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The current paper focus on the impacts of the financial crisis we are facing now and some ways on how to overcome these problems.
Credit crunch is a period during which borrowed funds are difficult to obtain and, even if funds can be found, interest rates are very high. Credit crunches usually occur during recessions.
The current financial crisis is considered the worst since the Great Depression which started about 1930s and lasted until late 1930s or early 1940s preceding the World War II.
How the crisis started
No one can determine how the crisis started. Usually these booms come after several smaller crises started in the past. For example the energy crisis and the increase of oil prices may lead to the crisis in automotive sector.
The financial crisis we are experiencing is a result of unregulated mortgages and credit boom that were pushed by the low interest rate,1 set by Federal Reserve (at that time Federal Reserve Ratio was only about one percent). Commercial banks increased their borrowing heavily and exercised the practice of leverage. In more simple terms, this can be translated as a lot of people spending more each year that may can afford. Many individuals
and businesses are in a state of moderate to advanced panic, believing that their businesses, plans, and way of life are finished forever.
Effects of recent financial crisis
The current financial crisis results to a lot of problems and/or changes globally. There is a lack of free finances. That means that individuals and/or businesses can not borrow money in order to retain in their business, or even to expand in new markets, globally or internationally. All businesses in the financial sector introduced very strict regulations concerning loans strategies and if one is qualified to obtain such a loan the interest is too high.
Unemployment in the most developed and developing countries is in the highest level ever. Because of the decrease in all sections in the real estate business and as a consequence in other industries as well, a lot of people lost their jobs, others fear that they will also have such a fortune. When the unemployment increases, this means that consumers loose their purchasing power or they are buying only the minimum/necessities to survive.
The social instability is also a consequence of the financial crisis. The majority of businesses and individuals are feeling that are standing in a vacuum. The most employees are facing the feeling of job insecurity, especially in the UK and US. So, they are working harder, may be more hours per day in order to keep their jobs.
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We all have seen businesses which were colossus which were felt in bankruptcy. The best example in US market is AIG which was once the 18th-largest public company in the world. It was listed on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008.
International Marketing in General2
A company that masters only in its domestic market, sooner or later will lose it by strong foreign competitors which will come and challenge the company. The most companies hesitate to go abroad, because they see languages or cultural differences. Going abroad there are benefits as well, because the company is not depending on only one country’s market. In fact, the market of their products may be mature at home and growing abroad.
Companies must adapt their marketing mix when going international. Asea Brown Boveri uses the slogan: “We are a global firm local everywhere”. Royal Ahold has the brand philosophy: “Everything the customer sees we localize. Everything they don’t see, we globalize”.
Companies are most successful when they recognize a large target market whose needs are not meet yet. Building a strong culture at this target market the chances to succeed are good.
Multinational corporations face tough decisions on which products to emphasize in which countries. The allocation of products and the advertising budget to each country must
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be guided by consumer preferences and purchasing power, distribution strength, competitors position and economic future conditions in each country.
Global countries must learn to use counter trading. Many countries are poor but they will barter. You’d better learn to take some goods in exchange or you have to forget doing business within this county. Pepsi-Cola had to promise Russia that it would help sell Russia vodka abroad in exchange for selling Pepsi-Cola in Russia.
The most common reasons that companies fail abroad are: failure to get reliable statistical information about the new market failure to define the target user failure to adapt the marketing mix failure to offer adequate service failure to find good strategic partners.
Overcome the problems
Start from your base - your customers. Now is the time to really understand who they are, where they come from and how they may be affected by the recession. Now is the time to start communicating with them on a regular basis. And now is the time to identify their needs, and start tapping into them. The importance of retaining their loyalty during these times is paramount, and a little goodwill right now could pay off in the future. You already know that acquiring new customers is more costly than keeping existing users happy. Many small businesses often adopt a fairly lax approach to invoicing their clients. Aside from the fact that this is a bad business practice, this is precisely the sort of problem you want to
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avoid during these times. If you allow your customer's inefficiency or inability to pay on time to run rife, your own business could well run into cash flow problems. It's a problem that can be very difficult to repair, but is easily avoided.
A recession can also offer opportunities for businesses to expand their market share, and those with the courage and foresight to increase their marketing budgets can gain in the long term. When a company's income shows signs of falling, the knee-jerk reaction is to cut back on spending. And all too often, the marketing budget is one of the first to go. This is undoubtedly a mistake.
The changes of the consumers buying behavior is a factor that a marketer has to consider. Because a lot of problems arise during a credit crunch, consumers are more carefully in what they are shopping or why they shopping the specific products or services. They have the chance to examine the best alternatives in the market place and products that offer value for money.
In spite of all the obvious negative consequences of a recession, it can also be a good time to expand and develop your business, as many of your competition will probably be doing the complete opposite. In spite of the apparent panicking, consumers and customer do not completely stop looking for solutions to their problems, but they might begin looking for better value. If your product or service offers that enhanced value proposition, then this particular recession-fuelled demand could turn into a great opportunity.
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Value for money3
Value for money has again become a strategic imperative—and not just because of the recession. Even before the slowdown began, there were signs that it ought to be a major consideration for companies. In developed countries, increases in household income over the past decade have favored the top 20% of earners, while the spending power of most families has stagnated or declined. Many people in the United States, for instance, have found it difficult to maintain their standard of living after paying for such necessities as their mortgage, transport, utilities, and health care without borrowing money. More recently, small salary increases and the steady drumbeat of job losses have turned many consumers into value shoppers, as they tighten their belts.
