Explaining
the Economy
Explaining
the Economy
Good strategies
for bad timesSURVIVAL MANAGEMENT
As one of Hawaii's leading CEO's said as he reminisced about past years, "You had to be a complete idiot not to make money during the boom times in the Japanese economy."How times have changed.
We now face a rapidly falling tide of economic conditions that pose challenges for even the most astute CEO. The loss of consumer confidence, a fallout of the century's first 911 call, is bad news for Hawaii businesses. Stingy spending, canceled travel and a significant drop in investor wealth have led to revenue reductions as high as 50 percent for Hawaii firms. So how should we approach this crisis?
>> First, recognize the government is a 5 percent solution and you are the other 95 percent. Don't wait for anyone to come to your rescue. They can't and won't.
>> Second, realize you, personally, will make the difference. Whether your company makes it through this is up to you. You, the leader, need to be visible, agile, intense and decisive. Your people will look to you and model their confidence after yours. Falling into a blue funk is simply not an option.
>> Third, consumer behavior will change in predictable manners and you can adjust and react to those changes -- and succeed.
Consumers will revert to their recessionary behavior. They will look for price over other considerations. They will want functionality and durability and will shop where they can get good values. Caution and thorough research will govern their large purchases. Impulse buying will decrease. Here are some suggestions for your consideration to adapt to these changes in consumer behavior.
>> Product line: Concentrate on the products that are durable, affordable and provide good value.
>> Promotion: Stress frugal features in your promotion campaigns. Put prices in your ads if you haven't done so before.
>> Pricing: Aggressively contain costs so you can lower prices without giving up margin. Look at your inventory first. Concentrate on the 20 percent of the inventory items that make up 80 percent of your inventory costs.
>> Distribution: Expand distribution channels into bargain shopping locations. Expand into consumer segments least affected by the economic downturn -- fixed income pensioners and retirees.
Managing the distribution channel is critical. Your suppliers and distributors are feeling the pinch, too, and cooperating for mutual benefit makes sense.
A cooperative supplier may give you better terms just to keep his product flowing, particularly if you move a significant percentage of his total sales.
Be willing to change suppliers to find a cooperative one with good prices. They are hungry too. Give up niching in favor of broader markets. Specialization loses its appeal as more people shop for bargains.
Finally, remember that a falling tide doesn't sink all of the boats. It only sinks those that choose not to weigh anchor and head out to sea.
Dr. David Lohmann is professor of management
at Hawaii Pacific University. He can be reached
at dlohmann@hpu.edu.