Introduction

The current paper focus on the impacts of the financial crisis we are facing now and

some ways on how to overcome these problems.

Definition

Credit crunch is a period during which borrowed funds are difficult to obtain and, even

if funds can be found, interest rates are very high. Credit crunches usually occur during

recessions.

The current financial crisis is considered the worst since the Great Depression which

started about 1930s and lasted until late 1930s or early 1940s preceding the World War II.

How the crisis started

No one can determine how the crisis started. Usually these booms come after several

smaller crises started in the past. For example the energy crisis and the increase of oil prices

may lead to the crisis in automotive sector.

The financial crisis we are experiencing is a result of unregulated mortgages and credit

boom that were pushed by the low interest rate,1 set by Federal Reserve (at that time

Federal Reserve Ratio was only about one percent). Commercial banks increased their

borrowing heavily and exercised the practice of leverage. In more simple terms, this can be

translated as a lot of people spending more each year that may can afford. Many individuals
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and businesses are in a state of moderate to advanced panic, believing that their businesses,

plans, and way of life are finished forever.

Effects of recent financial crisis

Finance

The current financial crisis results to a lot of problems and/or changes globally. There is

a lack of free finances. That means that individuals and/or businesses can not borrow

money in order to retain in their business, or even to expand in new markets, globally or

internationally. All businesses in the financial sector introduced very strict regulations

concerning loans strategies and if one is qualified to obtain such a loan the interest is too

high.

Unemployment

Unemployment in the most developed and developing countries is in the highest level

ever. Because of the decrease in all sections in the real estate business and as a consequence

in other industries as well, a lot of people lost their jobs, others fear that they will also have

such a fortune. When the unemployment increases, this means that consumers loose their

purchasing power or they are buying only the minimum/necessities to survive.

Social instability

The social instability is also a consequence of the financial crisis. The majority of

businesses and individuals are feeling that are standing in a vacuum. The most employees

are facing the feeling of job insecurity, especially in the UK and US. So, they are working

harder, may be more hours per day in order to keep their jobs.

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Bankruptcy

We all have seen businesses which were colossus which were felt in bankruptcy. The

best example in US market is AIG which was once the 18th-largest public company in the

world. It was listed on the Dow Jones Industrial Average from April 8, 2004 to September

22, 2008.

International Marketing in General2

A company that masters only in its domestic market, sooner or later will lose it by strong

foreign competitors which will come and challenge the company. The most companies

hesitate to go abroad, because they see languages or cultural differences. Going abroad

there are benefits as well, because the company is not depending on only one country’s

market. In fact, the market of their products may be mature at home and growing abroad.

Companies must adapt their marketing mix when going international. Asea Brown

Boveri uses the slogan: “We are a global firm local everywhere”. Royal Ahold has the

brand philosophy: “Everything the customer sees we localize. Everything they don’t see,

we globalize”.

Companies are most successful when they recognize a large target market whose needs

are not meet yet. Building a strong culture at this target market the chances to succeed are

good.

Multinational corporations face tough decisions on which products to emphasize in

which countries. The allocation of products and the advertising budget to each country must

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be guided by consumer preferences and purchasing power, distribution strength,

competitors position and economic future conditions in each country.

Global countries must learn to use counter trading. Many countries are poor but they will

barter. You’d better learn to take some goods in exchange or you have to forget doing

business within this county. Pepsi-Cola had to promise Russia that it would help sell Russia

vodka abroad in exchange for selling Pepsi-Cola in Russia.

The most common reasons that companies fail abroad are:

- failure to get reliable statistical information about the new market

- failure to define the target user

- failure to adapt the marketing mix

- failure to offer adequate service

- failure to find good strategic partners.

Overcome the problems

Start from your base - your customers. Now is the time to really understand who they

are, where they come from and how they may be affected by the recession. Now is the time

to start communicating with them on a regular basis. And now is the time to identify their

needs, and start tapping into them. The importance of retaining their loyalty during these

times is paramount, and a little goodwill right now could pay off in the future. You already

know that acquiring new customers is more costly than keeping existing users happy. Many

small businesses often adopt a fairly lax approach to invoicing their clients. Aside from the

fact that this is a bad business practice, this is precisely the sort of problem you want to

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avoid during these times. If you allow your customer's inefficiency or inability to pay on

time to run rife, your own business could well run into cash flow problems. It's a problem

that can be very difficult to repair, but is easily avoided.

A recession can also offer opportunities for businesses to expand their market share, and

those with the courage and foresight to increase their marketing budgets can gain in the

long term. When a company's income shows signs of falling, the knee-jerk reaction is to cut

back on spending. And all too often, the marketing budget is one of the first to go. This is

undoubtedly a mistake.

The changes of the consumers buying behavior is a factor that a marketer has to

consider. Because a lot of problems arise during a credit crunch, consumers are more

carefully in what they are shopping or why they shopping the specific products or services.

They have the chance to examine the best alternatives in the market place and products

that offer value for money.

In spite of all the obvious negative consequences of a recession, it can also be a good

time to expand and develop your business, as many of your competition will probably be

doing the complete opposite. In spite of the apparent panicking, consumers and customer

do not completely stop looking for solutions to their problems, but they might begin

looking for better value. If your product or service offers that enhanced value proposition,

then this particular recession-fuelled demand could turn into a great opportunity.

