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Sep 24, 2012

Author: Nelly Naneva, LL.M, MBF, Markets Weekly

Against the background of the financial difficulties of households and despite some forecasts of last year for a revival of the economy, the vast majority of consumers have restricted their consumption and remain pesimists for the recent exit of the crisis. Europe’s consumers have already reduced their spending in reaction to the economic slowdown. Drawing on extensive interviews, an in-depth study by MGI and McKinsey’s Marketing Practice examined how consumers across five EU countries respond to the current recession, how they react to the economic slowdown, and how businesses can align themselves with the changing consumer behavior during the slowdown and place themselves for the forthcoming economic revival.

The analysis identifies the Best Consumer Tactics to Beat the Recession:  two related to price of products and three related to volume. The study of consumer behavior in crisis also presents an opportunity for the companies to position themselves better in the fast changing economic environment and to meet their customers’ needs.

Less purchases and spending control

This is the most employed approach as consumers try to decrease their total expenditure and reach a level of predictability in an uneasy situation. At its most extreme, the restriction of spending leads to the total withdrawal from consumption of some categories of goods. This is a threat for all goods, but especially for discretionary items such as eating out, vacations and leisure. Forty percent of consumers answer that they will not afford family vacations; a large majority of the others will travel in the country. The Possible producers’ responses may include new offers, which help consumers to restrict spending (like repackaging of some goods or even changing store formats to smaller stores rather than supermarkets or department stores).

Replace only when needed

This tactic is outstandingly popular in the events of expensive purchases such as new cars, houses and apartments, consumer electronics, and furniture. Many consumers intend to postpone novel purchases, using their devices for longer, thus increasing the lifetime of current possessions. The consumers that indicate such costs, plane mainly emergency repairs of dwellings and cars, financed with funds, which they will allocate or have already managed to save. About 40 percent are considering purchase of equipment this year; the proportion is comparable with that in 2011.

For recurrent purchases, which consumers cannot delay buying altogether, they attempt to avert waste by purchasing the exact quantity they demand. Companies may go on the offensive to ensure sales but with a new message. For fast-moving goods, they can concentrate on offering the right quantity at the accurate price. In addition, they can provide incentives to consumers to replace their old possessions with new by organizing secondhand markets or by offering resale bonuses.

Do it yourself

The consumers, opting for self-made solutions, often utilize this tactic to beat the recession (e.g., holding dinner parties at home instead of eating out at restaurants or letting go household help and cleaning themselves). Such a withdrawal to the home must not be a setback to businesses. Companies should concentrate on promoting the advantages of their products and deliberate where their offers are more cost-effective than the homemade alternatives. Delivering the message of how to use a company’s products at home could be a winning strategy. Merchants that play the do-it-yourself trend should further analyze whether some additional opportunities stand to “outsource” all or part of merchandise assembly to the consumer, thus reducing the product price.

Seek value

Consumers under pressure consider more seriously for what they spend money and what, exactly, they are receiving in exchange, approaching high frills with a new level of disbelief. For bigger purchases one of the best consumer tactics is to turn to the Net or other information provider to better rate the product features. For fast-moving consumer goods (such as food, alcohol, toiletries, and so on,) the unbranded solutions are coming out on top as consumers prioritize functionality over frills. Companies can reply by distinctly stressing on the features, advantages, and availability of their products on all distribution channels. The study suggests that retailers and producers possibly could adopt new lower-cost products or sell more basic versions at a lower price, while taking care not to stain their brand-mark.

Shop smarter

Recession-stressed consumers, who desire to proceed to purchase the products they appreciate, search more intensely for a better price, limited bargains, exclusive sales and promotions. While this technique appears across categories, it is especially dominant in the case of clothes, with 66 percent of consumers ranking smarter shopping as their top beating the recession tip. Smarter shoppers profit of new channels, such as the Net and hyper-discounters; they are able to discover the same product at a lower price on sales and promotions. Companies have to target promotions at the right consumers and make efforts to be visible across distribution channels. Businesses can benefit from the contemporary tools consumers utilize to shop smarter (e.g., winning the search-engine war on price criteria, running Internet promotions, or spinning off a discount outlet to compete with hyper-discounting channels).

