Main Economic Forecasts The main economic forecasts used to understand the general outlook of the economy included the Congressional Budget Office (CBO) forecast, the Administrations Forecast, the Blue Chip consensus forecasts and the Mortgage Bankers Association (MBA) forecast. Not all forecasts contained the required indicators for the chosen indicators: employment growth, interest rates, housing starts, and business investment. For this reason, the analysis focused on a combination of the forecasts to understand the relationships among the indicators. Gleaning the economic forecasts led to a general understanding of the economy. Conducting further research on the economic forecasts led to a richer understanding of the selected indicators. The focuses of the economic forecasts were real gross domestic product (GDP) and unemployment.
The selected forecasts discussed real GDP and unemployment in depth to give the reader a general understanding of how the economy might respond in the next two years. According to the MBA, real GDP will drop in 2005 in comparison with 2004 and continue to decrease in 2006. In 2007, real GDP will increase slightly in comparison to the previous year. The MBA states the percent change in annual rates will be 4.
4 in 2004, 3. 8 in 2005, 3. 3 in 2006 and 3. 5 in 2007. According to CBO, real GDP will decrease in 2005 compared to 2004; GDP will decrease further in 2006 and continue to decrease during the 2007 through 2010. The CBO states the percentage change of real GDP was 4.
4 in 2004, will be 3. 8 in 2005, 3. 7 in 2006 and 3. 3 on average for the years 2007-2010. The Blue Chip consensus believes real GDP will decrease in 2005 compared to 2004, and continue to descend for the next two years, 2006 and 2007. Blue Chip consensus states real GDP for 2004 as 4.
4, 2005 will be 3. 7, 3. 4 in 2006 and 3. 5 in 2007.
The President's administration believes real GDP will decrease in 2005 compared to 2004 and will continue to decrease in the next two years as well. According to the President's administration, real GDP for 2004 was 4. 4; and will be 3. 7 for 2005, 3.
7 for 2006 and 3. 5 for 2007. The MBA believes the unemployment rate will decrease from 5. 5 in 2004 to 5. 2 in 2005 and continue to descend to 5. 1 in 2006 and 2007.
The CBO believes that unemployment will decrease from 5. 5 in 2004 to 5. 2 in 2005 and remain at 5. 2 through 2010.
Blue Chip consensus believes unemployment will decrease from 5. 5 in 2004 to 5. 3 in 2005 and 2006 and drop slightly again in 2007 to 5. 2. The administration believes unemployment will decrease from 5.
5 in 2004, to 5. 3 in 2005, to 5. 2 for 2006 and 2007. Comparative Table for real GDP and Unemployment Forecaster Indicator 2004 2005 2006 2007 (2007-10) MBA Real GDP 4. 4 3. 8 3.
3 3. 5 Unemployment 5. 5 5. 2 5.
1 5. 1 CBO Real GDP 4. 4 3. 8 3. 7 3. 3 Unemployment 5.
5 5. 2 5. 2 5. 2 Blue Chip Real GDP 4. 4 3. 7 3.
4 3. 5 Unemployment 5. 5 5. 3 5. 2 5. 2 Administration Real GDP 4.
4 3. 7 3. 7 3. 5 Unemployment 5.
5 5. 3 5. 2 5. 2 Economic forecasts predict real GDP to decrease while unemployment decreases. This can give a conflicting view on what the economy might do in the future. While it would appear that real GDP and unemployment should move in opposite directions, this is not necessarily true.
According to CBO unemployment is currently near the natural rate of unemployment, making a decrease in unemployment almost in the economy at large. Further, while industries may be hiring people, they may not be producing more goods and services. In the past few years, due to the recession, many corporations laid off workers and reduced the salaries of those who stayed on. By keeping the salaries low and rehiring employees at lower wages, the corporation can reduce unemployment and keep the production at past levels. Moreover, according to CBO, a moderate tightening of fiscal policy will remove some positive impact on disposable income in 2005. This phenomenon, coupled with foreign manufacturers producing goods in the U.
S. , will lead to decreased real GDP and decreased unemployment. The future of the economy seems to be on a slow growth trend compared to the growth that occurred in 2004, but nonetheless a continual slow growth exists. The MBA, the President's administration and the Blue Chip consensus forecasts are in agreement with the CBO forecasts; their respective numbers are slightly higher or lower but the reasoning in the same.
