Tuesday, March 10, 2009

Only the poor can save the rich.

It’s interesting to note that I have not posted from the time the “recession” ballooned into the full blooded “depression” we recognize today. The world is now awash with comparisons back in time to the 1930’s. Debates are fiercely raging from politics, to sociology, to economics et al. I have managed to get off my seat and start thinking of a marketing view. It’s interesting that most of us will not live through such an economic crisis again – however, if we do encounter it we should at least have a point of view.
Lets segue back to why it happened. Through the morass of analysis and diagnostics being thrown in me – the only reality I can distil is a macro economic one. The poor have been subsidizing the rich. To make it sound even funnier – the poor have been subsidizing the future lifestyles of the rich. This is not an intra country statement – it is a product of globalization.
In 2001 a Goldman Sachs economist coined the term BRIC. By 2008 end – the BRIC nations held over 40% of global foreign exchange reserves. In what currency ? – you guessed it. The US Dollar. The US GDP today is about $ 13 trillion. Global forex reserves are today at about $ 5 trillion. Imagine your situation if half of your income at any point in time was money you owed other people. This would be pretty good if you were using that money in prudent and productive investments – so that when asked for, you could return it and pocket the gains. The US actually used this to make the cost of money (interest) almost nil – and fuel speculative bubbles not just in domestic housing, but in global markets as well. The rich felt richer and spent like kings. This drove the global economy and the BRIC started winning – both in income (GDP growth) and wealth (equities, housing etc). Across the developing world benefits accrued like poverty reduction – though income inequalities rose as the wealth mechanisms (eg the stock market) were accessible only to the rich in the developing world. These benefits however were massively outweighed by the huge burden of the consumption imbalance. Consumption creates investment. When consumption is driven by a feeling of wealth - it creates investment in the wrong areas. Thats why we live today in a world of food scarcity while automobile capacity is many multiples of demand.
Today, both the rich from both developed markets as well as developing markets are hurting. Their realization that they are wealthy no more – has made their consumption pattern more realistic. For the real poor in the developing nations this has two implications :
1. Reduced consumption globally by the rich leading to lower demand for their production – therefore having a negative impact on jobs and income.
2. Reduced consumption by their domestic rich leading to lower inflation – and therefore making life a bit more affordable.
I have a feeling both of these probably cancel out. Today the poor are not hurting – certainly not in any comparison to what the rich are going through. My neighbouring kirana store owner is doing alright – and is blissfully unaware of the investment banker turned janitor in New York (who probably still enjoys a quality of life superior to the kirana owner). But the former is happy – the latter is devastated. However, I seem to be trailing into philosophy; so I shall get back on track.
If the world has to recover – someone has to start consuming. The rich do not appear to be in shape to drive consumption any more. By elimination, it is clear that we will not see global economic recovery unless the poor drive consumption. Without doubt, the BRIC countries will have a large role to play in putting the world back on track, economically speaking. Is this going to happen in 12-18 months ? I do not believe so. It sounds to me like something which will happen very slowly – 5 years or more. Is this what the world is expecting ? I do not think so – most businesses seem to be operating on an assumption of recovery in a certain number of months.
So lets move the subject to marketing. Basis the thinking above, I can derive the following 10 hypotheses :
1. Luxury industries are in trouble – and will remain so for a long time to come.
2. Businesses in the developed world will be in trouble for a significantly longer period of time than they think.
3. If the developed world does not actively participate in improving income and consumption levels in the developing world – global recovery may take longer. Such participation will of course be political suicide – and is unlikely to happen.
4. The Glocal world will start talking Local again.
5. Every single business buy will require significant internal justification – every single buyer will be on the hunt for value whether buying a toilet seat or a company.
6. Trust will not be an easily available commodity – who you are buying from will become very critical.
7. All business cost will come under the scanner and will be approached zero based / from first principles. No spend will remain a “must have”.