Those companies, which look beyond mere survival and accommodate their marketing strategies and products to these consumers’ tactics, will place themselves more effectively not only during the economic slowdown, but also in the recovery period that will follow.

The data shows that the majority of consumers still remain pessimists for approaching economic improvement. The negative expectations for economic change have a direct impact on consumption. As a defense, most consumers have become more economizing; they reduce their consumption, deny of certain goods, or simply look for cheaper alternatives.

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Posted: Sep 24, 2012 11:52am
Jun 17, 2012

Freetrade - The village of Pioz in Spain, with a population of 3600 people, was declared the most impoverished in the whole Spain and became a symbol of the excessive spending and poor management of finance in the country.

The secretary of State of Public Administrations, Antonio Beteta, announced yesterday that Pioz will need 7.058 years to pay its debt to lenders. The mayoress of Pioz admitted some hours later that she had “all the bailout papers”. Antonio Beteta also insisted that this situation demonstrates a serious mistake in the system and that the village of Pioz is a paradigm of bad management.

The village was headed over years in debts as a result of the ambitious investment program of the local socialists’ authorities, which consumed more money than the revenues of the village. As a result of this, the locality’s debt approximates 16 million euro. Due to the high unemployment rate at about 25%, however, Pioz can pay back only 2000 Euros per year. In order to repay its debt, the village will need 7.058 years at an interest rate of 5 % or 6 %.

The village has raised a complex of 100 new houses, but today only two of them are habitable; the others have boards with ads “for sale.” Due to the accumulated debts the street lamps are not switched on at night, the maintenance of roads is ceased, and garbage is not collected. The nearby water purification plant is not working due to lack of funds for its proper operation; there is no money for the electrical pumps and for hiring staff. The inhabitants of Pioz remain the only consolation that the village is situated close to a 15th century castle where the aristocratic Mendoza family have lived, and this attraction could draw visitors’ interest.

Rodríguez confirmed that Pioz is at present in a very complicated situation because it accumulated debt of 16 million Euros. The secretary of State of Public Administrations also indicated that the municipality does not have sufficient revenues, except that these coming from real estate tax and the contributions received from the State.

According to the calculations carried out by the Spanish media CincoDías, Pioz receives monthly from the State 35.784 euros to pay its operational expenses and the realized investments. Bearing in mind the amount of debt and the announced yearly instalments, the municipality will need exactly 7.058 years to repay the whole debt that was contracted with the creditors without stopping to pay the rest of the other obligations and expenses (like payrolls and basic provisions).

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Posted: Jun 17, 2012 3:11am
Jun 17, 2012

The EU focus on fiscal deficit is completely mistaken. They are the result of the crisis, not the cause.

The EuroMemorandum group expresses its critique that the European Union response to the crisis is an attack on the state and salaries and not an attack on the financial institutions. Institutions that caused the crisis in the first place. 

Since the 1980′s the financial sector has grown dramatically in power and size. It began in the US and Britain and continued on to Germany and France and other countries in the 1990′s. In 1999, with the introduction of the common currency, the EU Commission set about creating an integrated financial system in the European Union modelled after the US financial system. At the time, the promise of high returns in the US propelled many of the big European banks to expand their business in the US market. The result of this is that when the crisis hit Wall Street in 2007, European banks have been equally affected.

The EU focus on fiscal deficit is completely mistaken.

They are the result of the crisis and not the cause. With the exception of Greece, no other country in the EU had a deficit of over 3 per cent. Countries like Spain even had a surplus. But then what happened was:

  1. Governments decided to rescue banks and that cost (them and us) a lot of money.  
  2. The financial crisis led to a collapse of credit in Europe resulting in a major downturn in European economies. Governments sought to increase their spending in 2009 to counter the recession. 
  3. Because of the recession, tax income revenue fell sharply. 

These led to a sharp increase in country deficits—the result of the crisis, not the cause.

The crisis in Europe is mitigated by the monetary union.

The severity of the crisis is largely due to the architecture of the monetary union which led to the emergence of major imbalances in the euro area. These imbalances resulted from having a common monetary policy but no common fiscal policy or coordinated wage policy.