A Comparison of Two -Year Forecasts CBO's assessment of the country's economic near term outlook is moderately more optimistic than the assessments of the administration, MBA and the Blue Chip consensus. CBO expects more rapid growth in both real and nominal GDP in 2005. The inflation forecasts for all forecasters are similar but CBO predicts lower rates of increase for the CPI-U, consumer price index unit, and GDP price index. The administration tends to follow what the CBO's forecasters predict for the future, while the MBA tends to follow what the Blue Chip consensus predicts.
CBO and Blue Chip predict the same changes for interest rates; however, CBO's forecast for short-term interest rates in 2005 is lower than that of Blue Chips. CBO, Blue Chip, MBA and the administration have similar forecasts for the years beyond 2005. This is due to the unpredictable nature of the economy. All forecasters extend historical patterns in the facts that underlie their estimates of the growth potential of GDP, such as the expansion of the labor force, productivity and the rate of national saving.
This implementation of historical patterns takes into account the possibility of business-cycle fluctuations by basing projected trends on historical averages and growth rates, which include periods of expansion and recession. CBO's medium-term projections also reflect the effects on potential changes in fiscal policy. The administration considers these changes and weighs their effects on the economy as having less of a negative and more of a positive effect. MBA forecasts take actions from the Federal Reserve into account, due to the close association of interest rates and housing starts. Blue Chip consensus considers all fiscal policy but does not weight the policy changes as having beneficial outcomes. Blue Chip is the pessimist of the economic forecasters.
All forecasters project slower growth for the upcoming years. Two factors explain the projected slower growth. First, the rate of investment spending by businesses is lower in the current projection. Second, the mix of investment assumed for the current projection weighs heavily less toward shorter-lived assets (CBO, April 20, 2005). The forecasters believe the sharp drop in income, which has been occurring over the past three years, will reverse; however, many forecasters believe much of the projected rise in income will be in the form of benefits rather than an increase in wages. The administration is slightly more optimistic than the other forecasters - they believe both income and benefits will rise.
Relationship among Forecasts According to the website web CBO's economic forecasts predict more accurately the possible future outcomes than the administrations. While the Blue Chip consensus economic forecasts were slightly more accurate than CBO's, the differences reflected limitations which confront all forecasters. In comparison with Blue Chip's forecasts both CBO and the administration have tended to err on the side of optimism. Both CBO and the administration overestimate growth of real GDP and underestimate inflation. The administration has been more optimistic than CBO in forecasting nominal interest rates. The administrations errors are higher in comparison to those of the CBO forecasts, which appear to be about as accurate as the Blue Chip's forecast over the given period.
According to web the differences among the three forecasts are not large enough to be statistically significant. The smaller number of forecasts available for analysis makes it difficult to distinguish meaningful difference in their performance from those that might arise randomly. There appears to be less statistical bias in CBO's forecast compared to the administration's forecast. An accurate prediction of two-year growth in real output is the most important factor in minimizing errors when forecasting the deficit for the budget year.
The reason is, given current laws and level of national debt, inflation increases both revenues and outlays by similar amounts. According to a study conducted by the Federal Reserve Bank of Atlanta, the monthly Blue Chip Economic Indicator Survey ranks MBA as most accurate economic forecaster among active participants. The MBA focuses on housing forecasts, interest rates, real GDP and unemployment. The limited number of indicators explains why the MBA is capable of giving thorough predictions.
Forecasts for Business Investment Indicator According to the Bureau of Economic Analysis (BEA), business investment in the past declined for the years 2001-2003 - the period when the recession occurred (April 20, 2005). Several events helped create the recession: corporate scandals, inflation of value of technological stocks, September 11, 2001 and the resulting military actions including the hunt for Osama Bin Laden and the war with Iraq. According to the Bureau of Economic Analysis, business investment on three historical forecasts declined during the years 2001-2003. The forecasts include Historical-Cost Investment in Private Fixed Assets, Equipment and Software and Structures by Type, Historical-Cost Investment in Private Nonresidential Fixed Assets by Industry Group and Legal Form of Organization, Real Investment in Fixed Assets and Consumer Durable Goods (April 20, 2005).
