Ways to Turn Crisis into Opportunity

Companies wishing to move against the market and make money while others count their losses need to look for sources of revenue in basic human weaknesses. Fernando Cruz has developed strategies for developing markets that should work in periods of uncertainty.

All countries at some point in recent history have suffered from a financial crisis, and it is inevitable that such imbalances are transferred to consumer goods industries. Consumers know that a stock market collapse means fewer jobs and a weaker household economy. Consumers’ capacity to create and maintain long-term plans is limited, and they frequently prefer what may be consumed here and now over investments with long-term benefits. People tend to be highly indebted – instead of reducing expenses and saving for the future, they like to enjoy things right here and now. As a result, per capita debt remains high, as consumer lending keeps pace, and associated interests and costs persist over time.

So, how should companies operating in emerging markets act during economic crises and periods of economic instability in order to reach growth? Despite adverse conditions, opportunities can still be found. There are five trends in emerging markets during economic crisis: convenience, indulgence, transparency, nostalgia, and status.

Convenience

A convenient purchase is one that is easily made by consumers because of the reduced amount of work required to do it. People eat lunch and buy food and beverages every day, and to do so, they look for nearby locations and affordable options. Economic crises and growing urbanization in emerging countries boost the importance of affordable alternatives at perfectly located stores, as consumers still have little time to purchase goods within tight budgets. This makes convenience a key factor during hard economic times. Consumer foodservice offers an interesting example of this convenience trend. During the 2009 subprime crisis in South Korea, growth stagnated, with full-service restaurant sales contracting by six percent in real terms. Eating out became a very expensive option during the economic crisis. However, not all foodservice categories decline during recessions. Fast food is a notable counterexample. Before and after the subprime crisis, the fast food industry in South Korea performed in line with the country’s gross domestic product (GDP). But in 2009, their relationship was reversed: While real GDP growth decreased to 0.7%, fast food sales saw an increase of nine percent in real terms, the highest in the period from 2007-2011. Similar cases were registered in Chile and Indonesia, with the fast food channel growing at a quicker pace than 2008 and in the opposite direction of the country’s GDP performance.

Indulgence

An indulgent purchase involves acquiring something to be enjoyed as a special pleasure but that is normally understood as wrong or unhealthy. This is usually related to the consumption of unhealthy food and ingredients, such as sugar, fat, carbohydrates, and alcohol. A common example would be chocolate, ice cream, or an after-work cocktail. During economic crises, indulgence is also related to spending money on non-essential goods with disregard to current budget constraints. Consumers expect to keep having small pleasures despite an economic situation that demands prudence in spending. Indulgent purchases function as relief from the difficulties people may experience. For example, cosmetics may be considered unnecessary goods because although they are used daily, people can live without them. Therefore, a depressed economy would be characterized by a lower usage of cosmetics and a growing economy would be characterized by a higher use of cosmetics. But this is not the case in all markets. There is evidence indicating that correlations between GDP growth and cosmetics sales go beyond the so-called ‘lipstick effect’, a theory showing that although consumer spending usually declines in economic recessions, women’s spending on lipsticks increases. In 2009, during the subprime crisis, Chile’s real GDP contracted by one percent, but color cosmetics sales rose in real terms by 16%.

Transparency

The 2009 subprime crisis managed to produce a situation of insecurity and uncertainty in emerging economies. However, trying to hang on to their jobs was not the only method used by consumers coping with the crisis. They also explored new channel alternatives, such as convenience stores, discounters, Internet retailing, and wholesalers in hopes of finding affordable prices, a wider variety of products, and detailed and comparable information. These alternatives, which were maybe unexplored in the past, became relevant in this new context in which saving money became essential to preserving their quality of life. The Internet has become one of consumers’ most used channels to obtain low-priced, quality products. In a significant group of emerging countries, the growth of this channel is occurring at a faster rate than the penetration of Internet connections available to the population. Consumers are using the Internet to buy products and services, even if they do not have a connection available in their homes. Indonesia is a notable case. While the share of Internet users in the total population increased by eight percentage points between 2010 and 2015, e-commerce grew at double-digit rates over the same period. Online mechanisms enable the recollection of information, immediate feedback, and sales accountability. Companies should not fear being questioned or constantly compared to their competitors. At the end of the day, the most transparent player is the one best positioned in front of consumers.

Nostalgia

It is necessary to debunk the simplistic concept that products exert a purely economic or practical attraction. The charm of things transcends their usefulness, as people attach to them their own experiences and aspirations. They may be symbols of childhood experiences or of social rituals, such as marriage, birth, and death, or of times of economic prosperity. In this respect, the value of objects is not just monetary but also emotional. If the economy changes, so does the role of emotions in consumption choices. Certain emotions emerge more strongly or have a more decisive power to guide consumer selection. Frequently, consumers choose goods or services for purposes of emotional protection, recovery of the past, or stimulation of self-esteem during crises. In recent years, the sales of model vehicles benefited from this trend. Adults increased their purchase of these traditional toys to remember their childhood and in some ways, to try to go back to a brighter past. This behavior spiked during the subprime crisis. In Poland, the percentage of adults who bought this type of product almost doubled between 2004 and 2009, while sales saw absolute growth of 33%.

Status

There is interesting evidence of how status triggers a set of emotions, such as pride, satisfaction, and superiority. Frequently, consumers buy objects to reflect these emotions and communicate them to other people. In times of economic crisis, they try to reach out to foreign values, which are perhaps impervious to, or not related to, the current domestic scenario. An illustration is found in the consumption of imported alcoholic beverages. Gin sales in Chile tend to recover in periods of economic vulnerability. Chileans associate this spirit with the UK and assume that drinking it will result in a temporary distance from inherently unstable Latin American behavior.

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