Unsurprisingly, Wal-Mart has been gaining share from premium retailers, and apart from luxury cars, only sales of small or fuel-efficient vehicles have been growing over the past five years. In Western Europe, according to a recent Credit Suisse study, the market share of value-priced store brands rose by two percentage points in 2007 while that of premium labels fell by the same amount.
In developing countries, consumers are traditionally value conscious. Many have entered the consuming class recently and have limited disposable income. For instance, Credit Suisse projects that the number of Chinese households whose income exceeds their basic needs will rise from around 55 million in 2008 to 212 million by 2013. However, many of them will earn only a little over $5,000 a year. By 2020 in India, the market research firm Information Resources predicts, 5% of the population will be part of households that earn more than $4,000 per annum, but they, too, are unlikely to have much excess income. The impacts of the financial crisis Page 6
Meanwhile, upper- and middle-class consumers in both countries must stretch limited earnings to cope with rising aspirations and inflation. Business buyers in developing countries depend on low costs to gain competitive advantage, so they always look for value when purchasing equipment and services.
According to Professor Peter Williamson’s seminar which took place in Nicosia, 21st of March 2009, there are four critical implications for Marketing Leadership 4 in recessionary times. The first one is communicating the “Value for Money” which was analyzed above. The second one is that for companies which their target market are niche ones, now is the best timing to deliver their value to mass markets as well. This will be attainable if they can differentiate their product without damage their brand image. Like Mercedes, who were produced luxury expensive cars that few people could afford to pay for. Then, they expanded to smaller cars, less expensive like A3, A4 or Smart, so every individual could buy a Mercedes. Did this damage the reputation of Mercedes cars or image? The third one is to improve the impact/cost ratio of company’s marketing, meaning that there is no room for scatterguns or special interest campaigns. The fourth one is that companies have to have their eyes and ears open to learn from the emerging markets.
As Professor Tim Amber said to CIM Marketing Summit on 21st of March, recession is the mother in law of innovation.
According to a research of Boston Consulting Group5, 64% of senior executives say that innovation is one of their top three strategic priorities, 25% of companies interviewed say that innovation is now their number one priority and 58% of senior executives plan to raise The impacts of the financial crisis Page 7
their investment in innovation in 2009. An example showing an innovative company is Procter & Gamble6. Can you imagine what this company managed to do? Two of the products of the company were Oral-care, a dental health and Fabric/home care bleach. After combined R& D efforts, it produced its most successful product launch in the last 20 years, Whitestrips. In just its first year, the product generated $200 million in revenue and got 90% market share.
A small change may have a huge impact
The example below is not from an international business, although it covers the above subtitle 100%. The order in which food is displayed to school-children7 in all US is always the same. In one school, the principal decided to change the order in which the food was displayed and started with salads which are the healthiest foods and then the rest unhealthy meals. The result was that in one year time there was a change of 30% healthier students than before.
Cost Innovation rather than Cost Cutting
The following example will show you how Hyundai8 managed to increase their sales in the US markets during the crisis. October 2008, -31% November 2008, -40% December 2008, -48%
What was the reason? 50% of people were thinking about buying a car were holding back because they were afraid of loosing their jobs. The genius behind the Hyundai
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approach to selling cars is that it has caught on to a way to get people into showrooms during the worst recession in decades. They advertise that a decade ago Hyundai pioneered America’s Best Warranty to show to their customers the faith they had in their cars. Today, in addition to this Warranty, they’re introducing Hyundai Assurance, so buying a new Hyundai, even if in the next year any customer looses his income, they will let him return it back. What was the result? January 2009, +14% February 2009, +25% March 2009, +33%.
The market share of Hyundai in the US market increased from 2.7% to 4.3%.
Summarizing I will reemphasize the fact that in such turbulence business times in order to succeed in international markets a company must change its value proposition by modifying existing marketing strategies and expanding into new mass markets using innovative and creative approaches. Changes can be small but results can be significant.
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STOCKHOLM SCHOOL OF ECONOMICS IN RIGA PHILIP KOTLER, MARKETING INSIGHTS FROM A – Z. CONCEPTS EVERY MANAGER NEEDS TO KNOW, P.87-90 3 http://hbr.harvardbusiness.org/2009/03/value-for-money-strategies-for-recessionary-times/ar/1
PROFESSOR PETER WILLIAMSON, CIM LEADING MARKETING SUMMIT, NICOSIA 21ST MARCH 2009, SLIDE 18 5 ROWAN GIBSON, CIIM AND KPMG ACADEMY NICOSIA, CYPRUS NOVEMBER 19TH 2009, SLIDES 1,2 6 ROWAN GIBSON, CIIM AND KPMG ACADEMY NICOSIA, CYPRUS NOVEMBER 19TH 2009, SLIDE 21
PROFESSOR COSTAS MACRIDES, LONDON BUSINESS SCHOOL, CIIM AND KPMG ACADEMY NICOSIA, CYPRUS NOVEMBER 19TH 2009, SLIDE 67 8 ROWAN GIBSON, CIIM AND KPMG ACADEMY NICOSIA, CYPRUS NOVEMBER 19TH 2009, SLIDES 5-8.
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