Where's the bottom? When do things get better?

Posted by Christopher S Penn on Feb 4, 2009 in Economy | 0 comments

These are two questions I receive often on social networks:

Where’s the bottom?
When do things get better?

First, a disclaimer: I am an armchair economist at best. I’ve never taken a course in economics, but I do own Economics for Dummies and have read it cover to cover many times. That’s enough for the barest of basics, but I don’t want you thinking I’m some elite economics expert. I am not.

That said, theoretically, I can’t do worse than the “Experts” who have driven their companies into the ground in search of short term profits, can I?

Where’s the bottom?

The economy as it stands now hinges on two factors, employment and housing prices. Housing prices are important because an inordinate number of loans and investments based on loans rely on housing prices. As long as housing prices continue to fall, the value of those investments will continue to fall, and the credit, lending, and investment parts of the economy cannot recover. The exception to this is if a company that wholly owns its loans can write down the loans and sell them immediately, or devalue them so significantly that the book value of the loans is lower than housing prices will ever get.

Employment is the other piece of the puzzle, which controls the domains of consumer spending, productivity, and retail investing (including real estate). As long as employment continues to decline, more consumers will be benched on the sidelines, more people will not be able to afford homes or even basics. Demand for assistance in every form will deplete government by depriving it of both taxes and additional costs for services.

Of the two, employment is by far the most important. With employment and income, consumers will be able to afford real estate, especially if prices continue to decline. Once enough people are employed gainfully and can begin participating in the economy again, buying everything from commodities to homes.

How will you know the bottom? The same way you knew the top. Probably a quarter or two of waffling, neutral employment with neither gains nor losses, then two quarters of sustained growth in employment across broad sectors, with velocity towards the upside. Once employment ticks upwards significantly, you’ll see all the markets dependent on the consumer begin to recover as well – so figure real estate and housing prices stabilize a quarter or two after employment stabilizes, then ticks upwards a quarter or two behind employment.

When do things get better?

I don’t know. I wish I knew. I do know that many of the crap mortgages won’t flush out of the system completely until late 2011. There’s no telling whether broader economic declines will hasten the expiration of those mortgages or whether a recovery package inadvertently spawns new stupidity in lending. Both scenarios are possible. I’d say conservatively that 2009 is a write-off in terms of broad economic growth. 2010 may or may not show a turn.

Why don’t we know when things will get better?

Back to economics 101. GDP – gross domestic product – is a formula. C + I + G + (X – M).

C: Consumer spending
I: Investing
G: Government spending
X: Exports
M: Imports

Right now, consumer spending is in the toilet.
Right now, investing is in the toilet.
Exports are down.
Imports are down too, but our few exports – autos and airplanes – are in more dire straits than imports.

That leaves government. There is no way that the government can singlehandedly carry the entire economy by itself, no matter how great you think Barack Obama or Timothy Geithner is.

Government spending will increase, to be sure. What government is counting on is multiplier effects – throw enough matches and even a wet forest will eventually catch. The question is, how many matches is that?

So what do you do?

Look objectively at the situation. Cut costs. Conserve cash. Save like crazy, because there’s no telling if your job is next on the chopping block, as grim as that sounds. If you’re a business, spend wisely and invest in your people if you can.

In this environment, time is the only thing that will heal the economy. Time will flush out the poison.

In this environment, we are rich in time and poor in money. Thus, spend time rather than spend money. If you have the ability to pursue alternative forms of marketing that are lower cost – direct email marketing, social media, new media, PR, etc. – but time intensive, that might be a fair trade right now.

Give your company or business an objective and then give your team the freedom to get to that objective by any legal means necessary. Take the time to prune out processes that don’t work. Take the time to do inventory and jettison things that you’ve outlived, outgrown, outlasted.

If you’re unemployed or underemployed, time is an enemy because capital is limited. Spend it wisely, focus on job search and income generation. Be unrelentingly aggressive in your job search. If you have a choice between offending a few people with unsolicited email and putting food on your table, as Emperor Palpatine instructed Darth Vader, do what must be done. Do not hesitate. Show no mercy. Network as you can, but if you have to pull out the red saber, no one will fault you for wanting to take care of your family and home.