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Value for money3

Value for money has again become a strategic imperative—and not just because of the

recession. Even before the slowdown began, there were signs that it ought to be a major

consideration for companies. In developed countries, increases in household income over

the past decade have favored the top 20% of earners, while the spending power of most

families has stagnated or declined. Many people in the United States, for instance, have

found it difficult to maintain their standard of living after paying for such necessities as

their mortgage, transport, utilities, and health care without borrowing money. More

recently, small salary increases and the steady drumbeat of job losses have turned many

consumers into value shoppers, as they tighten their belts.

Unsurprisingly, Wal-Mart has been gaining share from premium retailers, and apart

from luxury cars, only sales of small or fuel-efficient vehicles have been growing over the

past five years. In Western Europe, according to a recent Credit Suisse study, the market

share of value-priced store brands rose by two percentage points in 2007 while that of

premium labels fell by the same amount.

In developing countries, consumers are traditionally value conscious. Many have entered

the consuming class recently and have limited disposable income. For instance, Credit

Suisse projects that the number of Chinese households whose income exceeds their basic

needs will rise from around 55 million in 2008 to 212 million by 2013. However, many of

them will earn only a little over $5,000 a year. By 2020 in India, the market research firm

Information Resources predicts, 5% of the population will be part of households that earn

more than $4,000 per annum, but they, too, are unlikely to have much excess income.

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Meanwhile, upper- and middle-class consumers in both countries must stretch limited

earnings to cope with rising aspirations and inflation. Business buyers in developing

countries depend on low costs to gain competitive advantage, so they always look for value

when purchasing equipment and services.

According to Professor Peter Williamson’s seminar which took place in Nicosia, 21st of

March 2009, there are four critical implications for Marketing Leadership 4 in recessionary

times. The first one is communicating the “Value for Money” which was analyzed above.

The second one is that for companies which their target market are niche ones, now is the

best timing to deliver their value to mass markets as well. This will be attainable if they can

differentiate their product without damage their brand image. Like Mercedes, who were

produced luxury expensive cars that few people could afford to pay for. Then, they

expanded to smaller cars, less expensive like A3, A4 or Smart, so every individual could

buy a Mercedes. Did this damage the reputation of Mercedes cars or image? The third one

is to improve the impact/cost ratio of company’s marketing, meaning that there is no room

for scatterguns or special interest campaigns. The fourth one is that companies have to have

their eyes and ears open to learn from the emerging markets.

Innovation

As Professor Tim Amber said to CIM Marketing Summit on 21st of March, recession is

the mother in law of innovation.

According to a research of Boston Consulting Group5, 64% of senior executives say that

innovation is one of their top three strategic priorities, 25% of companies interviewed say

that innovation is now their number one priority and 58% of senior executives plan to raise
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their investment in innovation in 2009. An example showing an innovative company is

Procter & Gamble6. Can you imagine what this company managed to do? Two of the

products of the company were Oral-care, a dental health and Fabric/home care bleach.

After combined R& D efforts, it produced its most successful product launch in the last 20

years, Whitestrips. In just its first year, the product generated $200 million in revenue and

got 90% market share.

A small change may have a huge impact

The example below is not from an international business, although it covers the above

subtitle 100%. The order in which food is displayed to school-children7 in all US is always

the same. In one school, the principal decided to change the order in which the food was

displayed and started with salads which are the healthiest foods and then the rest unhealthy

meals. The result was that in one year time there was a change of 30% healthier students

than before.

Cost Innovation rather than Cost Cutting

The following example will show you how Hyundai8 managed to increase their sales in

the US markets during the crisis.

- October 2008, -31%

- November 2008, -40%

- December 2008, -48%

What was the reason? 50% of people were thinking about buying a car were holding

back because they were afraid of loosing their jobs. The genius behind the Hyundai

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approach to selling cars is that it has caught on to a way to get people into showrooms

during the worst recession in decades. They advertise that a decade ago Hyundai pioneered

America’s Best Warranty to show to their customers the faith they had in their cars. Today,

in addition to this Warranty, they’re introducing Hyundai Assurance, so buying a new

Hyundai, even if in the next year any customer looses his income, they will let him return it

back. What was the result?

- January 2009, +14%

- February 2009, +25%

- March 2009, +33%.

The market share of Hyundai in the US market increased from 2.7% to 4.3%.

Conclusion

Summarizing I will reemphasize the fact that in such turbulence business times in order

to succeed in international markets a company must change its value proposition by

modifying existing marketing strategies and expanding into new mass markets using

innovative and creative approaches. Changes can be small but results can be significant.

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References:

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1
STOCKHOLM SCHOOL OF ECONOMICS IN RIGA
2
PHILIP KOTLER, MARKETING INSIGHTS FROM A – Z. CONCEPTS EVERY MANAGER NEEDS TO KNOW,
P.87-90
3
http://hbr.harvardbusiness.org/2009/03/value-for-money-strategies-for-recessionary-times/ar/1
4
PROFESSOR PETER WILLIAMSON, CIM LEADING MARKETING SUMMIT, NICOSIA 21ST MARCH 2009,
SLIDE 18
5
ROWAN GIBSON, CIIM AND KPMG ACADEMY NICOSIA, CYPRUS NOVEMBER 19TH 2009, SLIDES 1,2
6
ROWAN GIBSON, CIIM AND KPMG ACADEMY NICOSIA, CYPRUS NOVEMBER 19TH 2009, SLIDE 21
7
PROFESSOR COSTAS MACRIDES, LONDON BUSINESS SCHOOL, CIIM AND KPMG ACADEMY NICOSIA,
CYPRUS NOVEMBER 19TH 2009, SLIDE 67
8
ROWAN GIBSON, CIIM AND KPMG ACADEMY NICOSIA, CYPRUS NOVEMBER 19TH 2009, SLIDES 5-8.