. Whilst there were some issues, such as a lack of transparency, regulation and availability of appropriately skilled staff, the overall outlook was extremely positive, with over 80% being somewhat or very positive about both the business environment and their own companies’ performance in both the short and medium term. Possibly the strongest indication of this is that 54% of respondents stated that they will definitely invest further in China within the next three years.

It could be that those running Western businesses in China are all natural optimists: how else could you cope with the ambiguities, constant change and minor frustrations that confront us every day? I don’t think this is the case, however. You may say, come on then, can you come up with any other evidence that this apparent optimism is justified?

Well, yes I think I can: exports from the UK in the first eight months of this year stood at over £1.6 billion, which is a 50% increase on the same period last year (UK Office of National Statistics). All this in a market that has been the UK’s fastest growing export market since 2002. For us in the service industry, we can point to the fact that services exports to China are in the UK’s favour, at around £1.5 billion last year. The confidence is also borne out by the amount of British investment in China, which stands at over £7 billion, making the UK the largest single investor from the EU in China.

It is worth pointing out, however, that not all business shares the confidence, with those involved in export and sourcing already feeling the pinch. This also applies to domestic, particularly in lower value-added industries such as textiles, which are already operating on wafer thin margins, and certainly feeling the downturn in their existing markets, and there are reports of factory closures, especially in Guangdong and Zhejiang. And I am not saying that no other companies here will face problems; some undoubtedly will.

In general, however, I think – as I hope I have shown – the economy, although not without its pitfalls, is worthy of the confidence shown. And B2B International? – Well put us with the 54% of UK companies I pointed to earlier, as we are moving to bigger and better premises before the year end.

Posted in Credit Crunch, China, Recession, Market Intelligence, Thursday Night Insight, Alaric Fairbanks, Market Research China |
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