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An economical crisis is when various forces within an economy loose a large part of their value. Recently a number of American companies declared bankrupt and hence the country is facing an economic crisis. It has adverse effects on businesses as well as individuals of a country as it may raise the prices of goods to unimaginable levels, like what is going on in Zimbabwe where prices have escalated so high. It brings about fluctuations and hence endangers the success of various businesses.
The study will focus on the causes of an economic crisis and its effects on the planning of a marketing budget (Milton, 29). A marketing budget is the amount of resources that are spent by the organization on its various marketing activities which are bound by a specific period. Marketing budget planning entails the allocation of resources for a marketing budget (The McKinsey, 111). Causes of an economic crisis Successful organizations require the investors to have a clue of other organizations’ intentions.
It requires the organization to predict what other organization are willing to do to be successful. This means that organizations tend to invest in the same resources in trying to increase their rates of success. This can contribute to an economic crisis if the organizations invest in the wrong investments (Strauss, 20). Organizations may also result in borrowing loans to finance their investment. This is known as leverage. Loans are risky because even if they stand the chance of improving the organization’s returns, it may also lead to bankruptcy.
Bankruptcy means that the company cannot pay its debts and so it may spread financial problems to other companies and hence create a financial or economical crisis. Asset liability mismatch is another factor that causes an economic crisis. This happens when an organization’s debts are not aligned properly with the organization’s assets. Organizations that can be affected by this factor are commercial banks because if they give loans without considering both the short run and long run effects can end up being a financial crisis to the banks.
If the banks are affected by a financial bank their entire economy can be jeopardized (Milton, 37). Regulatory failure has also been responsible for causing economic crisis. The government failure to put in place sufficient regulatory policies may cause the organizations to cause an economic crisis. The absence of regulatory policies may result in the organizations operating in a lax way which could result in an economic crisis. Economical crisis can also be blamed on fraud by various players in the economics.
Some companies entice clients with misleading information which mostly ends in an economical crisis. Other companies embezzle client’s investment which also leads to an economical crisis. Rogue traders have also cost the economy and financial institutions have also played a part in the economic crisis by hiding their by acting fraudulently (The McKinsey, 114). Contagion has also helped in the spreading of economic crises. This is whereby an institute with a economic crisis spreads the crisis to other companies.
Companies are linked together and they all depend on each other one way or another. Some companies are suppliers to other company and many more such relationships. When one company suffers an economic crisis, it generally affects other companies that are related to it by one way or another (Milton, 50). Effects of economic crisis to marketing budget planning Organizations are adversely affected by economic crisis in an economy because various department will need to restructure and adjust to counter any negative effects the crisis can bring about in the economy.
Many companies have gone under after an economy goes through a crisis. One of the affected organization’s department is the marketing department because it has to adjust its cost of marketing and also try to come up with a new marketing strategy during and after an economic crisis. Below are some of the effects of an economic crisis to the marketing department of a company. Unpredictable market An economic crisis brings about changes in the market and since it is characterized by hard times it also brings about limited consumer spending.
This means that the marketing department deals with market situation that is not used to dealing with. The unpredictability of the market behavior is where various forces and variable are not predicable like the spending of the consumer, substitution and complement products market influence among other factors. Other companies as well have to be considered and during a crisis all companies are affected but with different degrees. Companies are not sure which companies will survive the crisis and which companies will fall under the pressure of the crisis (Strauss, 20).
Prices In an economic crisis, fluctuations are also possible. This means that the marketing department will be faced with a hard task of managing the resources availed by the company to the company. The planning must put into consideration the cost of marketing which must have risen as all other prices are escalating. The marketing department in its planning must consider the cheapest means of marketing. Since marketing involves a lot of stages it must also come up with some of the marketing stages it has to skip due to tight marketing budgets.
It must also consider if the sales of the products are making meaningful returns to cater for processing and marketing activities (The McKinsey, 119). Inconvenience When companies are involved in marketing budget planning, they allocate a substantial amount of resources and dedicate some time for the planning. However, when there is an economic crisis, there is the risk of the whole marketing budget being unrealistic in the new economic situation. That means that the organization’s management has to go on back to the drawing board to plan an new marketing budget.
This apart from wasting time and resources also inconveniences the organization because the organization cannot be sure of when there will be another economic crisis and so the whole process of planning a budget and repeating the process again can be termed as inconveniencing to the companies(Milton, 47). Disadvantageous Since most of the market is dependent on the way the economy is running, an economic crisis can be disadvantageous to the marketing departments because some outcomes can compromise the department budget planning very seriously.
This is because as most of the market forces are dependent on the recovery of the economy from the crisis and most of the market trends are held at ransom by the economy crisis, the marketing budget may not be beneficial to the company. This leads to the implementation of other budgets that are very costly to the department of marketing (The McKinsey, 150). Time wasting It is also a time waster because some companies prefer to wait and see before committing themselves to any budget.
This means that the marketing department budget and planning will be delayed before its execution as the company wait to see what will happen in the economy. In some cases the department will have to start laying strategies again after the economy has fully recovered from the crisis. This is a lot of time wasting which could have otherwise been used in other areas of the company and to ensure its growth is constant (Strauss, 20). Conclusion An economic crisis brings about a lot of adverse effects to a market and the various forces operating inside it.
One of the forces that is affected is the companies that provide the goods and services for the market. These companies have various departments which are also affected by an economic crisis (Milton, 50). One department that is adversely affected is the marketing department. The marketing department has various tasks and one of the tasks is coming up with a marketing budget which depends on approval by the finance department. This is one area of the department that is adversely affected. We cannot conclude that it is the most affected by it is one of the most affected.
There is need for mechanisms to be in place to avoid economic crisis and most important to get rid of the vices that bring about economic crisis. Such crisis affects even the citizens of the affected country and reduces the quality of life for the citizens.
Milton Friedman and Anna Schwartz , A Monetary History of the United States, 1867-1960. Princeton University Press (1971) 25 – 50 Strauss Kahn D, ‘A systemic crisis demands systemic solutions’, The Financial Times, Sept. 25, 2008. The McKinsey Quarterly (2001 special edition), ”Preparing for a financial crisis” World Economic Forum, (2001) 100-125