Many businesses, those in Australia in particular, are about to break through the “pain threshold”, which will have long term, strategic and structural consequences for consumers, employees and the competitive market place.
Major changes can be expected.
As a consequence, the focus for management teams will change from variable costs to the fixed cost aspects of the businesses.
Up to this time, the primary emphasis for many entities, large and small, when addressing the global financial crisis has been on variable expenses.
These have centred on :
Staff numbers, Wages and overtime, Inventory levels, Advertising budgets, Travel expenses, and Retail prices.
Each of these can be and are readily changed in volume and nature.
April 1 appears to have been a pending benchmark date.
The reporting period for Australian public listed companies is over, the profits have been declared and lower dividends announced for a majority of trading groups. By the end of March those payments will have been credited and deposited, price : earnings ratios will have been reassessed, together with debt ratios and competitive sustainability.
As a result, attention will be given to two key concerns, being:
The public, employees and shareholders can expect to witness reductions in the fixed cost aspects of numerous entities.
These will focus on:-
Premises, Plant, Branches, Models, Product / Service mix, Capital structure
Those initiatives will have broad implications for employment, income, competitiveness in pricing and for Australians at large, the capacity to service or repay debt. Given their innate character, fixed cost variables cannot be varied in short spans or repeatedly.
Short term Federal and State government financial stimulus initiatives will be ineffective to redress this evolving scenario. April 1 heralded the critical date for a significant structural change in the economy and differing business sectors. In short, the causal factors for the changes in the marketplace in which we operate have, to a large extent been the consequences of systemic failure. Economic stimuli do not and will not redress those issues.
That underscores the reality that the current circumstances are not cyclical or seasonal in nature.
Tough decisions need to be taken. Moreover, they should be taken now!
OUT WITH PERFORMANCE REVIEWS
In the current turbulent marketplace, most, if not all, aspects of business are being subjected to close scrutiny. The two word phrase which can and does stimulate anxiety, reservations, a loss of self confidence and morale is -
There is understandable fear and disdain held by employees to the process and the often unjustified expected negative outcomes of such happenings.
Performance reviews reflect on and analyse the past. The past has questionable relevance and currency for the present and for the future. The exception is for those senior people who have been responsible for or contributed to policies, strategies and philosophies.
But alas, there is a positive, appealing alternative. “Perform Previews” imply participants in the process have a future and a role to determine and influence performance standards. Clients around the world have enjoyed considerable success in embracing the new approach. Overall, morale, team stability and cohesion have improved and most importantly, valuable input has been received and implemented for enhanced performance levels.
This is further evidence that leadership and management really relate to values, beliefs, attitudes and confidence. The key implied message is :-
FOCUS ON THE FUTURE
WALKING A TIGHT ROPE
Australian business leaders and owners have been assured for so long, by so many analysts and commentators that the Australian economy will be largely protected, if not immune, from the fallout of the global financial crisis. Among the primary reasons are the rigour and vibrance of the Chinese, Indian and to the lesser extent, the Japanese economies. That prognostication was always a questionable proposition. Like Australia, China, India and Japan are part of the global community. Therefore, it is not possible for them to be immune from the consequences of the global financial crisis.
China is the largest holder of U.S. bonds. The U.S. dollar is weak and the Chinese Yuan undervalued because of the Chinese centralist policy of having a “dirty” pegging of its value tied to the US currency. If and when the Yuan is allowed or forced to float, (because of international government pressure) there will be a profound restructuring of currency exchange rates. That does not hold good prospects for positive outcomes for the United States of America, which is still the largest economy in the world. It places a different perspective on the term “toxic asset”.
When Central Banks literally print money, high and often hyper inflation follow. Take for example Germany in the 1930’s, Chile during the 1970’s and currently Zimbabwe. It is difficult to follow the logic of the U.S. Federal Reserve and the British Central Bank in following this course of action.
However, that will be a challenge to confront in the future, once the Great Recession (as pronounced by the International Monetary Fund) is over in 3 to 5 years time.
At present Australia and the world have to contemplate and prepare contingency plans for the evolving market circumstances of both China and Japan which are walking a very high tightrope between deflation and increased inflation. It may be difficult for many people under 40 years of age to appreciate the consequences and ramifications of inflation, deflation and the insidious stagnation scenarios.
Western Australian entrepreneur, investor and creative thinker John Wood has been a strong supporter of investments in gold bullion.
His advocacy could rightly be expanded to include gold producing, income positive gold mining companies. Several respected international analysts have projected gold bullion to be worth up to $3,500 (US) per ounce within 3 years.
Care should be taken in all investment decisions and professional advice sought from qualified and experienced financial advisors.
However, I have not heard nor expect to hear the term “toxic asset” applied to gold bullion.
CUT IT OUT
The current tendency for widespread cuts in business is possibly understandable, but often misguided.
In isolation little will be achieved in the intermediate to longer term with arbitrary cuts in staff numbers, inventory levels, product/service mixes, prices, advertising and promotional activities.
Sadly, all too often the baby is thrown out with the bathwater!
During the past six months we at Marketing Focus have been involved with management teams in assessing overall performance levels.
With a typical contrarian perspective, I have promoted the prospects for and possible consequences of changes in staff members, training of staff members and rewarding good high achieving staff members, rather than cuts.
The same framework is applied to inventory, product ranges, prices, advertising and promotional.
The logic is simple. Reducing the amount of poor and inappropriate advertising, achieves little or nothing. The issue is often not the volume or value of the advertising but rather the content, the offer and the media which is utilised. A change for the better is needed rather than cuts.
Introduction of image, emotion, value, fun, humour and a sense of urgency can and will enhance the impact, benefits, advantages and relevance of advertising.
Reductions in inventory can readily result in a narrower choice of preferred products, with obsolete, unattractive and undesirable stock items taking up valuable space and incurring high holding costs. Changes in the composition of the inventory offers new and better scope for continued success.
A stable, consistent and positive presence in the marketplace promotes confidence and points of appeal.
Cuts? Think first. Then reflect on the old IBM adage :-
“There is a better way. Find it.”
A SIGN OF THE TIMES
The current global financial crisis and its consequences have placed immense stress on relationships in business, communities and families.
Tensions have risen, self interest has come to the fore, along with a heightened sense of vulnerability.
Each of these factors has contributed to a noticeable increase in the legal actions being taken by suppliers against retailers, lessors against lessees, business against government instrumentalities.
At present, providing expert evidence for possible court proceedings is a growth sector of myself and Marketing Focus. We are currently involved in three cases.
On balance and upon reflection, many of the issues that we have been involved in during the past six months could have been resolved, if not avoided with effective, on-going two-way communication.
Strategic alliances and partnerships should and must be mutually rewarding. Communicating and concluding agreements on the outcomes, benefits and advantages of partnership arrangements go a long way to ensuring satisfaction and recognising, respecting and valuing the outcomes sought and expecting each party to an agreement and relationship.
I implore everyone to reconnect to maintain, if not improve, communication with all those with whom you have a relationship, regardless of what aspect of one’s life is involved.
ARTICLE TEXT :
YOUR SLIP IS SHOWING!!
Oops! We’ve slipped… and it shows.
The global financial turmoil and resultant downturn in the business environment and retail sales have had countless consequences. Among them is a regression in many retailing, promotion, advertising and merchandising practises. Sadly for some, the standards have slipped to the very basic.
Emotions, a sense of theatre, innovation and fun have been removed, or at best, minimised. Their respective roles and importance have been discounted. Standards have definitely slipped. They too have now been discounted.
Many brands, including those of retail outlets, products and services have been compromised and damaged. It will be difficult to reconstitute full recommended retail prices in future, without considerable leakages in demand.
During the peak Christmas trading period of 2008, the $10.4 billion Australia Federal Government stimulus package was complemented by increased, price oriented advertising with offers of up to 70% off retail prices. It seemed to work… in the short term. After a slow start, national December retail sales recorded a 3.4% increase. The tipping point appeared to be 8 December, the date on which the first of the cheques and bank account credits arrived from the Federal Government.
Little consideration has been given to the bottom line.