The largest decrease in investment was in equipment and software, specifically in the computer industry, a drop form 101. 2 to 85. 2 between the year 2000 and 2001. While the computer industry is slowly bouncing back, the levels of growth may never reach the drastic numbers that occurred in the late 90's. According to the CBO's forecast ed recovery, investment by businesses will be a key force in the ongoing economic turn. Even so, business investment will remain a smaller share of GDP than it has been in past expansions.
Blue Chip consensus is in agreement with CBO's forecast that states, "Business investment will be less of a force in the current recovery and in the future recovery of the economy over the next two years" (April 24, 2005; CBO's Current Economic Projections, April 20, 2005). The administration, CBO and the BEA agree that between the 4 th quarter of 2000 through 2003, business fixed investment suffered an unusually steep and long-lasting decline, falling from 12. 7 percent to 9. 4 percent of potential GDP (CBO's Current Economic Projections, April 20, 2005; BEA, Private Fixed Investment, April 20, 2005).
Economists called this a recession period. The economy is still in the recovery stage after the recession. The most important factor in the decline was the demand for businesses' output - it grew more slowly than their ability to produce with their existing capital and labor. All forecasters agree, another reason for the drop in fixed investment was the high rate of firms's pending during the late 1990's for certain types of information technology. According to all sources, these adverse conditions have improved causing fixed investment to grow in recent quarters.
The forecasters see the prospect of further growth due to an increase in spending for equipment indicated by unfulfilled orders for non-defense capital goods. The forecasters see the changes in tax code as adding to the increase in business investment. The tax cuts and incentives will boost investment in equipment by at least 3% in 2005 and an increase to 4% in 2006 to remain steady at 4% in 2007. The administration sees the increases as slightly higher than CBO's and the BEA's forecasts, at 5% in 2006 and at 5% in 2007. Strong growth of demand over the past year is likely to boost business fixed investment in the future since such spending responds only gradually to greater demand.
Comparison of Forecasts for Business Investment Indicator The CBO and the BEA agree on the future of business investment. Both the BEA and CBO feel business investment will continue to grow at a brisk pace. Several reasons exist for the growth including re boosting inventories, tax cuts and incentives to keep higher numbers of inventory on hand. Both CBO and the BEA see business investment growth being moderate in comparison to past recovery periods in the history of the U. S. economy.
The administration has a slightly higher opinion of the effect of fiscal policy on business investment. The administration feels business investment will be 1% higher than the levels of the CBO and BEA's forecasts. The general concession among the forecasters is the administration has a more optimistic outlook on the economy. Further, the administration may be taking into account actions it plans to make in the next few years, which are not accessible to the other forecasters. The actions, which would affect Business Investment in the next two years, relate to the ongoing war with Iraq and other possibilities of war. Business might decrease investment if the future appears rocky, this would be an incentive for the administration to project a better outlook on business investment.
Forecasts for Employment Growth The Council of Economic Advisors (CEA) projections and the administration's explanation for job growth trends attribute weaknesses in the economy and the job market to a variety of factors such as the events of September 11, 2001, the bursting of the stock market bubble, corporate scandals, consumer spending and the wars in Afghanistan and Iraq. Actual employment levels in recent years have fallen far below the administration's forecasts. In comparison with other forecasters, including the CEA, CBO and Blue Chip consensus, the administration is far more optimistic, although not overtly optimistic, to cause a statistical significance. In its 2003 report, the CEA predicted the average number of jobs in 2003 would be 1. 7 million higher than its average in 2002. Instead, the job number was 400, 000 lower than expected.
Again, all forecasters over-projected the rate of employment growth; however, the administration and the CEA were the worst at being over optimistic, but only by 1% in comparison to CBO and Blue Chip consensus' projections. The CBO believes employment growth will reflect the decrease in gap between GDP and potential GDP over the medium term. On average, the employment growth should stay the same in CBO's estimation for the next two years. However, the CBO does believe employment will grow at around 1% rate. CBO believes employment growth relates directly to unemployment rate, and with the unemployment rate being so close to the natural rate of unemployment, and business investment not growing as rapidly as projected several years ago, employment growth will be steady with minor increases.
However, all forecasters believe job growth over the next year may continue to fall below the level normally associated with a recovery period. Comparison of Forecasts for Employment Growth Indicators The CEA over projects how many jobs the economy will create on a consistent basis - indicated by their past records on job growth and than the actual job growth of that year. The CEA predicted the economy would have created 3. 3 million jobs from November 2003 to September 2004, instead the economy created only 1. 6 million jobs.
