A Monthly Overview Of Issues Facing Corporate Strategists

1. Discover your edge

2. Welcome to the inaugural issue of the “Marketing & Business
Strategy Briefing”, this is the first of my monthly newsletters
that will be sent to subscribers that are interested in the
broader issues that drive the outcomes of a business and
marketing strategy.
When we see what is happening around us at the moment
with the traditional liberal capitalism collapsing along with
global financial markets and economies, we need to step back
and remember that the world has been changing for some
time as we are shifting from the 20th century world order to
the 21st century world order, and new powerful economic
powers are starting to shape.
Each issue of “Marketing & Business Strategy Briefing” will provide updates on local and global
issues that all strategy managers should consider and the impact these issues will have on
their company outcomes.
Anyone hoping for a period of calm after the turmoil of the past year will be disappointed as
2009 promises to be a year of bracing adjustment to a very changed world. This is because the
aftershocks of the financial crisis of 2008 will be rumbling on in 2009. After an extraordinary
boom, in which the world GDP rose year after year by between 4% and 5%, global growth will
slide below 3%. The rich economies will be in recession with bankruptcies, belt-tightening and
rising unemployment.
In the emerging world, growth will be less spectacular than before, but in many countries it
will – with luck – remain relatively robust. We are at the cusp of a shift from the 20th century
world order to the 21st century world order and the shift in global economic power to places
such as China, Brazil, Russia and India will begin to take hold and these countries will expect a
bigger say in how the world is run, so fasten your seat belt for the ride.
This issue covers the current market downturn, with commentary on the United States, China
and Australia, and the impact on unemployment and therefore consumer confidence and
consumer spending together with the need for strategy managers and business leaders to
ensure they are getting the best value for every dollar they spend in their marketing and sales
channels.
We also take a quick look at 6 different industries in “the good, the bad and the ugly”
Stephen F Hinch
Director Roy Morgan Consulting
Page 2 of 12
© Roy Morgan Consulting. steve.hinch@roymorgan.com

3. Australia
As we will see for Australia as well as the United States and China, many economists and
analysts seem to have it all wrong with their assumptions of the length and depth of this
current downturn.
Labour markets are an integral part of social and economic cycles and an interesting fact on
social cycles is that they generally follow a definable pattern, and through analysis of the long
term pattern of the unemployment rate in Australia we can see just where we are heading.
There is no need for guess work, as in looking at the high points and low points of each cycle
in this long term pattern, an analysis shows that there is an average of nine years between
each peak point and bottom of the cycle. However as unemployment has been trending down
since 1992 – the last peak - we are now looking at an 18 year period between the last low
point of December 1989 and this current low point – and of course that is simply two nine year
cycles, so the pattern holds true, but the outcome could be more stressful.
Analysis of the labour market cycle also
shows that the average period from the
bottom to the peak in the cycle is just
two and a half years, so this suggests
that the next upturn in the
unemployment cycle will peak around
August or September 2010 as that is two
and half years since the current low
point.
The next peak in unemployment will not
be as bad as many analysts suggest and
will probably be around 6.5% to 7.0%,
this is very much in line with the OECD &
IMF who have also forecast
unemployment peaking in this range in
late 2010.
Just how many people will lose their jobs?
While there has been a lot of discussion on mass unemployment happening, with some
analysts or commentators suggesting unemployment will run as high as eight percent, nine
percent or even ten percent, there is no real basis for these forecasts, but it does sell more
newspapers. The decreasing demand does suggest there will be less need for manpower in the
near term, so fewer jobs will be on offer, and people will lose their jobs. The analysis of long
term cycles and subsequent forecast, projects that if unemployment peaks at 6.5%, another
230,553 people will lose their jobs between now and the last quarter of 2010, and this is of
course assuming that the participation rates stay at similar levels as they are today.
If labour markets and the unemployment rate in particular are lagging indicators as most
economists and business analysts believe, then this trend and cycle analysis is projecting the
unemployment rate to peak around September 2010, which would suggest the economic
downturn will bottom about six months prior to that, giving Australia a very short 18 month
slowdown, so in this respect many commentators are correct.
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© Roy Morgan Consulting. steve.hinch@roymorgan.com

