2. Marketing – Traditionally, during challenging financial times, businesses look to cut back on marketing budgets. However, a recent survey conducted by the Chief Marketing Officer (CMO) Council found that despite the difficult economic conditions, more than half of the respondents indicated that they would either maintain existing budgets or anticipate modest spending increases. It should also be noted that the remaining half of the respondents plan to reduce budgets. Almost all respondents are planning on addressing their marketing spend regardless of planned budget changes since Marketing departments are always looking to maximize value with increasingly limited resources.

The best way to describe the current spending trends is caution. Some marketing areas are expected to be hit harder than others as businesses cope with the economic situation. For instance, the overall investment in events (trade shows and live events) is expected to decrease 12 percent versus 2008, according to the annual CMO Council Survey. Broad, horizontal trade shows and local events that historically provide limited return have the potential to be cancelled since many businesses have chosen to shift resources towards highly targeted, vertical events. Marketers are discovering that they are getting comparable or better returns from alternative mediums such as online-enabled events, webinars, and on-demand podcasting, which all come at a fraction of the cost. The 2009 CMO survey supports the notation that alternative mediums are gaining popularity since it found that spending on online media and related marketing activities is expected to be approximately 50 percent higher than on traditional media in 2009.

Similar to the legal services category discussed above, marketing is traditionally considered a difficult spend area to address since there is a common inference that quality may take a back seat to economics. However, the current market conditions have provided the opportunity to put those fears to rest. The use of strategic sourcing principles has allowed savvy purchasing managers and marketers alike the opportunity to increase the value of their marketing spend. Depending on the type of marketing spend being addressed, marketers can achieve savings ranging from as low as five percent to as high as 15 percent.
 

3. Fleet – The ongoing bailout proposals for the U.S. automakers has been highly publicized, with both General Motors (GM) and Chrysler looking for additional bailout funds in attempts to reduce their debts and mitigate concerns about potential bankruptcy. Ford, meanwhile, has reached an agreement with its investors to eliminate almost $10 billion in debt, and is currently moving forward without a significant federal bailout package. Additionally, the U.S. Treasury department announced a $5 billion bailout program for the U.S. auto parts makers in March, insuring that parts suppliers will receive payment for their products regardless of the financial status of the automakers. With or without the aid of the government, all three OEMs are facing decreasing demand patterns, as private consumer demand is down significantly, in particular for new cars, and corporate demand is declining as well. The automakers are offering significant incentives, rebates and low interest rates in order to drive volume, and fleet buyers have been able to negotiate very favorable rates and terms for their purchases. The stated efforts by the OEMs to limit fleet sales is difficult to maintain in today’s economy, and large fleet programs (300-plus vehicle turnover annually) remain attractive. In today’s market, buyers conducting fleet vehicle purchase projects can address environmental concerns such as emission reduction and improve carbon footprint, in addition to realizing bottom line savings. Recent sourcing activities have produced aggressive savings in the range of nine to 16 percent.

Companies are also addressing their spend for fleet management and financing. In general, Ariba recommends having a fleet management firm in place prior to conducting a fleet vehicle purchase initiative. Addressing the fleet program provides an opportunity to address a number of different cost drivers, the most important being the Vehicle Acquisition Discount, Interest Rate on Capital Cost, Management Fees and Vehicle Maintenance & Repair Services. Demand for fleet management services are down due to companies decreasing their fleets and limiting the scope of their fleet services. Additionally, the Libor Rates, which are typically tied to proposed fleet financing rates, have declined steadily since its peak in October. Low interest rates combined with aggressive basis points offerings from financing companies allow for reasonable financing, which can add up to millions of dollars in savings over the life of a financing agreement.
 

4. Office Equipment – The combined market for printers, copiers and multifunction devices continued on a downward spiral during the first quarter of 2009. The weak economy continues to decrease demand, with both private consumers and the professional market avoiding purchases. According to a recent report by Gartner, combined shipments fell by 5.9 percent at the end of 2008 with the professional segment in North America showing a 25.3 percent decline. Additionally, sales volume is coming under pressure from the tight economy as typical three-year replacement cycles are being extended. Shipments of page printers declined 28.5 percent during the quarter, led by a 29.9 percent drop in monochrome (black and white) devices and a 23.5 percent decline in color units. Respondents to the Gartner survey indicated that color printers were the preferred choice for their next printer. The preference for color printers indicates that buyers should expect further price depression on black and white models. Furthermore, the survey found that the color page copier/MFD segment is continuing to weather the economic storm, as users are seeing the value of consolidating standalone products into multi-function devices with color printing capabilities.

Reduced demand and declining revenue should continue to depress market prices for office equipment as suppliers seek business in a decreasing pool of buyers. Suppliers will continue with aggressive pricing strategies, while also leveraging service programs to add value and differentiate themselves in the market. Expect cost reductions for both equipment and service programs for the remainder of 2009 and expected savings results range from nine to 18 percent.
 

U.S. Focus

by Nicoleta Diaconu