Friday, 6 June 2008

The Gathering storm

During a course last week a delegate asked a very interesting question - they often do. Even though we were talking about Supply Chain Management, he was wondering what would happen to sales prices for their company during the much predicted forthcoming economic down turn. He had already described the company as having a unique technology, and so the answer I gave was that prices should be firm but volumes may be doubtful. Their customers may decide not to carry out projects, but if they do carry them out they would have to buy from my delegate's company and though the customers may try to put pressure on prices in reality the choice is buy or don't do the project. A good salesman should be able to resist price pressures in those circumstances - at worst giving away a little to maintain good relationships.

The problem for sellers in a downturn is always discrecenary spend - do we need to buy a new tv, car, shirt? Or can we make the existing one last a little longer? That is where there is real downwards pressure on prices.

An interesting view on this was given by the economist Elizabeth Warren in a speech that I came across in David Hepworth's blog (founder of Word Magazine). It helps to explain why at the end of a long boom we don't feel better off - many of us have a huge personal financial committment, and little discretionary spend. So, we are much more exposed to the consequences of a downturn than previous generations even though materially we are better off.

A long but interesting lecture, even though it is focussed on the American rather than European middle classes.

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