The economy is slowing down in 2008, and this is part of a normal business cycle. The question is what should you be doing right now to get your share of business? There is no reason your business should not do well regardless of market conditions. We just have to adapt to the market and be aggressive marketing and selling.
First let’s focus on what sells during recessions. These areas do well in slow economies. So how can your business cater to the desires of your customers or consumers?
Exports sell – The recession generally lowers the dollar (already happened!) so this is the time to find products to export. The growing economies of China, India, Asia, Russia, Dubai and other petroleum wealthy countries are ideal for expanding business while you have a currency advantage. Use the value of America to sell. McDonalds and Coca Cola are great examples of exporting.
Comfort sells – people are worried about their homes, their jobs, and their family. For most people they pull in spending on big luxuries and vacations. However they replace them with familiar pleasures and little treats to make staying home more pleasant. Traditional foods, decorations, home entertainment, and health products are examples that will do well.
Value sells – money is tight, so people will hold it unless it is a good emotional or financial investment. Return on Investment and quick payback work for businesses, investors and consumers. Have features that are usable, use less energy than competitors, are green, save money, and do more for the price. Wal-Mart, Costco and Sam’s Clubs do well when people are watching their dollars. But you don’t have to be the cheapest to be a value buy. Offer guarantees and let them know they are buying a product or service that does what it says it does and performs well. Remember decisions are emotional first, then buyers justify their decision logically.
Quality sells – Ford advertised “Quality is Job 1” and it really is. People will pay for better quality. Toyota and Honda have made the best quality cars over the last twenty years, and look how their sales are worldwide. Toyota is about to be the bigger than GM.
Simplicity sells – Easy to use products and services always do better than competitors. Lower priced products and services with fewer features do well when people are being frugal. Design new versions to make a basic and simple product or service as possible. Your higher end customers will still want the old features and pay more, but get new customers into your base now and upgrade them later. Existing customers you can offer sensible upgrades and extras for more.
Luxury sells – the very wealthy are immune to slow economies unless the stock market drops precipitously. They want to impress friends and enjoy what they get. However they are less likely to buy the ostentatious instead of more subtle beauty. They don’t want to offend as much as impress. Green mansions still have cache since you look responsible, green, and have something unique compared to the merely rich in their regular McMansions. The wealthy will still travel but may justify it to themselves being combined with another purpose – “since we were in Greece on business, we visited Athens”. There are less people feeling wealthy, so you have to target and appeal to the really well off. This market is wiser about value and will negotiate more, but purchases are still emotional decisions.
Design sells – often the real decision maker between competitors is design. Better performance, distinctive appearance, new colors, fashion, different fragrances, and artistic design do sell strongly. Does the product fit the hand, easy to use, and the curves look appealing? Cadillac has recovered it name with better design products. How do the competitors look? People will pay a little more for a Target styled product than a cheaper Kmart or Wal-Mart product. They want what will impress them and their friends.
Love Sells – seriously there is no greater need for people than to love and be loved. This is where advertising has always succeeded. The original Mustang “makes it happen”, “every kiss begins with Kay” Jewelers, beer ads making you look attractive, Victoria’s Secret, and Match.com are example of how you can make it easier for romance and family. Family is often a stronger bond to support. How can you make it easier or appeal to singles and families?
Humor sells – Seriously we buy from people we like. Look at the successful Miller Lite’s ads which were making people laugh at celebrities. Some of the most famous ads were from two football players making fun of the perception football player are dumb. Playing dumb sold a lot of beer and got these guys into the movies as actors. Make sure your clients know they will have a good time with your product and service. Southwest Airlines built a great business making passengers enjoy the trip.
Novelty sells – something cute, cheap, funny and easy to talk about always sell well. A good video on YouTube.com can create insane demand. Pet Rocks with those silly directions on ‘How to Care for Your Pet Rock”, Superballs (where did mine go?), the Wallcrawlers which were funny looking octopuses that flopped down the walls, the Slinky which still fascinate kids, and the hula hoop all still sell.
Security sells – people still have desires, but with less opportunity to earn it a small percentage will take what doesn’t belong to them. Incidences of crime, especially locally, can be used that so people want to protect what they have. The tendency is already there for consumers, just get them to look at a risk they ignore to get them motivated. If you sell security advertise to your market using fear.