Both the administration and the CBO also overestimated job growth. The Blue Chip consensus also over estimated job growth; however, the Blue Chip consensus projects a high and a low rate for job growth. For the period, November 2003 to September 2004, the Blue Chip's low-ball forecast of growth was still 2% higher than the actual job growth. The administration has also noted it's previous over zealousness on job growth and has begun revising it previous projections in the beginning of this year. The differences between the forecasts are minimal and not statistical significant (web). Most forecasters use levels of unemployment to help predict job growth, however if the indicators for unemployment are off, the job growth rate will also be off.
Further, forecasters must predict how business will react to political and fiscal policies, which the administration may or may not put in place in order to influence job growth. If the administration does not implement new and different policies, or the businesses do not react to policies in the manner predicted, forecasters may over estimate job growth. The CEA believes this phenomenon has been occurring to the forecasts within the past few years. Forecasts for Interest Rates The Mortgage Bankers Association (MBA) sees the Federal Funds Rate as increasing from 1. 3 in 2004, to 3. 2 in 2005, 4.
3 in 2006, and to 4. 6 in 2007. This reflects an increase in the rate at which lenders charge consumers for loans and debts of any sort. CBO forecasts the interest rates will increase from 1. 3 in 2004, to 2. 8 in 2005, 4.
0 in 2006 and 4. 6 in 2007. CBO believes the rates will change to reflect its estimates of the Consumer Price Index inflation and real interest rates; CBO bases the forecast on historical rate changes and trends in real return capital. The administration believes the interest rates will not increase as much as the other forecasters project it will. The administration believes the interest rate will increase from 1. 3 in 2004 to 2.
7 in 2005, 3. 9 in 2006 and 4. 2 in 2007; this is due to the administration's belief that the Federal Reserve will continue its moderate increase of interest rates instead of the hike in interest rates the MBA and CBO are projecting. The Blue Chip consensus follows the numbers of the CBO; the only slight difference in numbers is the Blue Chip projects an increase of 4. 2 in 2006 versus the 4. 3 according to the CBO projection.
The Federal Reserve controls the increase in interest rates and they utilize this rate increase to keep inflation under control with in the economy. This makes interest rates one of the main indicators when projecting how the economy might respond in the following years. Historical data shows interest rates are lower now than past rates were ever before. This allows for some speculation on how interest rate increases will actually affect the economy (Money Caf'e.
com). All forecasters believe an increase in interest rates will slow growth within the economy, however, the slowing will not be a complete halt - growth will be moderate and within the Feds comfort zone. Comparison of Interest Rate Forecast 2004 2005 2006 2007 MBA 1. 3 3.
2 4. 3 4. 6 CBO 1. 3 2. 8 4. 0 4.
6 Administration 1. 3 2. 7 3. 9 4. 2 Blue Chip 1. 3 2.
8 4. 2 4. 6 None of the differences between forecasts is statistically significant (web) Comparison of Forecasts for Interest Rates The MBA projections for interest rates are historically higher than all other forecasters' projection rates. However, the Federal Reserve Bank of Atlanta ranks the MBA as the most accurate forecaster; this is due to their focus on a few economic indicators as opposed to other forecaster who look at all economic indicators.
The MBA looks at interest rates as one of the economic indicators they base their projections on. Following the MBA, CBO and Blue Chip are the next closest to accurately predicting interest rates. The Blue Chip has numerous people looking at each indicator and focusing on that indicator, this makes the forecasting of the Blue Chip much more accurate. The Blue Chip consensus also projects a best case and a worst-case scenario making their forecasts more thorough than other forecasts. However, the CBO projects as accurate of a forecast as the Blue Chip - just slightly more optimistic than Blue Chip.
The administration's projection for interest rates is more optimistic than other forecasters' projections; this is due to the administration's need to look at the best options for the economy to improve. The administration feels that the Federal Reserve will continue to increase interest rates at the steady pace it has been raising the interest rate at for the past 16 months. MBA, CBO and Blue Chip feel that the Federal Reserve will increase interest rates at a much quicker rate due to the increasing rate of inflation. These economic forecasters feel the Federal Reserve will take a more proactive approach in moderating the economy's current growth over the next couple of years. This leads the MBA, CBO and Blue Chip to predict higher interest rates than the administration. Forecasts for Housing Starts According to the National Association of Home Builders, American housing starts are expected to lower from, 1, 952, 00 in 2004 to 1, 938, 000 in 2005 to 1, 820, 000 in 2006 (2005).
