7 April 2009
The global economic crisis has become such a part of our lives that it has its own acronym, GEC. Hand in hand with the changing dynamics of the economy is a new consumer trend; the rise of the bargain hunter.
The general view is that markets are under pressure and it is a buyers' market. This is not simply a consumer sentiment. Consumer, business to business or investor – everyone believes that vendors are under pressure and goods, services and assets can be acquired at a lower price. Supply exceeds demand in most cases and economic theory says that this will drive prices down. This psychology is the reality for 2009. Enter the bargain hunter – everything can be bought for less than face price.
The consumer market has led the charge. Spending has slowed and most retailers have responded by slashing prices and margins. The real estate market followed suit with sales slowing and prices easing. Many agents simply are talking about price needing to meet the market. And, whilst sales continue, most are at a reduced price. Even the sale of businesses is being influenced by market sentiment. Where there are buyers they expect to acquire at a discount. We have also recently seen more overseas investors looking for businesses they can acquire in Australia. The common theme is that good assets can be bought for less.
The greatest challenge for many businesses in 2009 will be to achieve their sales and revenue targets. Business is competing for fewer buyers, who are less inclined to spend and who believe that there is likely to be a better deal just around the corner.
They are under less pressure to buy and in many cases believe that time is on their side. In some cases, they 'smell fear' in the market and they are prepared to take advantage of it.
So how do you operate in this type of market? The answer may depend on whether you are a buyer or seller. Most SMEs are both and you should modify the way you deal to manage market conditions. Here are a few suggestions:
1. Recognise the market conditions. There is no point refusing to accept that they exist. Follow market sentiment. It is likely to get worse before it gets better. Most commentators are predicting that an upturn will not arrive until 2010.
2. If you are a buyer, be prepared to bargain on price. Don't necessarily accept face price as being the best price that you can buy for. You may be surprised at the number of companies that will discount price if the question is put to them. Having said that there are some businesses that are not playing the discount game. It all comes down to strength of position.
3. If you are a seller then you need to know:
a. How your pricing compares in the market. The price of your competitors may at least influence the expectation of your customers.
b. Your margins and your break-even point. If you are going to negotiate on price then knowing the impact on your profitability is essential.
c. What your options are. Is there a way to position yourself so that you are seen as being different in the market and where your price differential can be justified?
4. Differentiating your business in the current market is more important than ever. Me too businesses will be under price pressure. And, most SMEs do exactly that. You can differentiate your business in a number of ways. Your product format, packaging, delivery methods and service arrangements can all differentiate your business from the competition. The more you can differentiate your business in ways where there is perceived value the more you separate yourself from your competition. And, when you can do this price is less comparable.
The market will continue to pay for quality and value. Position your product and your business so that it has a clear value proposition to your market and it will continue to maintain its value. All of this means that your business strategy will be increasingly important in 2009. Just turning up and working hard may not be enough. The winners in 2009 will be the smart businesses that understand that we are in a different market and have positioned their business for this market.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.