Electrical appliance retailers rushed to the media declaring their support and endorsement of the political initiative. The same individuals and businesses announced store closures, staff dismissals and retrenchments during January.
One disturbing aspect of the high pre and post Christmas retail sales was the fact that a relatively large percentage of the transactions were people who were not recipients of the Federal Government stimulus package. The same people had planned such purchases during the course of the 2009 calendar year, but had rescheduled their buying because of the compelling appeal of the huge discounts which were on offer.
Thus, the Christmas period receipts reflected a rescheduling of many planned purchases rather than the generation of new sales.
This begs the question of what does the period April to August hold for the broader Australian retail sector?
THE CAMERA DOESN’T LIE
A photographic survey of retail practises in metropolitan Sydney, Melbourne and Perth during February enabled these consultants to conclude that the widespread poor merchandising displays were making a greater contribution to spasmodic and declining consumer store traffic and retail sales than the impact of the prevailing financial turmoil. Overall, standards have not improved in some three decades.
The conclusions need not reflect the capabilities and skills of in-company and manufacturer merchandisers. Rather, what are specifics of the briefs and the key performance indicators which are being applied by senior management teams?
The visual evidence is compelling. That is not to suggest that the premises were not clean, well lit and well stocked. They were. The cleanliness was sterile. So too were many of the shopping ambiences and displays.
MARKETING 101 LIVES
All of the fundamentals of the marketing discipline persist. At all times emphasis should be given to “advantages” and “benefits”. These project emotion, inspire action and fulfil desires.
Features provide the rationalisation and justification of the purchase decisions which have been determined by consumers who have advanced to that final phase of the buying process. In absolute and relative terms they represent a small percentage of the market potential.
Thus, much potential is currently being forsaken because of common basic practises which are being displaced in pursuit of the important but superficial “false God”, cashflow.
Advertising, regardless of the media utilised (including television, radio, print, poster, email, direct mail, coupons and loyalty programmes) can and should be enhanced by three key words which research has established resonate with consumers, stimulate interest, generate additional store traffic and are the catalysts for greater sales and profits.
Sadly, analysis of the current and recent advertising campaigns of major electrical appliance retailers reveal many do not include those key triggers.
THE RIGHT SETTING
A positive and appealing store ambience and a good shopping experience have become established imperatives for sustainable, successful retailers.
Integral to both is the astute deployment of the six dimensions of creative and effective merchandising.
A seeming current overemphasis on the aspect of “visual” limits potential and actual sales. Consumers consider static displays boring. The employment and deployment of other sensory factors in displays can and will stimulate interest, sales and satisfaction.
DARE TO BE DIFFERENT
All businesses regardless of sector and discipline, have the potential for and possibly the need to be different.
A long record of success suggests that electrical appliance retail professionals, like many others, have the skills, experience and expertise to change and to benefit from a new approach to communicating with, educating, inspiring and influencing existing, future and past clients.
In seeking the “right” answer, it is important to ask the right question. A tight focus on cashflow and discounting may not be the answer, nor the appropriate leading question.
Barry Urquhart is renowned internationally for his strikingly accurate forecast of the finish of the economic boom in 2008.
His well documented projection from early in 2006 of a specific date made media headlines around the world and enabled clients to plan for the event …
10.35pm, Sunday 24 August, 2008. It was the closing moments of the Beijing Olympics.
Barry’s subsequent warnings of the credit meltdown, increasing unemployment levels and branch, plant, model and services closures have enabled companies, large and small, to gain and sustain competitive advantages.
Barry Urquhart is Managing Director of Marketing Focus, a Perth based market research and strategic planning practice.
Barry is author of six books, including the two largest selling publications on service excellence in Australasia. His latest is “Marketing Magic – Streetsmart Marketing”.
Each year Barry travels some 300,000 kilometres on five continents to deliver up to 120 keynote addresses, and to facilitate around 15 strategic planning workshops.
He is a regular commentator of consumer issues on ABC radio, is featured on a series of interview topics on “Today Tonight” and contributes articles to 47 magazines throughout the world.
Barry Urquhart is a former lecturer in Marketing and Management at the Curtin University of Technology and has degrees in marketing, political science and sociology.
Tel: (08) 9257 1777