Friday, March 27, 2009

Looking at Latin America for advise in the Downturn

On Monday, the WSJ published a special article in collaboration with MIT Sloan Management Review regarding how can we learn from Emerging Markets in this downturn economy. Professors Martin Roth and Richard Ettenson explain how America and other western powers can learn from Latin America and Asian countries because of how used to downturns and volatility they are.

I can speak first person of Latin America: corruption is always around the corner; market volatility is the norm. In these countries, companies have learned that they can’t just hunker down when bad times strike. Reaching a halt is the worst thing that companies can do. Managers in Venezuela, Brazil, and other Latin American countries look at turbulent times as a chance to implement bold, creative ideas, and outflank rivals boosting their business. For example, it is the time for new pricing tactics, scraping old or traditional marketing plans, or launching new products.

Professors Roth and Ettenson lay out 4 lessons to learn, that I have summarized here:

1. When the economy is down, get customers to trade up: In tough times, consumers typically try to trade down by purchasing the cheapest alternative. Instead of getting the premium product, they look for the inexpensive version. This can be achieved by carefully adjusting prices of high value products. By absorbing lower general profit margins out of premium products, savvy customers recognize that they are getting “a good deal” by trading up. Consumer and Vendor negotiate losses.

2. Increase product and Service Visibility: Even though marketing is a place where companies tend to cut first, it is one of the most important. Marketing budgets should be dynamically shifted towards places with greater visibility. For example, in Latin America there is a greater focus for Point-of-Purchase advertisement than for massive TV campaigns. For B2B companies, this is the time to focus on services and customer satisfaction because everybody knows that it is less expensive to retain a customer than to gain a new one.

3. Rethink what customers value: the downturn could be so severe that your customer may simply not afford to buy a company’s product anymore. That is when business model flexibility is important. For example, if customers value the services more than the product itself; then the company must focus on productizing services.

4. Look at new metrics: because the recession could be affecting multiple factors, managers should look deep in many directions. They should not focus only on macroeconomics and the Dow. In Latin America, companies look at politics, inflation numbers, unemployment rates, education issues, and many other parameters.

For a copy of the full article, go directly to the WSJ website.

No comments: