By: Darrin Duber-Smith
Although the Great Recession has been over for many years now, some aftereffects can still be felt in certain industries. Let's take Christmas trees as an example. Apparently there is a shortage this year, but what does that have to do with the recession? Indeed the economic environment is an extremely important variable for marketers to consider when making Marketing Mix decisions. The economy affects spending in many ways, but it also affects what happens further up the supply chain.
It takes about 10 years to grow a ready-for-market tree in the Pacific Northwest, an important region as far as the overall supply of Christmas trees is concerned. At the height of the recession, retailers were paying just $12 for a tree that cost farmers $16 to grow. This is how desperate companies were to sell their inventories. But this year, retailers are paying as much as $40 for a premium tree, which has resulted great margins for growers, but also bidding wars among retailers to get the best quality trees for resale. All of this means somewhat higher prices for consumers, but it also means that smaller retailers are less able to compete with the larger retailers who can afford to absorb lower profit margins on the trees. It's a bit of a mess.
But smart marketers can plan for this sort of thing. A drought, for example, eventually affects the price of all kinds of crops as well as livestock that need feed, and farmers know how these cycles work. In this particular case, both growers and retailers knew that supply was falling during the recession, and they also know how long it takes to grow a tree. This is pretty much all the information one would need to adjust strategy to meet new conditions in the external marketing environment. Of course sales forecasting is predicated on having information like this, and as long as demand remains relatively predictable, figuring out the supply side should not be too much of an issue. But in this case, some small retailers were caught by surprise, and so in the spirit of this, KnowNow! Marketing would like to remind everyone that marketers must make contingency plans for fluctuations in the supply of raw materials. And this particular case really shouldn't have been much of a surprise.
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