Plus ca change, plus c'est la meme chose

Optimists and pessimists are trading blows daily. Is the worst over? Or is more to come? The markets are still volatile (optimism was the spirit of today, with the FTSE100 up 2.1%).

We can't wait much longer for an answer! The last two quarters have involved black-outs in hiring, capital spend, even in ongoing marketing investment. CFO magazine's Global Business Outlook survey suggests that as many as 2 in 3 firms have implemented hiring freezes (almost as many are actually reducing headcount), and that firms will, on average, cut capital expenditure 10-15% this year, and marketing expenditure 7-10%. Short term necessities maybe, but with long term consequences for both brand equity and the innovation pipeline.

At least some clarity seems to be emerging about the legacies that this period will leave behind. and so some clues about the battlegrounds of tomorrow. Here are two which strike me.... coming from completely different ends of the spectrum.

The local battleground: the Emotional Competitive Set

Consumers' wallets are going to be under more pressure tomorrow than they were yesterday. Even if (if!) access to credit becomes easier again, people will be more wary of it. Living within your means is going to be a bit more fashionable. And on top of that, the tax burden is almost certain to rise.

So, expect bargain/ promotion hunting and 'trading down' within categories, but also expect trading off between categories (less “I need a new dress because I'm going out for dinner”, more “I'll steer clear of the shops today because I'm going out for dinner tonight”.) It becomes ever more important to consider the competitive set, not just category peers. In particular, this means understanding implicit emotional benefits (such as reward, release or recognition) far beyond functional attributes. Where else can consumers get these emotional benefits? What emotional market are you in?

What does it really mean to compete in the indulgence market? Or the light relief market? Or the togetherness market?

The global battleground: Rebalancing Consumption and Production

For ten years consumers in the US and UK borrowed (against rocketing nominal property prices) and spent it on imported goods, while others (most notably China) did not spend the profits of exports but instead invested them in bonds (and so provided the liquidity and low cost credit to sustain the spending binge). This drove the global economy. It also shaped industries: keeping manufactured goods cheap, incentivsing out-sourcing and off-shoring, permitting 'cash-cow' Western markets to fund (loss-making) investments in Asia. These imbalances are collapsing.

When the recession is over Asia will account for a greater proportion of total consumer spending. Expect the battle to win in China (and subsequently in India) to get even hotter, exacerbated by the fact that profits made in Europe or America will not stretch so far (whether because profits are lower, Chinese costs are higher or exchange rates have moved). Despite current woes, now is a critical time for emerging market plans.

In reverse, alarm bells for any business overly dependent on cheap imports to keep costs down. It feels a little premature to declare the rebirth of British manufacturing (!), but now is surely a prudent time to diversify the cost base, and to look for ways to bring production and consumption (of products or services) closer together. What until now looked like a 'nice to have' part of the sustainability agenda suddenly looks like a commercial imperative.

So... Competition will get fiercer... Asia will be the growth priority... Sustainability issues will be business critical.

Tomorrow's battles are rather similar to yesterday's – but many companies are in less robust shape to fight them.