Many forecasters believe rising interest rates are the reason behind the decrease in housing starts. History and cyclical trends also play an important factor in the level of housing starts. The MBA's historical data shows in the early 80's the housing market was extremely slow, in the mid 80 s it increased again and in the late 80 s early 90 s it decreased. This cycle again occurred throughout the mid to late 90 s and into present day.
Currently the housing market is at its cyclical apex and as forecast ed will slow down and decrease this year and in the coming years (Annual, 2005). However, the Homeownership Alliance notes that while total housing starts inversely correlate to rise and fall of interest rates the total home ownership rate will continue to rise above today's record levels (Bers on, Lereah, Merski, Nothaft and Seiders, 2005). The data from both the National Association of Home Builders and from the MBA further supports this cycle. The MBA clearly utilized this cycle pattern in determining their forecast for the next two years. They believe the increase of interest rate will cause the housing market to slow in the next two years. Their data shows the apex of housing starts was in the first quarter of 2005 and every subsequent quarter in 2005 will have a decrease in housing starts.
Furthermore, they predict a decrease in housing starts to occur in every quarter until the third quarter of 2007 when a slight increase will occur (MBA long-term mortgage, 2005). Comparison of Forecasts for Housing Starts The forecasts for housing starts will differ due to the amount of weight the forecaster gives interest rates. The MBA's historical data shows a clear correlation between times of low interest rates and increased housing starts. Depending on how the forecaster predicts interest rates for the next few years will effect how the same forecaster predicts housing starts.
Many consumers will purchase new homes right after a small increase in interest rates for fear the rates will keep increasing. If the forecaster does not take this phenomenon of consumption into account, the forecast could under estimate the number of housing starts. On the other hand, if the forecaster relies too heavily on this phenomenon the forecast could over estimate the number of housing starts. The Homeownership Alliance is relying on the consumption phenomenon to reach the levels of home ownership they predict.
The National Association of Home Builders and the MBA also follow the reasoning of consumption phenomenon, predicting a slight decrease in housing starts but continues growth nonetheless. Relationship among Indicators The relationships among business investment, employment growth, interest rates and housing starts are complicated and numerous. As business investments increases employment growth increases as well. The reason business investment and employment growth are correlated is simple. As businesses are more confident in the market they keep higher levels of inventory on stock, upgrade equipment, receive and purchase more stock and predict an increase in revenue. The increase in revenue allows the corporation to hire more employees.
As the business production increases, it is necessary to hire more employees, increasing employment growth. Employment growth happens on all levels down the chain of supply as well. If business A supplies a finished product and is investing in higher levels of inventory the corporations in charge of supplying the raw materials become increasingly affected. The increase in demand for the goods to supply business A with the product increases the output of the other corporations, which then increase production. This increase in production creates a need for more employees, stimulating employment growth. If a business is investing in upgrades and the services necessary to maintain their equipment, the business is calling on other corporations to supply services.
The increase in demand for services creates a need for more workers and stimulates employment growth. This symbiotic relationship can go both ways, if business investment decreases employment growth decreases. Further, an increase in business investment does not necessitate a growth in employment. The economy is experiencing this phenomenon to some degree today.
The amount of increasing business investment does not reflect fully in employment growth. The reason this is occurring is due to a still unsteady economy and global politics. While businesses are slightly less apprehensive, they are still unsure as to how well and long the economy will grow. Businesses are scared to push their resources too far, thus they are banking extra revenues and having fewer number of employees perform the same jobs a larger number once performed. The length of time this phenomenon will occur for is not determined. Consumers must regain confidence in the market for employment growth to boom once again.
As employment growth increases, housing starts increase. Employment growth signals a strengthening of the economy and an increase in business investment. The indicators are predicting a steady economy, which increases consumer's confidence in their jobs. Job security relates to whether or not a consumer is willing to make a long-term high financial investment in a new home.