Through the common currency, Germany has been able to amass massive trade surplus which would not have been possible otherwise. Spain, Portugal and Greece on the other hand ran big trade deficits that steadily increased over the years. The deficit of the Southern European economies very strongly mirrors the surplus of Germany and other northern countries. At a time when demand in Germany was low, with wages kept flat, banks from Germany and France lent money to the southern economies so they can keep buying Germany exports. This model has been extremely profitable for Germany, at the expense of German workers and Southern European economies.

Moreover, in the current set up of the monetary union, the European Central Bank does not intervene in the government bond market. While it does intervene to rescue the banks, it does not function like central banks in other countries in this regard. The current response to the crisis is highly undemocratic and are mostly the results of negotiations between two countries with a focus on fiscal discipline. The pressure is on countries with a deficit to adjust with no comparable obligation on the other (northern) European countries. The strict austerity programmes imposed on Ireland, Greece, Spain and Portugal have now created a recession. Under these conditions, countries like Spain will not be able to service their debt commitments, and the EU is unable to rescue big economies, like Spain and Italy. On top of this, credit is expected to contract this year despite the ECB´s 1-trillion loans to banks, which have not been used to buy government bonds as intended. What is evident yet again is that the policy of the ECB has concentrated on rescuing the banks and it is contributing nothing to addressing the deep recession that will hit all the European countries this year, with particularly savage effects on the countries of the European periphery.

Author: Trevor Evans,

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Posted: Jun 17, 2012 3:06am
May 5, 2012

Author: Nelly Naneva, LL.M. MBF; source: Markets Weekly

What is happiness?

This question has perplexed philosophers for centuries. There are a lot of possibilities for what ‘happiness’ may entail: satisfaction needs satisfaction, wellbeing, etc. The happiness literature typically focuses on one of these possibilities or attempts to merge all of them together. Surprisingly, scholars working in the area rarely if ever engage in an in-depth discussion of exactly what it is they are trying to capture versus what it is they are actually capturing through their research tools. The absence of a universal definition of happiness makes measuring actual happiness a difficult task. Furthermore, the lack of a clear definition of happiness poses problems for those aiming to maximize wellbeing.

Can happiness be compared between individuals and across time?

The notion of happiness is not static across individuals at a specific point in time. Because individual values are subjective, we cannot meaningfully compare them across individuals or even across time for the same individual in any objective way. Even though we may be able to compare the relative incomes of two individuals, we cannot say anything meaningful about their relative satisfaction or the wellbeing that those individuals derive from that income. Different people have different needs and share diverse social values: some people place too much focus on tangible goods (i.e. house size, cars, vacations, etc.) while neglecting intangible goods (i.e. commuting time, family time, etc.) and vice versa. All of us undoubtedly endeavor for wealth because it enables us to satisfy our needs – for ourselves, our families, and our communities.

Is there a fixed stock of status?

A core concept in happiness studies is the role of ‘status’, which refers to one’s position relative to others. Just as relative income matters for wellbeing, happiness scholars contend, so does the relative status. They stress on that social status is a &lsquoositional good’ – a good whose value is a function of its desirability in the eyes of others. Positional goods are zero-sum from the standpoint that if one person possesses status, others cannot also hold that same position. This matters for the happiness because when one person obtains a certain status, it imposes negative costs on others because they cannot obtain that same status. Those with a relatively lower status are worse off compared with those in higher-status positions.

Is happiness correlated to our income?

Almost the entire collection of happiness surveys correlate happiness to money, work, health, family relationships, community and friends. But beyond these broad deductions, many potential factors that influence subjective wellbeing still await exploration. Scholars working on happiness typically define happiness as general satisfaction with life. In order to capture wellbeing, economists often rely on surveys, which ask some variant of the question: ‘How happy are you with your life?’ Researchers then compare the responses to these questions, both across societies and against economic outcomes, in the hope of determining what factors influence the overall level of happiness and satisfaction. Many studies have found support for Easterlin’s &ldquorogress paradox” (see Frey and Stutzer, 2002a): when incomes have gone up over time, happiness stayed relatively flat. This is probably as people become wealthier; their expectations also increase, meaning their overall level of happiness remains flat. This implies that even as people work harder to achieve happiness, they ultimately remain in the same place. For example, more effort expended to earn more income results not only in a short-term spike in happiness, but also less time to spend with family, friends and members of the community.