4. It will seem like a recession for many people, even if it’s not.
While this slow down may not become a real recession it will feel like it for all those people
that do lose their jobs, and there is a lot of discussion on just how many that will be. The
reason is that the official ABS method of calculating the unemployment rate is the same as
that used by all countries in the OECD and is designed more to measure people that are
working, or have been looking for a job in the previous four weeks and are ready to start
working within a week if they found a job. This is in order to gauge the economic impact of the
participating workforce. This method does therefore miss people that are unemployed and no
longer looking for a job, as they are no longer considered to be participating in the workforce.
This difference can be quite significant, but while the official unemployment rate may well be a
good gauge of economic activity, which it is designed to be, it is not a good gauge of the real
pain felt in suburban Australia as more and more people are giving up – at least for now.
The most recent ABS for December showed that on a seasonally adjusted basis, the
unemployment rate ticked up from 4.4% to 4.5% with a net loss of just 1,200 jobs. As with
any data, you must look for the story, and with this data we can see an underlying shift. Over
the past three months, the total number of people employed has decreased by 17,400, yet the
total number of people registered as unemployed has only increased by 11,000. The reason for
this is that the labour force has decreased by 6,000 people, that is - the real difference is that
these 6,000 unemployed people have simply not been looking for a job – but they are still
unemployed. The participation rate is telling the story as a decline from 65.1% to 65.0% is not
insignificant as this also tells us that over the past three months the working age population
has increased by a net 17,353, with the majority of that increase coming in December. A
continuation of steady net inbound migration (or returning expats) will increase the size of the
working age population and two things will happen – if they start looking for work they will
force up the unemployment rate – if they do nothing, they will force down the participation
rate. The monthly data is interesting, but the rolling three month data analysis will tell the
story for us, meaning corporate strategist need to be on their toes and watch the picture
unfold over the next couple of months.
Consumer confidence a key to consumer spending
Monthly Consumer Confidence
The small rise in the Roy Morgan
140
Consumer Confidence rating has been
133.2
primarily driven by Australians feeling
130.4
130
more comfortable about buying major
124.8
household items. An interesting point to
120
note in the long term chart of consumer
confidence at the left is the current
110
formation that is appearing. The blue
105.4
103.6
circle highlights what trend analysts call
101.2
100 99.75
a “double bottom”, as this is a strong
indication that the worst is behind us –
90
at least from a consumer confidence
Average 2000 to 2008 is 117
perspective.
80
O c 00
O c 01
O 02
O 03
O 04
O 05
O c 06
O c 07
O 08
A p 00
Ju 00
Ja 00
A p 01
Ju 01
Ja 01
A p 02
Ju 2
Ja 02
A p 03
Ju 3
Ja 03
A p 04
Ju 4
Ja 04
A p 05
Ju 5
Ja 05
A p 06
Ju 6
Ja 06
A p 07
Ju 07
Ja 07
A p 08
Ju 08
08
r-0
r-0
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All indications from this change are that
Ja
consumer confidence should start to move back above the 101 level on a monthly average in
the coming weeks and months and consumers should start to become more relaxed again- just
not those 200,000+ people that will lose their jobs.
The good news then is that now 40% of Australians say now is a “good time to buy” major
household items while 33% of Australians say now is a “bad time to buy.”
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© Roy Morgan Consulting. steve.hinch@roymorgan.com

