I touched on recession and depression yesterday. Let I talk about another interesting economic concept around inflation, deflation, and stagflation today.
Inflation is a situation that overall prices of goods and services in an economy increase for a period of time. It results in a reduction of consumer’s purchasing power. In other words, inflation results in loss of value of money.
Deflation is the opposite of inflation. It is a situation when overall prices decline or when an economy has negative inflation rate.
Stagflation is a situation when an economy experiences inflation (overall prices increase) and stagnation (low economic growth) at the same time. Under stagnation, we normally see a very high unemployment rate as a result.
There is another term called ‘disinflation’. It is a situation that the rate of inflation reduces. An economy still has inflation but the inflation increases in a decreasing rate. Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to the rate of change in the rate of inflation.
What would happen after the virus crisis? It looks like we will experience the situation that oil price drops (lower cost, prices drop), lower purchasing power (due to unemployment), and slow economic growth. I personally think we could end up with something between disinflation and stagnation as some goods e.g. food still have high prices with a stagnant economic growth.
There are more talks about the potential economic crisis followed the covid-19 crisis. The fear is that we could end up with the second depression. I personally don’t believe (or hope we wouldn’t) reach that point. The worst case would hopefully be another recession.
What is the difference between recession and depression?
Recession is an economic situation that country’s gross domestic product (GDP) contracts for 2 or more consecutive quarters. There are other economic indicators but this is a quick measure for recession. The major cause of recession is a decline in consumer purchasing power. It could be because consumers lose confidence in economic prospect or because demand is sluggish.
Depression is something that is much more severe than recession. It is an extended recession that an economy experiences years of economic contraction. In depression, you would see something like an unemployment rate reaches 25% or more, housing prices plummet 30%, and prices fall 10%.
We only experienced depression once in 1929. But, we had multiple recessions. The global financial crisis in 2008 was the worst recession we’d ever had.
It doesn’t feel like we will have another depression after the virus crisis as all governments are very diligent with different economic measures. Let’s hope we could go through this difficult time and come out well.
Michelin has called employees to come back to work since 1 April. As everyone remembers, France is one of the countries with a wide spread of the virus. The company implements a number of safety measures including having hand sanitiser everywhere and designing new silicone-based N95 respirator mask for employees that can be reused up to 100 times.
It’s a challenge of choices between a virus crisis and an economic crisis. Its union is not happy as they see that the company put its employees at risk.
There are a lot of debates now from 2 sides. What is more important between people’s health VS. their economic and financial situation?
The truth that we have to accept is as long as there is no cure nor vaccine our lives wouldn’t be the same. It’s a new new normal that we have to adapt ourselves for both personal and professional aspects.
In businesses, consumers will look at companies’ safety measures as the first criteria in their purchasing decision. Human interactions won’t be the same. We will see new marketing campaigns to build consumer’s trust.
It’s the new normal that we have to accept.
It doesn’t matter if you heard about Biao Skincare before. This post is not about the product itself. It’s about what required to have a successful (small) business of your own. But to give you a background, Biao Skincare was found by a US ex-military Nicole Baldwin. Based on the description from Bloombert, “Biao Skincare provides beauty care products. The Company specializes in natural and organic skin care line cosmetic products. Biao Skincare serves customers in the United States.”
Nicole got a product idea in her mind since she got a third degree burn from trying to make tea since she was 3 years old. A healing balm formula created by her grandmother got her interest in skincare product. When she was deployed in Irag, she mixed her own moisturizers to help her and colleague’s dry skin. After her military career finished, she started her own business.
It went well for a couple of years. Then, her business got hit with manufacturing issue in 2016. Her company went dark for 4 years. With her passion, she didn’t give up trying to look for alternative ingredients. She recently found one and could sell her vision to a few investors.
The key point of this post is around this very question – what are required to start a successful business? The number one answer is what I took from Simon Sinek’s latest book, your Just Cause. It’s a vision of a better world that you think you can create. In the case of Nicole’s, she has a clear cause that she wants to offer natural and organic skin care line cosmetic products. It was because of her Just Cause that kept her going in the most difficult times.
I am in the search of my Just Cause too. It’s difficult to formularise your Just Cause. But as Steve Jobs once said, if you haven’t found it yet, keep looking. Don’t settle. And this is me saying – don’t just trying to sell something online. Most importantly, if you just got the money from being made redundant from your job, please think about how to spend that money wisely.
I learn that I am right in what I believe. The new era of marketing, especially for those companies that don’t have a strong brand positioning, is to create a niche community.
I don’t play games so I only know Twitch from Facebook posts and marketing articles. Twitch is a streaming platform similar to Netflix but targeting gamers. Twitch was founded on June 2011. Seven years later it has amassed more than 100 million unique monthly users, of which 15 million are daily active users.
Community marketing is what Twitch excels.
As voiced in the following video from HP Matter, Twitch’s strategy “echoes a core principle of the internet itself: people want to learn and they want to connect with each other”. The role of the brand has been to “build a community around a niche and create clever ways of providing value.Richard Liu
Twitch is different from Netflix, Stan, and others in that it gives a control power to its audience. Streamers can record videos, host online events, and interact real-time with their followers.