Advertising sells – Most businesses cut advertising first when times are tight. This is when you want to expand your advertising and take market share from competitors. Make sure to track results, and watch your budget. Negotiate better deals from your media while they are losing other business. Successful companies often expand advertising in slow economies. Save by expand internet marketing and focusing your print, radio and television advertising. Consider switching to cable television in focused markets versus broadcast ads. Send postcards instead of sale letters to save postage. Have the postcards get customers to go websites with shopping carts. Call old customers regularly. Stay in the selling mode no matter what the market is.
Follow these ideas and you may not have a recession in your business. These ideas generally work in most economies, but will work better during slow times. What can you sell now?
January 26, 2008
January 17, 2008
Business Predictions for 2008
Everyone makes a fool of themselves by predicting the future at this time of the year. So I will badly make a fool of myself by expressing my opinions on the difficult business market for 2008. Please be aware opinions do not affect the future, and your mileage will vary. So here we go…
Housing will drop big due to credit crunch. If you can’t get financing very easily, how do you buy from someone? Since it is harder to get loans, fewer buyers are available with good credit and money down to buy houses and condo. Investors buy at the value of the net income they can rent a property for, and look for bargains. Neither the lack of buyers and investors caution is good for supporting prices in housing.
Disclosure here: I have done residential and commercial real estate appraisal in California and assisted in Nevada, so actually have real estate analysis expertise. The rise in residential values ran 9 years in southern California from 1997 to 2006, and went years too far. Values could really drop back hard. Las Vegas and Arizona have already dropped prices around 30% and could go lower with so many new homes. The Inland Empire and San Diego values have dropped over 20% in 2007, so Los Angeles and Orange County are behind the curve and may fall 20% in 2008. I have predicted prices to fall off the peak 20% to 30%, and up to 50% if the economy really fell. So I tend to be regarded as pessimistic since I think the boom went far too long. Recovery should start around mid 2009 to 2010, but it is very hard to pick the bottom. If your housing prices have been falling since 2005 you are closer to the bottom than we are here in southern California.
Your area housing values will vary based on local conditions, but I expect a national average to fall by 10% without crazy loans, easy money and speculators to inflate home values. Best analysis I have read is from JP Morgan predicting land values will return to 2002 – 2003 levels, and near the east and west coasts the land may be up to 80% of home values. Location, location and location still rule when it comes to evaluating properties. Look for investment opportunities this year and in 2009.
Commercial property values will go down since it is harder to get credit here as well. It is early in this correction, locations, and property use varies so much will not predict how much values will fall. Commercial prices did not go up as crazily as they did in housing, but value depends on income and cost to borrow. A ten to twenty percent retreat would not surprise me this year in some areas.
Economy will recession early, and start the recovery before end of 2008. The credit crunch will hurt borrowing for businesses, but the hallmark of the American economy is how quickly capitalists adapt to change. China’s currency is increasing in value to the dollar, which will increase inflation as well. Consumers will cut back slightly, but most spending will continue to be stable. Styles will move away from excess to value, so imports may be hurt with higher prices of the now lower dollar. However booming economies internationally especially in India and China will improve American exports. In all, the diverse and adaptable economy will be recovering this year.
Employment will only drop mildly in the US. Finance, automobile and housing industries will be significantly hurt in 2008, but the rest of the economy should grow needing good employees. Your local conditions will vary. I will be looking for a new position in 2008, so understand personal concerns depend on your situation and industry. I expect to be with a business unit growing quickly or turning around by mid year.
Oil will fall from $90 – $100 per barrel to $60 – $70 per barrel in 2009. Politics in unstable countries can have a tremendous affect on supply making timetables hard to guess. So this is the riskiest prediction I am making. Have no special information here, but let’s look at history. Recently it took many years to go from $20 to $30 per barrel. Prices were stuck in the $15 to $20 range for over a decade. The sudden jump in oil prices from $30 to $90 per barrel happened way too quickly from a historical perspective. The cause was speculators and fears driving gains with increase international demand. The value of the dollar fell about 30% over the last few years, so $20 to $30 per barrel is now $30 to $45 per barrel. Demand will fall with current prices, and alternative sources are cost effective above $30 per barrel further reducing demand. Politics will have an effect with a president elect promising a program to reduce oil imports could speed the price reduction. Overall I expect a gradual reductions happening with jumps and falls starting in 2008.
