Operations

If Your Client Base is Floundering, Find New Money in Markets That Are Flourishing

Posted on November 1, 2008

[editorial] For the next few months I will devote my editorial page to getting you, our readers, to think about identifying emerging markets to sell your services to.

 

In any market condition, there’s always old money and new money exchanging hands. Changing your mindset and your sales strategy are prerequisites for ensuring your businesses survive these tough times.

 

So for those of you reading this and wondering what you’re going to do as the lion’s share of your client portfolio goes south, heed my words. Reinvent yourselves — now!

 

When the economy falls, the demand for escapist entertainment rises. History has proven this over and over again. During “The Great Depression” (1929 - 1939), 25% of American families had no income and 40% of factory workers were unemployed. In 1930 there were 200,000 evictions in New York City alone.

 

Despite this, movie box office receipts during the 1930s soared 22%. In many cases, people elected to see a movie rather than eat. That’s how desperately North Americans needed to escape (mentally) from the weight of their problems.

 

And if you think things are different now, think again. In 2002, after the technology bubble had burst, the Dow Jones Industrial Average dropped 22%.

 

Meanwhile video gaming revenues increased 43% to $7 billion. Yes, the “Escapism Industry” has fractured. Now there are many different (drug-free) ways you can buy a ticket to a parallel universe. The surging growth of escapist activities has created opportunities for investors.

 

Times are tough and corporations are going into survival mode. When money is tight, an average person will (consciously or unconsciously) make spending decisions based on “bang for the buck.” And there’s no bigger bang for your entertainment dollar than in video games.

 

A ticket to a three-hour NFL game is about $21 per entertainment hour if you pass on the foam finger, hot dogs, etc. If you go to a bar with no cover charge and nurse a beer, you’ll be spending about $6 an hour. A two-hour movie will cost you about $4.50 an hour. Watching a DVD = $2 an hour.

 

That’s where the video gaming industry gets its big advantage. Your average video game costs $60 and takes an expert about 100 hours to master. That works out to a mere 60 cents an hour. And you only have to leave your home once to make the original purchase. Is it any wonder 267 million video games were sold in 2007? That’s an average of nine games per second, for total sales of $7 billion. Console sales, dominated by Nintendo’s Wii, Sony’s PlayStation 3, and Microsoft’s X-Box 360 totaled $9.35 billion. An economic downturn creates cocooning and belt-tightening instincts which add further leverage to the gaming industry’s advantage.

 

There are many different companies in this space such as Take Two which publishes software titles for PlayStation 3, Xbox 360, Wii, GameCube, DS, and Game Boy Advance, etc. Take Two is a $1.9 billion company. They have an operating margin of 2.17% and quarterly revenue growth of 162%.

 

Shanda Interactive develops online games for the Chinese market. This $2 billion market cap company had 2007 revenues of $395 million with an operating margin of 40% (double what it was in 2006). Mad Catz makes accessories for video game platforms such as control pads, steering wheels, joysticks, light guns, flight sticks, dance pads, microphones, carry cases, keyboards, and headsets. They have a current market cap of $35 million, and an operating margin of 5.6% on $87 million in revenues.

 

If your traditional customer markets are drying up in the economic recession, find flourishing NEW markets where you can promote your service. They are out there. I just gave you one market and a few companies to pursue.

 

Read Survival Lesson #3: Living for Good Times

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