Twitch basically maximises the concept of the Internet by allowing people to connect and learn off one another. It picked the right niche market and went to the extreme.
The new marketing is all about having the right community and its members have a win-win business relationship.
There are more development in the Virgin business situation. Since Virgin entered the voluntary administration, there is fear of Australian airline industry will become monopoly. And, as a result, airfares will be more expensive. Would it be the case?
As it turns out, it is a bit more complicated than that. There are different factors to be considered:
- In the short-term, it’s likely that the oil price would continue to be very low. And, consumer demand to fly is likely to be fragile. Therefore, the airfares in the next 3 to 6 months should be the same if not cheaper, regardless of how many players in the market.
- Having multiple players doesn’t always guarantee cheaper prices. There is an economic concept call ‘multi-market contact” that lead to “tacit collusion”. It is a situation when other players in the market accept price changes established by a dominant player. In other words, it is a situation that group of firms have deliberately joined together to increase prices.
- But, in a medium to long term, when demand recovers, airfares are likely to be more expensive. Having said that as long as the market is open and there is a large incentive to make lot of money, the industry will attract new players. Then, the prices will start to come down.
I like Virgin and really hope that they will come out stronger.
I believe most marketers know David Ogilvy and his ad agency. He is a legendary, no doubt. What made him so great was how he saw things differently from others. Not only that, he could execute his thoughts flawlessly.
More often than not, we still need to create ads in some shape and form. And, here are quick tips I got from reading his story.
- Focus on one big idea. It’s easy to understand but hard to do. We always want to give people options. Or, we are not clear about what make our product different from others. Go with one idea – what differentiate your brand from the crowd.
- Communication is about clarity. Always talk like your customer does. Your ads must be easy to read and understand. I made many mistakes in the past. When an ad is complicated, people just ignore it completely.
- Be interesting. I love this – Good ads, all facts, no adjective, all specific. Tell the truth but make the truth fascinating.
More homework to do for us, marketers.
It’s what Captain Kirk said in Star Trek. Since I watch Star Trek and was amazed with this communication technology, I always thought something similar could be used in businesses in the near future.
I didn’t think that day could come quicker than i could imagine. We could see the next generation communication technologies that change the way we deliver products to consumers in the next few years.
I had a discussion about our strategy yesterday. One key thing came up. It’s a basic business principle. In a broad business sense, it needs two aspects to complete a business model. The first aspect is a product (or service). And, the second aspect is, I sum it up as a distribution model – how do we distribute the product to the market? Both aspects are important. The product must solve customer’s problem. The distribution model must be seamless.
Imagine if we could deliver a product presentation to customer’s places without physically being there. Technologies could reach a point beyond a video call. We could show up as a virtual person in customer’s home explaining about our product. Star Wars and Star Trek have given a hint to us.
I feel that we are not too far from that day.
All the signs are leading us to go online. But, can you sell any product online? What if your product is very expensive, or required high or long term commitment, or very complicated to explain?
It is possible but it requires a thought through consideration. Assuming that you have an exisiting business that relies mostly on offline sales and marketing approach. Then, the virus crisis hits. There are 3 factors to consider if you plan to move your model online.
- Existing customers. It is important to find the loyal customers who are willing to share your product stories with friends or whoever they talk to. It’s the most cost-effective way of doing brand advertising.
- Go niche. No product could suit everyone. Mass marketing will cost you a fortune. In today’s world, even SEO, SEM, social ads, etc are very, very expensive. You will save a lot of money by going niche, or even hyper-niche.
- Invest in content. Complicated products require a lot of explanation. The issue is people don’t have times to read. How can you deliver the explanation in meaningful, engaging ways?
I say everything is possible.
What are your thoughts about the big news last night – Virgin Airline set to go to voluntary administration. The gist of the news is Virgin has a massive debt of around $5 billion. Couple with the virus crisis, they had to ground most of their flights.
I am not an expert in the aviation industry and these are my amateur observations:
- I wonder for a long time how low cost airline could make money. I just found out today that the profit margin for those airline are only between 1 and 4%.
- I have a feeling that this industry operates in a similar way to a gas station i.e. they have to rely on a second income source the same way gas stations running a small grocery shop.
- It is a capital intensive industry that mainly competes with prices. It’s really hard to believe how those low cost airlines survive in the market.
- Melbourne – Sydney is the second most busiest route in the world. The first place is the route between Seoul Gimpo to Jeju International.
- The fall of Virgin Airline will undoubtedly impact the domestic tourism market in Australia. In a short term, domestic airfares would rise as the market will be dominate by one major player namely Qantas (with its subsidiary Jetstar).
- There is a potential that foreign airlines might be interested in the Australian market but it would take time.
The implication closer to my heart would be a huge pressure would be placed on drive-to destinations. People will concentrate at least in 2020 to holiday within the states they live.
The world after the virus would be very different to our world today.