Stock market will fall early and start recovery about mid 2008. The recovery will be mild and I like John Mauldin’s description of the “muddle through” economy. The stock market often acts as a predictor of the market and it has had a lot of growth. The question is how far we are going to correct recess or depress the market? More importantly which business sections are going to fall the most. My record here is poor historically, so do your own research. Falling should be finance companies, housing, and consumer related businesses. Everything else depends on design, innovation and value to grow businesses.
The election in November is too close to call right now. The Democrats are likely to have either Hilary or Obama, and they would be wise to have a joint ticket. Republicans have five good candidates, and possibly no one will come with a majority to the convention. Voters usually look at experience, positions, leadership and pandering. Could be another close election based on the experience of the Republican candidate versus the changes proposed by the Democrats. There is a lot of potential changes based on the economy, world events, Terrorists, Iraq and Afghanistan. In the final election the most moderate candidates between the Democrats and Republicans usually win, so that is my prediction.
Okay, this is enough predictions for me to reasonably make in 2008. Lets see how wrong I am since my record has never been perfect. Black swans events make predictions more of an art than a science. Use your own judgment about the validity of these guesses and how they may affect you.
Recommend Forbes, marketwatch.com, John Mauldin, Doug Fabian and Mark Skousen for research and information.
Housing will drop big due to credit crunch. If you can’t get financing very easily, how do you buy from someone? Since it is harder to get loans, fewer buyers are available with good credit and money down to buy houses and condo. Investors buy at the value of the net income they can rent a property for, and look for bargains. Neither the lack of buyers and investors caution is good for supporting prices in housing.
Disclosure here: I have done residential and commercial real estate appraisal in California and assisted in Nevada, so actually have real estate analysis expertise. The rise in residential values ran 9 years in southern California from 1997 to 2006, and went years too far. Values could really drop back hard. Las Vegas and Arizona have already dropped prices around 30% and could go lower with so many new homes. The Inland Empire and San Diego values have dropped over 20% in 2007, so Los Angeles and Orange County are behind the curve and may fall 20% in 2008. I have predicted prices to fall off the peak 20% to 30%, and up to 50% if the economy really fell. So I tend to be regarded as pessimistic since I think the boom went far too long. Recovery should start around mid 2009 to 2010, but it is very hard to pick the bottom. If your housing prices have been falling since 2005 you are closer to the bottom than we are here in southern California.
Your area housing values will vary based on local conditions, but I expect a national average to fall by 10% without crazy loans, easy money and speculators to inflate home values. Best analysis I have read is from JP Morgan predicting land values will return to 2002 – 2003 levels, and near the east and west coasts the land may be up to 80% of home values. Location, location and location still rule when it comes to evaluating properties. Look for investment opportunities this year and in 2009.
Commercial property values will go down since it is harder to get credit here as well. It is early in this correction, locations, and property use varies so much will not predict how much values will fall. Commercial prices did not go up as crazily as they did in housing, but value depends on income and cost to borrow. A ten to twenty percent retreat would not surprise me this year in some areas.
Economy will recession early, and start the recovery before end of 2008. The credit crunch will hurt borrowing for businesses, but the hallmark of the American economy is how quickly capitalists adapt to change. China’s currency is increasing in value to the dollar, which will increase inflation as well. Consumers will cut back slightly, but most spending will continue to be stable. Styles will move away from excess to value, so imports may be hurt with higher prices of the now lower dollar. However booming economies internationally especially in India and China will improve American exports. In all, the diverse and adaptable economy will be recovering this year.
Employment will only drop mildly in the US. Finance, automobile and housing industries will be significantly hurt in 2008, but the rest of the economy should grow needing good employees. Your local conditions will vary. I will be looking for a new position in 2008, so understand personal concerns depend on your situation and industry. I expect to be with a business unit growing quickly or turning around by mid year.
Oil will fall from $90 – $100 per barrel to $60 – $70 per barrel in 2009. Politics in unstable countries can have a tremendous affect on supply making timetables hard to guess. So this is the riskiest prediction I am making. Have no special information here, but let’s look at history. Recently it took many years to go from $20 to $30 per barrel. Prices were stuck in the $15 to $20 range for over a decade. The sudden jump in oil prices from $30 to $90 per barrel happened way too quickly from a historical perspective. The cause was speculators and fears driving gains with increase international demand. The value of the dollar fell about 30% over the last few years, so $20 to $30 per barrel is now $30 to $45 per barrel. Demand will fall with current prices, and alternative sources are cost effective above $30 per barrel further reducing demand. Politics will have an effect with a president elect promising a program to reduce oil imports could speed the price reduction. Overall I expect a gradual reductions happening with jumps and falls starting in 2008.