For every living creature, wellbeing and happiness matter tremendously. The pursuit of happiness is a natural and crucial part of the human existence, as philosophers have recognized for many centuries. Happy people on average have more productive and successful careers, are more willing to engage in the risk-taking of the successful entrepreneur, live longer and healthier lives (Diener and Chan, 2001), and even drive more safely (Goudie et al., 2011).

In concluding, we would like to provide an alternative means of thinking about issues of happiness and wellbeing. Given that happiness is subjective in nature and there is no universal definition of happiness, it is our contention that a flourishing human life is one where the individual has the freedom to discover and pursue whatever it is that maximizes his or her own wellbeing. For some a flourishing life will be characterized by a workaholic lifestyle; for others it will consist of a life dedicated to philanthropy and charity.  Reaching happiness is a lifetime project, not anything that can be accomplished at once.

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Posted: May 5, 2012 6:43am
Apr 9, 2012

The future of mobile technologies are the “smart” spectacles, which in addition to serving as Smart phones, will add an updated real-time information about what we see in our visual field.

Nowadays many people have and enjoy the comfort of smartphones and tablets. These sevices, hybrid between PC and mobile phone, facilitate our lives with the most functionality and access to information: they direct us by GPS navigation, display weather forecast, send messages to friends, give the opportunity for surfing the Internet, and take pictures and what not. Now imagine, that all of this is done by your Google eyeglasses.

From  Google  officially confirmed that the spectacles with the so-called “augmented reality” are developed by a special team responsible for the most secret and innovative projects, including Google’s self-driving cars and space elevator. The idea behind these spectacles is to integrate all the functionality of modern mobile devices into reality. For this purpose, they will be equipped with a transparent screen, through which all available information will be lay on on what we see.

The spectacles will recognize what we look at through a built-in camera and according to this they will display the contextual menus and data. The device will have a microphone and headphones and will be managed by voice commands, leaving the hands free. The vision of Google is that technology must be available when you need it, and not to be an obstacle, when you do not need it. Therefore, all menus and all the information will be in our visual field and we can hide it are reveal it with only one word.

Of course, the new development will make use of the other products of company as “Google maps” and ‘ Google+ ‘, and probably will be driven by the operating system “Android.” The project most probably will not be ready for market by the end of the year, but despite this, it is not only a dream. The spectacles with “augmented reality” are tested by the staff of the IT giant and even now there are different models of them, which are installed on ordinary eyeglasses or on viewfinders in style of “Star Trek.”

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Posted: Apr 9, 2012 10:44am
Apr 2, 2012

Author: Prof. Boyco Marinkov, PhD, posted on the Financial Magazine Makets Weekly

Probably few people could imagine the consequences of a tragic incident in mid-December 2010 in a small provincial town in Tunisia, where brought to despair young man set fire to himself. Only after two months the wrath and the claim of squares led to the resignation of the Presidents of Tunisia and Egypt and the Libyan crisis entered in its decisive phase.

The definition, which the events received from here onwards – “Arab spring,” was contested by counter-definition – “Islamic autumn.” The problem is not in the finished completeness of definitions, but in the circuit of national and global implications of this deep political change. Because it is evident; what countries such as Egypt, Algeria, Libya and Syria inherited from 1960s and 1970s in its political structure, has proved to be vulnerable in the beginning of the second decade of the next century. Vulnerable to varying degrees were the highly centralized, militarized, authoritarian, but secular regimes in the Maghreb and in the Mediterranean countries.

The Arab spring awoke up and regenerated a whole world of historic, ethnic and confessional potential conflicts, which further complicates any analysis and makes any forecast vulnerable. But even at this intermediate stage in the evolution of the Syrian crisis, some preliminary analytical notes are possible.

What distinguishes the Syrian from the Libyan crisis?

The family Al-Assad have gained and retained power almost simultaneously with Gaddafi, but historical tradition in both states had unprecedented power. The Syrian leaders Hafez al-Assad  (1970-2000) and his son Bashar al-Assad in many respects were logical inheritors of the Arab imperial culture in all its diversity. 

