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How to spot the new opportunities in a long recession
AS I WRECK THIS CHAIR By William M. Esposo
The Philippine Star 2009-03-12
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Many marketing campaigns apply the trading up technique —luring the consumer with added prestige and value for a lesser price.
Fulfilling champagne dreams on a beer budget is a good expression of the trading up technique. For prestige conscious consumers, the trading up technique is irresistible.
The trading up technique suggests that the brand is a superior product compared to others in its price class or product category. There are times when there is really no technical product difference except that one brand is credible in claiming to be the more prestige enhancing.
To apply the trading up technique, one must be able to sell the idea that the brand is functionally superior or credibly prestigious. Best situation will be for the brand to have both. In this arena, the dominant brand with a successful and sustained advertising history has the edge.
A lesser known brand will need to offer a convincing pitch to be able to justify a trade up promise to the consumer. The most convincing is a believable superior product feature. A lesser known brand suddenly claiming to be more prestigious will not sell. A lesser known brand that unveils a convincing superior technological feature will sell and enhance the brand image.
Planned and executed badly, the trading up technique can backfire. It can create the impression that the brand owner is merely boasting — resulting in erosion of credibility. Or it can create the impression that the brand is no different from that of the competitor but only more expensive and that makes it a disincentive in the market place.
Now, during a recession as severe as the one raging worldwide, many consumers across many product categories are forced to go down market, to trade down. They look for the cheaper alternative if not altogether stop buying certain products.
Fear of being financially displaced should one suddenly lose a job compels the person to save for the dreaded rainy day. Those who have lost their jobs have no other choice but to buy only what they can afford.
This results in depressed sales, production cuts and subsequent personnel layoffs. The smart entrepreneur who is determined to survive the economic crisis will have to do one thing — spot the new market opportunities that have emerged. The big opportunity is in developing the brand or product that serves the needs of those who are going down market.
Take the case of the high end restaurants, mostly those in five-star hotels. They will naturally lose many of their customers. Less people are inclined, at a time like this, to spend more than P1,000 per person for a meal. They now tend to gravitate to the decent restaurants that serve meals costing less than P100 per person.
The president of a firm that supplies paper napkins to the well-known fast-food restaurants told me that their business has not been affected so far. This is because many of those who used to dine at the pricey restaurants have traded down to fast-food restaurants.
During a recession, people do not stop buying. Even the poorest households account for a big volume of consumption in the few product categories that they can afford because there are so many of them. No matter how poor they are, they will still buy food, cooking oil, soap, sandals and clothes.
A Philippine economic boom actually depends on our being able to increase the purchasing capacity of our lowest socio-economic class. If we can double their spending capacity, business confidence also doubles. Investments are stimulated.
Many new graduates will not find jobs and they must consider becoming entrepreneurs. They should explore these new markets that have emerged.
It is ideal if you are among the first to venture into the new markets. The various markets — be it consumer durables, food, beverage and so forth — have not totally vanished. Most consumers merely opted to shift to lesser priced brands or alternative products. Those who may no longer be in a position to buy a product are no sooner replaced by a consumer trading down to a lesser priced product/brand.
Adapt to the changed market environment or die is new order of business. Actually, this is a golden opportunity for the smaller and more flexible companies to be the first players in the new emerging markets and establish a dominant brand.
This economic crisis is a great leveler. Four years ago, the smaller businesses have been falling by the wayside because of the enormous power of the big businesses. However, if you notice, all over the world the biggest corporations are the ones who have been hardest hit by the crisis.
Because of their enormity, they cannot shift just as easily. The biggest firms are harder to restructure or retool. A 150-foot yacht would have been able to avoid the iceberg that sank the Titanic. Because of its size, the Titanic could not shift direction fast enough to avoid the iceberg.
Expect the Filipino-Chinese businessmen to come out stronger after this crisis. Time and again, they have demonstrated the ability — as if second nature to them — to adapt to a new situation and even benefit from it. They’ll be the first to spot the new emerging markets and supply the new demand.
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