5. Comparing their family’s financial situation with a year ago, 27% of Australians say their family
is “better off” financially than a year ago while 36% of Australians say their family is “worse
off.”
Australians are still very worried about the economic situation for the country over the next 12
months, with 46%, expecting “bad times” for Australia, while just 18% of Australians now
expect “good times.”
The fact is that the average consumer is generally right, as we saw from the labour market
cycles; 2009 will be slow, so smart companies and business leaders will need to think more
strategically about every decision they make and ensure their marketing strategy is clearly
linked to business outcomes, based on real data and not just gut feeling. Weekly updates of
the Roy Morgan Consumer Confidence Index can be found at www.roymorgan.com.
The United States
The coming year will be the most perilous in modern history for the American economy, the
forces at work are unlike the country has seen since the Great Depression and could result in a
“lost decade” of anaemic growth such as we have seen in Japan, or could drop into a severe
contraction.
This is a case where many economists and analysts are deluding themselves that the
contraction will be short, with many in this camp looking for the signs of recovery by the end
of 2009. We will be sadly mistaken if we do not recognise that this current downturn in the US
economy is not going to be a short term head ache, created by normal short term business
cycles but in fact is going to exist for as long as five years or until 2013.
Over the past 30 years as with all social cycles the unemployment rate has shown an historic
pattern of traditional cyclical trends as in the example below.
US Unemployment Rate 1948 to 2014
When this long term cyclical trend is
12.0
analysed and consideration is given to
average length of each individual “leg”
10.0
9.7
of the long term data, it becomes
8.5
8.0
apparent that there is an average 11
7.5
7.2
6.8
years for each cyclical swing or leg.
6.1
6.0 6.0
5.3
4.6
This analysis suggests that the US is
4.0 4.0
3.5
now just half way through the current
2.9
cyclical leg that will not peak until 2014.
2.0
The analysis also suggests that this
12 Years 10 Years 11 Years 10 Years 11 Years 11 Years
current upswing in the unemployment
0.0
1948
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
rate will reach 7.5% before easing again
for a short period and at that time will swing up again to complete this cycle peaking at around
8% in 2014. This confirms that the situation America faces at the moment is not just a short
down turn, but rather a long cycle adjustment that will take considerable time to unwind,
suggesting a real recovery will not be in place in America until probably 2012 at the earliest.
For marketers and business analysts, the real issue is that demand will be flat and America will
be lucky to have a flat GDP, but will most likely see a contraction of -0.7% to -1.2% and
inflation still running at 2%.
The US economy will shed around 5 million jobs by the time this is all over, with the
unemployment rate reaching 8%, which will continue to cause consumer spending to contract
and personal bankruptcies to soar.
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© Roy Morgan Consulting. steve.hinch@roymorgan.com