Stock market will fall early and start recovery about mid 2008. The recovery will be mild and I like John Mauldin’s description of the “muddle through” economy. The stock market often acts as a predictor of the market and it has had a lot of growth. The question is how far we are going to correct recess or depress the market? More importantly which business sections are going to fall the most. My record here is poor historically, so do your own research. Falling should be finance companies, housing, and consumer related businesses. Everything else depends on design, innovation and value to grow businesses.
The election in November is too close to call right now. The Democrats are likely to have either Hilary or Obama, and they would be wise to have a joint ticket. Republicans have five good candidates, and possibly no one will come with a majority to the convention. Voters usually look at experience, positions, leadership and pandering. Could be another close election based on the experience of the Republican candidate versus the changes proposed by the Democrats. There is a lot of potential changes based on the economy, world events, Terrorists, Iraq and Afghanistan. In the final election the most moderate candidates between the Democrats and Republicans usually win, so that is my prediction.
Okay, this is enough predictions for me to reasonably make in 2008. Lets see how wrong I am since my record has never been perfect. Black swans events make predictions more of an art than a science. Use your own judgment about the validity of these guesses and how they may affect you.
Recommend Forbes, marketwatch.com, John Mauldin, Doug Fabian and Mark Skousen for research and information.
January 1, 2008
What To Do During 2008 Recession
Hate to be the bearer of bad news, but the credit crunch is bringing a recession to the US in 2008. If you are managing or owning a business, now is the time to plan for this year’s recession.
Are you familiar with derivatives, CDO’s, credit swaps or the subprime mortgage market? They have been the latest way banks, hedge funds, insurance companies and other investors tried to increase yields by bundling loans together. The problem is they have not properly accounted for the risk, and not enough reserves are in place for when these investments fall in value.
So people who lend money do not have enough money to lend more. Credit will increase in cost, and less will be available for business to borrow. This will slow the economy, and consumers are not able to borrow to finance more purchases.
What do we do now?
First of all keep perspective, no recession lasts forever. They are normal parts of the business cycle, and there are several steps you can do. It may be mild or a full depression, but the actions you will take are similar. You just may be forced to take more actions in the event of a depression.
Hang on to cash
If credit is hard to get, you are going have to fund expansions internally. The Stock market may not fund you, and lenders are nervous. Be prepared by watching spending and cutting overheads.
Know what makes you profit
Most people know volume of sales, but few allocate expenses fairly to each product line. It is easy to spread personnel, advertising, and overheads over all sales. It makes more sense to know which products or services cost more and what they make. Allocate almost all personnel to product lines, allocate inspectors and freight to materials, and then spread the remaining unallocated personnel and expenses over all labor and material expenses. This will show where you actually spend your resources, and how much each product or service costs. Then figure out your profit margin.
Re-price products to make a profit
Sales have to make money. Even advertising loss leaders have to increase sales to be worth doing. So evaluate which products or services create value, compare to competitors, and don’t just be the low cost provider. Less sales may make more sense for some products and services. Especially if you are losing money per sale. Price accordingly.
Kill weak products or product lines
Redesign or rationalize product lines. Let good products eat weaker products. You want products to go after competitor sales (or increase your profits), but not just because we always sold that. Can you buy someone else’s cheaper?
Design better products
Design is often the deciding factor in sales. Good design has value in attractiveness and functionality. Don’t blame the sales team for a poor product or service. Create better, faster and new services. Make products have more value. Create new looks and new markets. Growth is finding opportunities. Make sure you design to win.
Sell more to existing customers
Offer additional services and products to your existing customers. Your customers are valuable. Don’t lose them to competitors, but make yourself their partner by adding value to them a discounter can not match. Sit down and find out where their pain is. Look where you can grow servicing your best customers. Bring ideas and contacts that will grow their business. They will remember.
Find new customers
Don’t quit marketing or advertising. Find competitors to your existing customers. Especially find the young growing business that may become prime customers.
