|
Responding
to an Economic Slowdown
By Michael Alan Hamlin
November 5, 2001
October turned out to be a far better month for the
global economy than many expected it to be. While economic indicators
careened wildly, at the end of the day, or the month in this case,
the Dow was up about three percent and the Nasdaq gained 13 percent.
Third-quarter gross domestic product did contract, but only by 0.4
percent, instead of the one percent many analysts expected.
Those results, if they hold, bode well for the Philippines
as its principal export market finds its appetite for our goods
and services. But the effects won't be felt for months. While jobs
are still being created in a thin slice of technology sectors in
the Philippines, exporters and manufacturers are groaning louder
than ever. Vehicle sales are down significantly (although BMW introduced
its new models in a grandiose, if somewhat sparsely attended, product
launch last week), and retailers have begun confessing that sales
of non-essential and big-ticket consumer goods have slowed. Restaurants
are still crowded, but few diners are kept waiting in lines these
days, even at fast food joints.
The gloomy mood, as a result and despite government's
happy statistics, explains in part why Philip Kotler's recent remarks
on responding to an economic slowdown were so welcomed. Rather than
the typically knee-jerk reaction - cutting prices, people, training,
and advertising - Mr. Kotler offered up margin-saving alternatives
for executives under pressure from the slowing economy.
First among them was reevaluating current resource
allocations. Since in hard times few companies can afford to do
everything they can during good times, Mr. Kotler suggests cutting
back on resources applied in ways that provide marginal returns,
or maybe no return. For instance, stop doing business in geographic
areas where it doesn't make sense. Market share, if the share is
unprofitable, doesn't mean much except to the company's eventual
liquidators.
The same thing can be done with unprofitable or marginally
profitable segments. If they're not profitable, let them go and
don't look back. Naturally, that applies to customers, too. There's
no better time to cut loose lousy customers than in a lousy economy.
While some management experts view marginal customers as the future's
most profitable customers, there is little evidence to back up that
line of reasoning. If a customer is lousy today, chances are she's
going to be lousy tomorrow.
Letting poorly performing segments and customers go
also provides the opportunity to write off and discontinue low-margin
products that take up far more time and resources than they are
worth.
Say, don't look now, but responding to a slowdown is
beginning to look like a great opportunity to enhance your business,
and refine its business model. So while we're cutting products,
let's cut channels, too. If it doesn't pay to maintain the channel,
it's gone. Put those resources somewhere they will make a difference.
The final resource reallocation Mr. Kotler recommends
is promotional mix. He believes that traditional advertising is
making less and less sense anyway. Every organization should increasingly
look to ways to promote its products and services in a targeted
way so that resources are applied where they count: to profitable
customers. That means redirect resources into direct mail, telemarketing,
and direct fax and e-mail campaigns as well as events and event
sponsorships that target the constituencies that count most to your
business.
If you are doing these things or have already, you're
creating a much more lean and nimble organization. A much better
organization. One that can think not about ducking for cover in
tough times, but about whether to attack the competition, said Mr.
Kotler. How do we know when we should attack? One of the best ways
is when the competition lets the value in its value proposition
begin to slip as a result of miss-reallocation of resources.
For instance, if maintenance is compromised quality
may fail. Cheaper and less reliable parts and components may be
used. Or cheaper workers may be hired causing the same and other
problems. This provides an opportunity for the company that has
properly reallocated resources to step in and ask the marketplace
if it really wants to keep paying, even at a lower price, for something
that isn't what it promises to be.
Another effective strategy is to think of ways to add
value to a product, instead of cutting price. That may mean making
hotdogs a little longer, something that RFM has tried. Or it may
mean adding options to an automobile, and providing attractive financing
packages as Ford is doing. It could also be an extended warranty
or service agreement.
We all know the well-know fact that the Chinese characters
used to write crisis also mean opportunity. Mr. Kotler showed how.
First, make sure you slash the real fat, not the fundamentals of
your business like people and product and service quality. Second,
pounce on competitors that fail to do the same. Third, increase
the perceived value of your product.
While business is not about cute lists, it is about
action plans that are thoughtful instead of reactionary. And this
is a good one .
(Mr. Hamlin is managing director of the consultancy TeamAsia
and the author of three books on Asian economies and managing in
Asia. His latest book is Marketing Places Asia, which
is coauthored. His e-mail address is mahamlin@teamasia.com.ph.
If you use a Smart/Talk N Text GSM user, you can text a message
to Mr. Hamlin's mailbox by typing the keyword mikehamlin and sending
it to 200.)
|