6. Because of this combination of declining household incomes and consumer spending, corporate
profits will continue to decline by as much as 20% in both 2009 and 2010, which is why we
may well see the US in a “lost decade” much like Japan. If you want real proof that Zero
interest rates do nothing to stimulate output and growth just look at Japan where rates have
been close to Zero for many years.
China
We all know that Asian emerging markets and in particular China have long been the worlds
most dynamic with GDP growth averaging some 8% for many years now. (It was 13% for the last
reported year) Many analysts have suggested that the demise of the American economy and
subsequent impact on imports will have a dramatic effect on China due to massive reductions
in their exports to the U.S.
While there will of course be a decline in exports to America, we must remember that GDP in
China, is made up of just 8% exports to the U.S. unlike Singapore and Hong Kong with 20% to
30% of GDP coming from US exports. The good news is that the middle class is growing, and
local sales of consumer goods is driving GDP and retail sales volume could increase by around
16% in 2009. In fact the National Bureau of Statistics of China Business Climate Survey results
in that country showed that the national business climate index (BCI) was 107.0 in the fourth
quarter of 2008, a drop of 21.6 points over the third quarter.
The BCI report of information transmission computer service and software industry, and
construction stood at 143.8 and 134.3, which slightly declined over the third quarter; that of
wholesale and retail trades, social services, accommodation and catering industry, and real-
estate industry respectively was 127.2, 112.9, 111.3 and 101.7, down 16.4, 14.1, 7.7 and
17.2 points over the third quarter; that of industry and transport storage and postal industry
stood at 98.5 and 95.2 respectively,
which dropped 27.3 and 24.4 points
workers per 1% GDP GDP Growth
1,400,000 40.00%
over the third quarter.
Require 773,412 workers to support 1% GDP 35.00%
1,200,000 growth
Even if consumer demand did slow,
Total workers with 7.5% GDP growth is
5,800,500 in 2009
there is sufficient budget surplus to
30.00%
1,000,000
allow China to support the economy
with a combination of increased
25.00%
773,412
800,000
spending and lower taxes. The fact is
20.00%
that China’s money supply as
600,000
measured by M2 climbed 17.8 percent
15.00%
over the past 12 months, as the
400,000
government pumps money into the
10.00%
economy to offset losses created by
7.50%
200,000
exports.
5.00%
0 0.00%
Business leaders and marketers alike
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
need to be aware of the subtle shift we
will see in the make-up of GDP growth in China as they will start to shift from a manufacturing
driven economy to a services economy, and I suggest that by 2020, services will make up at
least 30% of GDP.
China is not in a hurry, they are on a long slow path to becoming the largest economic power
in the world. Current productivity levels require an additional 700,000 new workers for each
1% of GDP growth. For smart marketers this simply suggest that if China grows GDP just 7%
in 2009 there will be an additional 4,900,000 new consumers added to the already impressive
and growing middle class.
Page 6 of 12
© Roy Morgan Consulting. steve.hinch@roymorgan.com

7. The Good the Bad and the Ugly in 2009
“The Ugly”
If you’re a business leader in this industry, then
you probably already know that the outlook overall
is poor, but also depends on which part of the
world you examine. Sales in the US, Japan and
Europe will stagnate or continue to shrink, but demand in emerging markets will continue to
expand. China, which recently overtook Japan as the worlds second largest car market will
record 8% to 9% growth in 2009. India and Russia will expand at nearly the same rate, and
considering the numbers, this may well be enough to stabilise the big three manufacturers.
Let’s not forget, that while the US market will remain in meltdown, this market will still remain
the worlds largest, accounting for around 25% of total sales in 2009.
If you are working anywhere except the emerging
markets, the outlook is poor to downright ugly.
Much of the advertising world will have a very hard
2009, with overall worldwide growth expected to slow to an anaemic 4.3%, but this will be
mostly driven by the emerging markets. The global markets share of the BRICs will jump from
27% to 33% in 2009, this also means the APAC region will overtake western Europe in 2009 –
2010 to become the second largest market in the world – China alone will jump from fifth to
fourth place. Given that many global media companies are based in the US, this could prove to
be a protracted downturn for this sector.
Business leaders in this sector have a lot to be worried
about for the next few years, although leaders in some
countries are simply responding to a confidence issue
and not a real slow down. The prospects for labour markets around the world look very weak
over the next couple of years in Europe, parts of Asia, and even longer in the US.
Unemployment is expected to increase almost everywhere and demand in most countries will
come to a halt, if it hasn’t already. The question is then how do you make money in the
industry when the sky has fallen in? This is an industry that seems to focus on doing things the
same way and expecting different results, so smart strategists will be able to identify value
where others can’t. The US industry is already in a bad way and it is only going to get worse
and will last a lot longer than most analysts suggest. This is an industry however that has
opportunities for value creation if you simply know where to look.
Page 7 of 12
© Roy Morgan Consulting. steve.hinch@roymorgan.com