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The problem with premium

Posted by Christopher S Penn on Feb 3, 2009 in Advertising, Customer Service, Marketing | 12 comments

Starbucks.

Apple.

Maglite.

Dom Perignon.

All of these are premium brands, yes? They conjure up certain images, certain feelings, certain associations, all of which their respective marketing departments have worked hard to establish over the years. Premium denotes quality of product or service above average, a product you can aspire to as a consumer…

… unless you’re in the middle of a brutal recession. Suddenly, premium becomes a boat anchor around your leg as consumers seek out thrift, value, cost-conscious… cheap.

Sometimes premium can override cost concerns – the old “quality costs less in the long run” hack – but sometimes, it will just kill you.

As a marketer, think carefully about how your brand will be perceived in good times and in bad. Is there a brand association durable enough that it’s appropriate no matter what the economic climate is? Can you play the trend of the day in your communications while staying true to your core value proposition?

Here’s a tip: invest, invest, invest in your customer service, and by that I don’t just mean your call center, I mean every employee in your company. Service costs money, absolutely, but great service endures good times and bad.

When times are good, people love the personal touch and are willing to spend more for great service. When times are bad, people want to stretch the dollar as far as it can go, and if your product or service has value and can be backed up with great service (think a warranty w/a toll free number that humans answer on the second ring), you will endure when everyone else goes out of business.

Great customer service pays huge dividends. You can get more return out of great service than all the PR in the world, because in the uber-connected 2.0 world where everything is online and simultaneously service nearly everywhere borders on abusive, your great service will be worth talking about.

Great service, in other words, is a premium, a premium that will lend a shine to your brand no matter what’s happening in the world – and that’s worth paying for.

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How You Fight Tells Me Who You Are

Posted by Christopher S Penn on Feb 3, 2009 in Jedi mind tricks, Ninjutsu, Technology | 7 comments

How You Fight Tells Me Who You Are

A lot of your personality is revealed when you take up arms against someone else, whether in self defense or aggression. How you fight, your particular fighting style, reveals your traits – strengths, weaknesses, identity. After all, in a fight, you’re tapping into your most primal traits. Do you flee? Do you stand your ground? Does ego get the better of you? A fight is also incredibly stressful – how you react under intense stress tells a great deal about you.

That said, very few people get into fights frequently, which is a good thing. We like for our friends’ lives to be safe and free of violence.

Enter virtual worlds like World of Warcraft. Here, in a safe environment where players incur no true physical harm or injury, their skills, strategies, and temperaments are tested in ever increasingly difficult forms of virtual combat, from dealing with single encounters to fighting entire armies.

How a person behaves in a virtual fight is, of course, different than a real world fight – the risk to life and limb alters the equation, as it should. That said, you still gain a great deal of insight about how someone behaves under pressure:

- Does their temper get the better of them? Can they be goaded into making unwise choices?
- Does their ego hook them, forcing them into situations that grow ever worse for them the harder they struggle to reconcile desire and reality?
- Do they lack patience, rushing into unknown or known dangers foolishly?
- Do they have maturity, knowing how to lose gracefully and win even more gracefully?

All of this comes out in virtual combat, just as it does in real life combat. So what’s the point? What does this mean for you, especially if you don’t participate in virtual worlds like World of Warcraft?

Simply this – if you’re an employer, one of the most novel ways you could find a new employee would be in a virtual world, in virtual combat. Are you looking for a certain personality fit for your team? Do you want someone a little headstrong but willing to be bold? Does your corporate culture dictate a cool, calm, conservative demeanor, even at the expense of aggressive progress?

Very few things offer insight into your personality like the stress of combat, whether virtual or real. While I wouldn’t suggest that an employee interview involve leveling a character 10 times in Warcraft, I would suggest that if you find people socially in the realms where you play that have the skills you need, consider them as more than just players of a game.

They might be the best addition to your corporate team you’ve ever made.

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