Light At The End Of The Tunnel

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Even though the first estimate of the year’s first-quarter gross domestic product (GDP) shows overall economic growth contracting 6.1 percent, the latest BEA report contained good news for economic prospects later this year.

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As margins get tighter and tighter in the green industry due to market conditions becoming increasingly competitive, a few cents per pot and plant can make a world of difference. Charlie Hall will keep you up to date on the green industry’s economics through his blog, Making Cents.

Be sure to follow it for up-to-the-minute information on economic factors affecting your business and strategic responses to enhance profitability.

Businesses dumped $104 billion in inventories, compared to reductions of less than $30 billion in each of the previous two quarters. That means companies will need to stop laying off workers and start producing goods again in order to meet even a modest uptick in demand.

Most economists expect gross domestic product to contract 1.4 percent at a seasonally adjusted annualized pace in the second quarter of 2009, compared with the 6.1 percent drop recorded in the first quarter. Slow, but positive, growth is expected to return by the third quarter, with the economy expanding more than 2 percent in the first half of 2010.

One bright spot in today’s economy is consumers seem to be spending again. Consumer spending rose a respectable 2.2 percent in the first quarter after respectively dropping 3.8 and 4.3 percent in the third and fourth quarters of 2008. Sales of other entertainment luxury goods (e.g. books, music, restaurants) have been increasing this spring, which bodes well for the sale of floricultural products, as well.

The Housing Market

There are also some glimmers of hope in the housing market although sales, starts and prices will still likely be down this year. Low mortgage rates and falling prices are luring more buyers. Sales of foreclosed homes are brisk in many parts of the country, indicating buyers are willing to make a deal for a good value. All indications still point to home sales bottoming out around mid-2009. However, surging job losses in certain regions of the country will keep many potential home buyers on the sidelines and result in more foreclosures, keeping downward pressure on builders. Housing starts likely won’t hit a bottom until the end of this year.

On the home improvement side, the economic pressures on consumers remain intense and bigger-ticket projects continue to be postponed as wary home improvement consumers watch the economic climate and housing market dynamics very closely. As spring arrived, we saw relative strength in smaller-sized, outdoor projects, meaning more bedding plants were purchased.

The best indicator that things may be coming around is the consumer confidence index. It has been said before that all economic crises are crises of confidence. With those indicators improving as they have in recent weeks, it adds credence to a late-2009 turnaround. But bear in mind economic recovery coming out of this downturn will be much slower and more restrained than in previous cycles. Therefore, growers should plan on a recovery that is not as strong as past recoveries. Yes, we will rebound (and we will return to normal growth rates), but it will take a while to get back to where we would have been absent the recession.

Marketing Value

After my last column (“Value Never Needs A Stimulus”), I received quite a few e-mails from folks asking how to create a compelling value proposition that would accentuate a grower’s competitive strategy in the face of this economic downturn. To answer that, let me preface my remarks with an observation: Too many companies enter the marketplace today without having fully defined their customer value proposition. Instead, growers tend to market a nice list of “powerful” benefits (which ironically, their competitors most likely state they have, too).

Let me start by saying the underlying purpose of a value proposition is to identify and satisfy an unmet need that your target market possesses. An effective value proposition describes what you do in terms of tangible business results for the customer. However, it’s more than a statement of offer or a buy-line. It’s a commitment to deliver a specific combination of resulting experiences, at a particular price, to a group of specifically-targeted customers, more profitably and better than the competition.

For a customer value proposition to be uniquely persuasive, it must be distinctive, measurable, defendable and sustainable. It is critical to define and support the value proposition in such a way that your customers will pay more for your product/service offerings than the competitions’ services, or substantially more customers will desire your products/services over those of your competitors. Developing a value proposition is the most difficult and time-consuming of all marketing activities. That’s probably why so many companies go to market without one clearly articulated.

Basically, your job in defining your value proposition is to uncover the value your company offers (and which your customers and prospects will want to buy). Your job is not to develop a long list of benefits. Why not? Because, again, your competitors will more than likely have the same list!

So, the question becomes very clear. How do you differentiate in a way that encourages more customers to buy from you or are willing to pay more based on your value proposition? Answer this, and I assure you that your firm will be one of the ones that will not only survive the downturn, but remains profitable while doing so.

Charlie Hall (charliehall@tamu.edu) is a professor and Ellison Chair in International Floriculture at Texas A&M University.

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