8. The Good the Bad and the Ugly in 2009
“The Good”
2009 is not all bad news, and there are industry
sectors that will thrive, so if you’re a strategist in
these fields you need to make the most of the
opportunities. The global travel and tourism
business will post the sixth consecutive year of growth in 2009, but only just and despite the
economy. High energy prices, climbing air fares and a slowdown in consumer spending in the
United States and much of Europe will take their toll. Global tourist arrivals will increase a
rather slow 2.7% and spending on hotels and restaurants should increase by 3.5%. There are
going to be some big winners and losers in 2009, with France still the world’s most popular
destination with around 83 million visitors. For the first time China will rank as the worlds
second favourite destination, with a projected 65 million visitors, pushing Spain into third place
with 62 million. The United States will hold on to fourth place with 57 million visitors, but will
easily outstrip all rivals with a projected US$110 billion in international tourism receipts in
2009. Something for struggling tourism bodies to consider is that the largest numbers of globe
trotters come from Germany, followed by the US and then the UK, all countries in recession. A
major issue that will face markets such as Australia is the distance of travel requiring time and
expense to make the journey. The other big issue Australia faces is the lack of a defined value
position that provides a clear reason to make the long journey down under at what is normally
a considerable cost increase compared to other destinations – but that’s another story.
The global financial crisis does not change the
fundamentals of society, the population
continues to age and today the average life
expectancy of women is 75 years and for men it
is 70 years. Global health care spending will
expand in 2009, as longer living consumers place
a premium on quality of life products and services. In the developing markets of China and
India, the ranks of the middle class will increase the global demand for health care products,
pushing prices in the more mature markets such as Australia and the United States. Health
care spending per head will increase an average of 4% globally, and although many
governments around the world have launched anti-obesity campaigns, they may have come
too late.
Demand for oil in the rich world will probably shrink
in 2009 by around 1% because of slower economic
output. The emerging markets will continue to
demand more, but growth will slow to around
3.75%, with net global consumption increasing by just 0.5% to 0.7%. This simply means that
for the industry, the outlook is very good, with oil averaging around US$74 per barrel for Brent
crude. Much to the dislike of those hard at the task of containing global warming, coal
consumption should increase also because of the relative cheapness and demands from the
two largest coal consuming markets of China and the US.
Page 8 of 12
© Roy Morgan Consulting. steve.hinch@roymorgan.com

9. So Just What Can You Do?
As a business and marketing strategist there are many actions that you can take to ensure
that you are able to create value regardless of the conditions you face.
So, just how do you know that you have the right strategy and that you are in fact getting the
best value for every dollar you spend in marketing and sales strategies?
Many companies are looking at ways to cut costs and one of the first places business leaders
look is the marketing budget. The reality is though that business can reduce their sales and
service costs, increase their revenue per customer, and penetrate underserved segments by
guiding customers to the most appropriate channels. To do so, companies should gain a clear
understanding of their channel economics and develop plans to manage relations with their
channel partners.
Most companies have some understanding of the volumes and margins of their
communications and distribution channels. Few, however, truly know the cost of serving
customers in each of them or a channel’s associated customer “quality” – that is the value to
the company of products or services purchased through those channels.
Even fewer grasp the economics of specific sales and service activities, such as the cost of
generating a lead or response and which channels the customers prefer.
If these are questions that even senior marketers and business strategists are having
problems coming to grips with, how can business leaders who have many more things on their
plates to worry about resolve the issue. It is no wonder that in many organisations that the
head of marketing is not an integral part of the senior leadership team.
Business can work through these thorny questions in the difficult times ahead, by rethinking
the economics of their business strategy and the links that the marketing strategy has in
helping drive real outcomes and not just inputs.
You may well need to reshape your channel architecture, to link to your business strategy and
the dynamics of the current economic conditions, to ensure you are providing the right
influencers to shape the attitudes of both your consumers and your sales staff.
While developing a good marketing and business strategy can take a lot of work, the end
results should provide your business with a clear focus and measurable outcomes, the main
ingredients to a good marketing strategy include: macro economic and business background
research and analysis to provide the base line for your strategy. Starting without this
knowledge will get the same results you have always had, so don’t skip this. Then your team
can move on to defining consumer markets and scope of opportunity, profile and potential ROI
from the ideal consumer, the most efficient way to reach and interact with the different
consumer groups.
Page 9 of 12
© Roy Morgan Consulting. steve.hinch@roymorgan.com