8. On the supply side – price wars will become debilitating to all parties.
9. As things get worse – the political influence of the BRIC countries will expand.
10. The third world war could break out.
In at least 9 of these scenarios – marketing can help. Specifically in the context of B2B marketers I would derive the following areas of focus :
1. There is a new business model (for your business) waiting out there. The first to find it and invest and execute well will get so far ahead of competition that they will be running a completely different race. Marketing needs to wear the strategic hat.
2. The current customer mix is probably wrong. Re-examine the mix and establish whether the winners of tomorrow outweigh the guys in trouble today. Refine and re-balance the target segment. Marketing needs to wear the sales excellence hat.
3. Every single customer is important. Those who focus on customer segmentation, feedback, experience and delight will be able to generate the unique value required today. Marketing needs to wear the Customer Intimacy hat.
4. Concentrate with intensity on the local market. In the IT industry specially we have not done this well. Winning in the local market will become important both from a business perspective as well as value proposition development. Marketing needs to wear the local hat.
5. Rexamine , re-align and re-invest in the product / service portfolio. Commodity offerings will spell death for the business. Less will be more and vice versa in what we take to the market. The ability to bring depth of execution and outstanding ROI assessments to each offering will make a real difference between success and failure. Marketing needs to wear a product management hat.
6. Sweat every single dollar. Tear the budget up – and go back to first principles. Ask if each dollar is contributing value. Ask if the dollar in each spend area is contributing value comparable to other areas of spend. Measure everything. Marketing needs to wear a finance hat.
7. Intensely focus on the employee. It is difficult to maintain above-the-line branding spends in this environment. Nor is it necessarily a good thing to do. People will trust references and experience – not advertising. Creating employee delight and converting employees into evangelists will have a large impact on brand. Marketing needs to wear the employee hat.
8. Make the engine efficient. “Enough opportunities are coming into the funnel – only a small proportion are being converted”. Statements like these indicate a poor front office engine. Or – “We took a loss leader deal – because of lifetime value. However, we have not managed to make it profitable”. Statements like these indicate a poor back office engine. Find out whether the engine is working – and where is the problem. There is no point bringing footfall in – which either does not convert, or converts and gently bleeds away. Marketing needs to wear the Analysis hat.
9. Think digital. Not merely for customer acquisition – but knowledge, customer retention and probably as part of all the above 8 suggestions. There is a complete digital strategy out there – we need to find it. This is not one element in the marketing mix – it is a different way of thinking, performing and spending.
Just because there were 9 scenarios I managed to think up 9 focus areas. Obviously doing 9 things mean you have no focus – pick and choose what you wish to do . Do it well.
I just put in the 10th scenario because economic distress and war go hand in hand. In its own turn, war and music also seems to have some correlation. If 10 comes to pass, there is clearly only one thing to do.


Blogger syamant said...

Marketing as a Business Strategist replaces the Financial strategist ?

Most of the 9 things that you have mentioned about the focus of Marketing, somehow simply pointing to walking the talk. The talk that most companies have invested in but not walked.

Having said that , if a company were to do any of the 9 things mentioned here or others, it would mean that the structure of the organisation changes dramatically. That also has significant implications for leaders.

Being in a situation and then effecting such large scale changes can be quite difficult for an organisation and also for the marketing function to scale up effectively. Any suggestions for this..

How would Marketing partner within the company and also outside to create the transition, as there are distinct differences between product and services marketing.

Sing is an interesting idea ;)

3:02 AM  
Blogger Krishnan said...

while you are right - desperate times will require desperate measures. The precise reason why the talk has not been walked is the inability to restructure and transform the organisation dramatically.

10:42 AM  
Blogger jyotiranjan_delhi said...

Read few of your blogs & really enjoyed this one. The comparision between Kirana shop owner & global investment banker actually said it all. This is the reason, we are lucky to be living in a country where there is lot of happiness in spite of so much poverty.

5:15 AM  

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