Moments of economic crisis are also moments of many changes and opportunities for organizations, so it is always very valuable to understand the perception of the various market agents, as well as the planning of companies in handling the crisis and the repertoire of initiatives built in response. to the present challenges.
The high inflation consolidated throughout 2015 put enormous cost pressure on companies. We simultaneously observe a readjustment of prices administered by the government through a “tariff realism” that raised fuel and energy prices considerably, in addition to a nominal exchange rate depreciation of more than 50% against the dollar, which made imported components of Brazilian industrial production more expensive.
Increases in other cost components also contributed, which rose at levels similar to inflation, such as the increase in personnel and labor costs through collective bargaining agreements. Given this, providing answers to these problems is not at all trivial. Analyzing the economic news, we have generally seen companies seeking two types of responses, which have been combined and coordinated with each other: price increases and cost cuts.
Passing on the cost shock to price has been a common strategy for companies, but the reality is that it is nothing more than a limited response to the problem. The price increase has a negative impact on demand, which is already shaken due to the recession and high interest rates. Thus, with sales volumes falling even faster, it is likely that there will be no increase in revenue, given that the increase in the unit price is compensated by a fall in the quantity sold, an inexorable reaction of the law of supply and demand. Furthermore, a response solely directed towards the price increase can generate a vicious cycle of an inflationary spiral, in other words, if everyone increases the price, the cost components increase and generate the need for a new price increase.
Horizontal spending cuts cannot be considered a response to height either. When defining an equal cut for all areas of the company, it is assumed that all of these already operate at maximum efficiency and that the value delivered to the customer by each one is the same, which is not true. Cutting expenses that directly impact the level of customer service can be a tremendous “shot in the foot”. By having their perception of value from the shopping experience diminished, the customer is less likely to consume and becomes even less tolerant of a price increase. To be a coherent reaction, cost containment must be taken in a more disciplined way, focusing mainly on where there is waste.
Thus, the challenge posed to companies is to seek opportunities for productivity gains in order to be able to sustain their profitability despite cost pressure and reduced aggregate demand.
Finally, meeting this challenge involves initiatives such as:
- An alignment of the different levels of customer service, in order to combat distortions and ensure that service packages are adequate to the profitability brought by customers and in line with the strategy established by the company;
- The search for points where it is possible to cut costs, eliminating waste without jeopardizing previously defined service levels for customers;
- The development of projects to identify and take advantage of opportunities to improve operational efficiency.
References
<http://www.sidra.ibge.gov.br/>
<http://www.bcb.gov.br/?INDECO>
<http://www.bcb.gov.br/?FOCUSRELMERC>
<http://www.ipea.gov.br/portal/index.php?option=com_alphacontent&view=alphacontent&Itemid=59>