10. Modelling Is Not Just For The Catwalk.
It becomes more important than ever to analyse every dollar you are going to spend and now
is the time to be developing forecasting metrics that allow you to identify the potential ROI you
can expect for each dollar you are investing.
Providing even basic econometric modelling for meaningful ROI forecasting, is normally out of
the grasp of even the average senior marketer of business strategist, so you will probably need
to call in the experts for this part at least.
A “good” econometric model should start with the ability to quantify each communications
channel based on the impact value of
that channel. In other words you
should be able to convert the
communication effect of a 30 second
TV spot compared to the value of a
magazine insert, or a radio spot or
anything else you may use.
If this first stage is executed correctly
it will not only save you money, but
will assist in determining the ideal
communications channel mix.
Another critical step in developing a reliable econometric model to assist with your forecasting
is the input section that allows you to measure the impact of different “external” values such
as economic factors, category
factors, price factors, promotions,
and in fact almost anything you are
able to measure. When this part is
executed with sufficient historical
data, it is guaranteed to ensure you
are maximising your ROI on all your
activities and not just advertising.
Most clients however do not have
any method that allows them to
measure “external” factors on their
own business outcomes. If your
company is much like the average, then your metrics are probably based on an internal
“dashboard” and that will not help you make a difference to your real world business
outcomes, simply to measure what you probably already know.
Page 10 of 12
© Roy Morgan Consulting. steve.hinch@roymorgan.com

11. Historical data “this is your path finder”
I have stressed many time before
to clients, that you will need good
historical data, to get an accurate
and reliable ROI forecasting model.
In the case of the example used
here, we had access to five years of
data for this client. This data
allowed us to develop the model
which showed that a decrease in
the marketing budget of the size
the client had suggested, would
create the drop curve in their
market presence ( the blue shaded area) and corresponding drop off in sales ( the dotted line)
This is a real market example, so the client details have been removed, but I can tell you that
the end result was that the client chose to ignore our advice to “see what would happen” – The
client saw what happened, which was an almost identical fit with the model and six months
latter we were brought back in to provide a model showing the “ideal” investment needed to
meet their ROI objectives and get them back on track.
If you want to make a real difference to your organisation, I believe the first action you should
take is to develop a good ROI model along these lines, as it will allow you to chart a course
through whatever the market has to offer and to provide the metrics you need.
Page 11 of 12
© Roy Morgan Consulting. steve.hinch@roymorgan.com

12. About Roy Morgan Consulting:
Roy Morgan Consulting is a division of Roy Morgan Research, Australia’s best known and
longest established market research and public opinion polling company, which was founded in
1941 by Roy Morgan. Since then, Roy Morgan Research has grown and prospered. While
originally specializing in public opinion, corporate image and media measurement, the
company has expanded to cover all aspects of market research information gathering whether
by personal interviews, the telephone, self-administered or the Internet
Our Vision
We build every engagement as a working partnership in which deep trust and a clear
understanding of objectives and outcomes are developed with our clients that allows them to
achieve their objectives.
Our Consulting Services:
Marketing strategy
Customer insights
Brand strategy
Pricing
Econometric modelling
Marketing investment efficiency and effectiveness
Customer loyalty
Sales and channel management
Communications strategy
Our Industry Coverage:
Automotive Information technology
Fast Food Employment Services
Finance Government
FMCG Utilities
Gambling Travel & Tourism
Insurance Telecommunications
Media Sports
Retail
Contact Information:
Stephen Hinch
Director-Roy Morgan Consulting
230-232 Sussex Street, Sydney. NSW Australia 2000
Email: steve.hinch@roymorgan.com
Office: +61 (0) 2 9021 9111
Cell: +61 (0) 488 495 270
Page 12 of 12
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