Hafez al-Assad had incomparably greater political experience in comparison to Muammar Gaddafi; he was an active participant in several conspiracies, coups and counter-coups from the second half of the 1960s. Moreover, his ideology was clearer and better organized. The Arab Socialist Ba’ath Party had a strong structure, influence and international contacts. Al-Assad had clearly formulated national program after the war of 1973; this was the restoration of the Golan Heights in the borders of the Syrian State. His dream was to get one day in the demolished and deserted Golan’s capital Quneitra and to eradicate the consequences of the 1967 Arab-Israeli War. 

The beginning of the Syrian crisis of March-April 2011 was a local conflict with violence and subsequent human victims in Deraa – a region, marked by conflicts for more than 30 years. For the Libyan crisis all were informed in advance and the overthrow of Muammar Gaddafi was a clearly formulated objective by powerful countries.

The regime of Gaddafi has proven to be highly corrupt and very fast: its most prominent representatives — ministers, commanders of military units, and diplomats requested protection from the newly formed opposition.

In Syria desertion from military outfits is a fact, but as a whole army and officers’ corps retained loyalty to Bashar al-Assad. At this stage the Syrian opposition is positioned in the border areas with Turkey, and the only person who was displayed before the cameras is the Brigadier-General Mustafa Ahmad Al-Sheikh.

The attempts to unite the forces of the Syrian Liberation Army, Syrian National Council, groups of patriotic and left wing organizations, despite all the efforts of European and American Syrian diaspora, has failed.

In opposition to al-Assad regime are the organizations of kurdish minority in Syria: over 1,5 million people, who in recent months has united in two political blocks-Kurdish National Council and the Kurdish Union of Democratic Forces. At this stage, the messages from the Syrian kurds contain heterogeneous signals – from clearly stated desire for putting end to the regime of al-Assad to programmatic request for federalization of Syria like Iraq and formation of Kurdish autonomy.

These requests only confirm the thesis that Syrian kurds remember well the collisions with the National Guard in 2004 in Southwest Kurdistan and distrust the President and his entourage; at the same time they do not wish to flow in organizations like the Syrian National Council, unifying radical Islamists and extreme nationalists, and they discourage any foreign military invasion.

In the Syrian crisis there is a sharp confessional problem- the presence of alavit minority headed by the al-Assads clan with dominant positions in country government in the last 40 years. The confessional conflicts are extremely long, since they are evolving on values, and not at the political level.

Muammar Gaddafi regime was condemned because only a month after the first clashes in Benghazi it was already clear that it does not have the minimum international support and there are almost no chances to withstand the military-political and media pressure of the coalition of European and Arabic countries.

Bashar al-Assad regime is a strategic ally of Russia for the entire period since 1973, of Iran in the last 25 years, and of China in the last decade. Russia and China have exercised veto of two Security Council Resolutions in October 2011 and in February 2012, which in many ways had to legitimize the military campaign of the United States-EU- Arab League Coalition.

Moreover, during the most active anti-Syria media campaign, the external Minister of Russia and the head of the Russian Intelligence visited Damascus to seek a new line in the negotiations on the outcome of the civil war. The Syrian crisis highly affects the national security of Israel also, which adds one additional chain of interrelated circumstances. 

At the same tome many characteristics of Lybian scenarios were transferred to Syrian ground.

In the first place – veterans of the wars in Iraq, Afghanistan and Libya were transferred. It is difficult to believe that the peaceful population of some Syrian cities would maintain the attacks of the Syrian special units for weeks – the Fourth  Armoured Unit and the National Guard.

Second, the individual terrorist attacks by cars with bombs, which have a heavy effect on the population, clearly suggest the methodology of veterans of the Iraqi al-Qaeda.

Third – the continuing attempts to set up a territory under the control of the Syrian Liberation Army, which like in Benghazi will become a place for concentration of rebel forces, at this stage appears unachievable.

Unlike the Libyan crisis, in the civil war in Syria the Islamic radicals have announced publicly their position. On 12 February, 2012, Al-Qaeda leader Ayman al-Zawahri expressed the organizations support to overthrow Assad’s regime.

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Posted: Apr 2, 2012 7:27am


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