In the context of the current economic recession, a series of leading American businesses in many fields such as Citigroup, Time Warner or Motorola have suffered losses of billions of dollars.
However, amid this gloom, a few bright spots emerged – businesses that achieved impressive profit growth despite adverse conditions.
Among these companies are online retailer Amazon, online movie rental service Netflix, telecommunications giant Verizon, and consumer goods companies such as Heinz, Hershey's, Colgate, etc. Besides luck, each of these companies has its own secrets to thrive in this difficult economic situation.
Timely service prices
While the US retail industry is grieving over a slump that has forced many companies in the industry to file for bankruptcy, customers are still flocking to the online stores of Amazon and Netflix.
Amazon said its net sales increased 181.3 percent and profits increased 91.3 percent in the fourth quarter of 2008.
Netflix added 718,000 new customers in Q4, bringing its total to nearly 10 million. As a result, although Netflix's per-customer fee fell by $231.3 million year-over-year, its revenue for the quarter increased by $191.3 million and its profit by $451.3 million.
Part of the reason for Amazon and Netflix’s success is the introduction of new services. Since last year, Amazon has offered a digital music service and sold out-of-print CDs. Meanwhile, Netflix has launched devices that let customers stream movies from the network to their television sets.
In addition, Amazon and Netflix have also focused on improving customer service. Amazon's delivery time has been reduced from 5-6 days to 1-2 days. This has helped Amazon surpass its rival eBay. In the fourth quarter of 2008, eBay's profits fell by two-thirds.
Ultimately, however, the success of Amazon and Netflix is due to the current economic climate. The recession has made people look for cheaper, home-based entertainment. Amazon and Netflix’s services are exactly what customers want.
Compete with quality
Unlike Amazon and Netflix, Verizon has found success through foresight.
The telecommunications industry in the US is currently facing many challenges. In the fourth quarter of last year, AT&T's profits fell 10%, Qwest's profits fell 50%. Worse, Sprint Nextel lost $1.6 billion and lost 1.3 million customers in the quarter.
Unlike its rivals, Verizon saw a 15% year-on-year profit growth to $1.2 billion. Its subscriber base increased by 1.4 million in the quarter.
This impressive growth is the result of Verizon's previous efforts, stemming from the foresight and vision of its leadership. After years of investing in upgrading its FiOS fiber optic network, Verizon has been able to provide better TV and high-speed Internet service than its competitors.
On the other hand, high-income, stable customers make up a large proportion of Verizon's customer base, so the company faces little risk of customer churn in a downturn.
"Cut" customers harder
While Netflix and Amazon make big profits by offering low prices, and Verizon competes on value, consumer goods companies Heinz, Hershey's, and Colgate have a completely different approach: raising prices!
The success of the three companies in the fourth quarter of 2008 shows that consumer goods are a commodity that is less affected by economic recession, even if prices increase.
In the fiscal quarter ended January 28, Heinz's revenue decreased by 7.51%, but the selling price of its products increased by 81% compared to the previous quarter. In addition, the company also cut costs by 71% compared to the same period last year. As a result, Heinz's profit increased by 111%.
Similarly, Hershey's candy company increased its average selling price by 11% in August 2008, after the price of cocoa beans on the world market increased sharply. But then, when the price of cocoa beans decreased, the company did not reduce the price of its candy. As a result, Hershey's profit increased by 51% in the fourth quarter of 2008 compared to the same period last year.
Colgate-Palmolive in the US also increased product prices by 7.51 TP3T in the fourth quarter of 2008. Therefore, although sales did not increase, the company's profits still increased by 201 TP3T compared to the same period.
In Europe, two consumer goods groups Nestle and Unilever also benefited greatly from increasing selling prices by about 10% when raw material prices increased, but then did not reduce prices along with the decline in input prices.
In economic terms, companies like Heinz and Colgate have demonstrated their “pricing power”—the ability to raise prices and maintain them high. But on the other hand, their products are still cheaper than luxury goods, so consumers are less likely to cut back on spending on these products in times of austerity.
Of course, not every company can “risk” applying a price increase strategy like Hershey’s, Heinz, or Colgate. The reason is that these companies produce essential goods that everyone must use in any situation.
After all, even if unemployed, consumers still have to eat, shower, and do laundry every day!
Newsweek