Export
The US dollar is falling in value, so find new customers in other countries. China, India, Dubai and Asia are growing in wealth so are great markets to open. Europe is now cheaper to sell to. Take advantage of your value by finding representative in these markets.
Make advertising show results
Get their attention. State your benefits clearly and believably. Get feedback. Motivate your customers to do something. Make sure your advertising is in line with your strategy.
Hire people who will contribute to bottom line
Keep your winners and make them partners. Always look for designers, engineers, sales, and leaders to make your business grow. The advantage of a recession is less competition hiring the best people.
Review your strategy
Does your current strategic plan match the changing economy? Be realistic, be opportunistic, and believe you can succeed. Others will just try to shrink their business and may hurt themselves. You can actually grow market share by being aggressive in going after business by creating value.
A recession is really just normal business. Just be focused on what needs to be done like normal, and do the hard work that gets missed when you are growing fast. Your people will overcome a recession if lead to face the problem. It is up to you to lead.
Are you familiar with derivatives, CDO’s, credit swaps or the subprime mortgage market? They have been the latest way banks, hedge funds, insurance companies and other investors tried to increase yields by bundling loans together. The problem is they have not properly accounted for the risk, and not enough reserves are in place for when these investments fall in value.
So people who lend money do not have enough money to lend more. Credit will increase in cost, and less will be available for business to borrow. This will slow the economy, and consumers are not able to borrow to finance more purchases.
What do we do now?
First of all keep perspective, no recession lasts forever. They are normal parts of the business cycle, and there are several steps you can do. It may be mild or a full depression, but the actions you will take are similar. You just may be forced to take more actions in the event of a depression.
Hang on to cash
If credit is hard to get, you are going have to fund expansions internally. The Stock market may not fund you, and lenders are nervous. Be prepared by watching spending and cutting overheads.
Know what makes you profit
Most people know volume of sales, but few allocate expenses fairly to each product line. It is easy to spread personnel, advertising, and overheads over all sales. It makes more sense to know which products or services cost more and what they make. Allocate almost all personnel to product lines, allocate inspectors and freight to materials, and then spread the remaining unallocated personnel and expenses over all labor and material expenses. This will show where you actually spend your resources, and how much each product or service costs. Then figure out your profit margin.
Re-price products to make a profit
Sales have to make money. Even advertising loss leaders have to increase sales to be worth doing. So evaluate which products or services create value, compare to competitors, and don’t just be the low cost provider. Less sales may make more sense for some products and services. Especially if you are losing money per sale. Price accordingly.
Kill weak products or product lines
Redesign or rationalize product lines. Let good products eat weaker products. You want products to go after competitor sales (or increase your profits), but not just because we always sold that. Can you buy someone else’s cheaper?
Design better products
Design is often the deciding factor in sales. Good design has value in attractiveness and functionality. Don’t blame the sales team for a poor product or service. Create better, faster and new services. Make products have more value. Create new looks and new markets. Growth is finding opportunities. Make sure you design to win.
Sell more to existing customers
Offer additional services and products to your existing customers. Your customers are valuable. Don’t lose them to competitors, but make yourself their partner by adding value to them a discounter can not match. Sit down and find out where their pain is. Look where you can grow servicing your best customers. Bring ideas and contacts that will grow their business. They will remember.
Find new customers
Don’t quit marketing or advertising. Find competitors to your existing customers. Especially find the young growing business that may become prime customers.
Export
The US dollar is falling in value, so find new customers in other countries. China, India, Dubai and Asia are growing in wealth so are great markets to open. Europe is now cheaper to sell to. Take advantage of your value by finding representative in these markets.
Make advertising show results
Get their attention. State your benefits clearly and believably. Get feedback. Motivate your customers to do something. Make sure your advertising is in line with your strategy.
Hire people who will contribute to bottom line
Keep your winners and make them partners. Always look for designers, engineers, sales, and leaders to make your business grow. The advantage of a recession is less competition hiring the best people.
Review your strategy
Does your current strategic plan match the changing economy? Be realistic, be opportunistic, and believe you can succeed. Others will just try to shrink their business and may hurt themselves. You can actually grow market share by being aggressive in going after business by creating value.
A recession is really just normal business. Just be focused on what needs to be done like normal, and do the hard work that gets missed when you are growing fast. Your people will overcome a recession if lead to face the problem. It is up to you to lead.
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