Wednesday, December 10, 2008

What can marketing/marketers contribute to economic revival?

This post was submitted on behalf of Janetta:

Now that economic growth based upon easy credit has ground to a halt the rhetoric has changed from “spending too much”, particularly in the retails sectors, to “spending too little”.

The high street has responded with sales and promotions. The government is trying to respond via fiscal policy. Namely, changes income tax and VAT. Are these responses likely to be effective and what are their outcomes, both intentional and not intentional in the short to medium term?

Customers, who have any purchasing power, will benefit from the sales and promotions which will generate some cash for the retailers but not as much per item as they had anticipated. Everyone, regardless of income will benefit from the 2.5% reduction in VAT, which is a positive step in itself as VAT is a regressive tax which falls disproportionately on those with lowest incomes. It is, however, unlikely to generate much additional spending as demand is relatively inelastic in the current economic climate, as the retailers are discovering, with up to 50% reductions still not resulting in the required additional sales of goods.

From a marketing perspective such broad brush responses only form part of the environment in which they operate. Decisions will have to be made as to where a good or service is to be positioned in the market and specifically and who the likely customers are. Some people in the upper to middle class/income group may well be better off due to the environment outlined above plus reduced interest rates on their mortgages. There may well be scope here for marketing higher end goods and services targeted at this group.

Conversely, it has already been noted that changes in customer behaviour in favour of cheaper alternatives such as discount retailers such as Lidl and Aldi and choosing eating at home options rather than eating out (Dominos). Has this been a temporary “knee jerk” reaction to media hype regarding the effects of a recession on “everyone” when in fact many people such as those in secure public sector jobs may well be better off than they were before? Unemployment will fall, as always, disproportionately, on manufacturing, retail and non statutory service sectors, belying the fact that these are the sectors which successive governments have propounded to assist to underpin economic growth.

How the labour market responds over the next few months will generate challenges and opportunities for marketers. Those who correctly identify their key segments and customers and act ahead of competitors in generating demand for their products and services may well change the domestic retail and service landscape determining which businesses thrive and those which fail. Marketing may be a more powerful instrument in determining the economic future than the blunt ones so far proposed by the government.

Janetta Jones