If employment growth is decreasing, meaning people are loosing their jobs, consumers are unlikely to be purchasing new homes. Further effecting housing starts are interest rates, if interest rates are too high, even with good employment growth, consumers are unlikely to purchase large numbers of homes, decreasing housing starts. If employment growth is low and inflation is low, the Federal Reserve is likely to drop interest rates to encourage business investment, which then encourages businesses to hire more employees bringing employment growth to a level the Federal Reserve is comfortable with having. During periods of lower interest rates, employment growth and business investment are up, and correspondingly housing starts will be up. The time in which all indicators are balanced for optimum purchasing of a new home is limited and consumers understand the balance on a basic level. Once the economy is again growing in a manner the Federal Reserve is comfortable with interest rates will slowly increase to slow down the economic growth and control inflation.
However, sometimes an interesting phenomenon occurs in housing starts, a variance from the direct correlation of housing starts to interest rates. If the Federal Reserve raises interest rates slightly, but the rate is still below that of normal, housing starts will increase for a short time. Consumers feel confident in the economy due to the high level of employment growth and business investment. The consumer knows the Federal Reserve would not raise business rates if the economy was headed for a slump, thus the consumer wants to purchase a home while interest rates are lower than they will be in a short amount of time but the economy is still healthy. Forecast Impact on Anheuser-Bush Anheuser-Bush wants to curb declining sales, increase market share and minimize costs. Anheuser-Bush wants to increase revenue and continue to have a large profit margin in times of recovery and recession.
The forecasts suggest a slowing of the market, which will create a slowing of growth and revenue for Anheuser-Bush. To avoid this Anheuser-Busch must first understand what the forecasts could mean and have meant in the past and then develop a plan to combat the possible changes. The slowing of business investment could mean a reduction in employment growth, which means fewer people are receiving new jobs and fewer people feel secure in their current jobs. However, the slowing of business investment does not mean a reduction in business investment. Forecasters expect business investment to continue in the next couple of years; however, the pace at which the growth is occurring will slow.
This indicates the economy is slowing down its speed of growth. Consumption will decrease on behalf of businesses, which will reflect in employment growth. As business slow their hiring processes, fewer people will receive new jobs and the job market will become tighter. Along with a decrease in hires, businesses will decrease the number and amount of raises, decreasing the amount of disposable income. This does not mean disposable income will decrease, it means the increase in disposable income will slow. However, the slowing will cause more people to save versus spend due to a lack of continued increase in wages.
The average consumer will save more just in case the economy slumps again; the slowing of the economy will slow consumption. Thus, Anheuser-Bush must create a solution to encourage consumption of their products even in the slowing economy. A slowing economy does not equate a slowing profit line. Following a decline in business investment growth and employment growth, an increase of interest rates and a decline in the housing market coupled with the continual onslaught of competition from liquor and wine companies will cause the record growth Anheuser-Bush has been experiencing to slow and possibly decline. As interest rates, increase many consumable goods increase in price due to financing. When the mortgage increases on a home due to an increase in interest rates, disposable income decreases.
Any item purchased on credit or with a loan becomes more expensive due to the increase in interest rates, thus again decreasing disposable income. A decrease in disposable income will create a decrease in Anheuser-Bush sales. Anheuser-Bush sells a luxury item, a relatively cheap luxury item, buy unnecessary nonetheless. Due to the nature of the product produced by Anheuser-Bush, it is necessary for the corporation to create solutions to the decreasing market.
Strategies and Changes to Anheuser-Bush Due to the decline in business investment, employment growth, housing starts and an increase in interest rates Anheuser-Bush must develop strategies and effect changes in order to keep revenue growth. Anheuser-Bush must make buying their product appealing. To do this they must focus on their image to the consumer. Current trends and data show that the consumer wants to drink something that will make them appear to be part of the contemporary main stream, the "in crowd." This is why liquor companies are experiencing such growth due to mainstream music glamorizing liquor.
Traditionally beer has been the blue-collar worker's drink. Therefore, Anheuser-Busch must find a way to glamorize its products while not alienating their core, blue-collar consumer. Anheuser-Bush is glamorizing its image by creating two new products called B to the E and Budweiser Select. Anheuser-Busch aims to market Budweiser Select to the contemporary consumer as a classy sophisticated beer that finishes clean with little aftertaste.
B to the E is a beer with energy drink. Anheuser-Busch aims to market B to the E to the consumer who wants to enjoy a sweeter flavor and experience the "up" that an energy drink can deliver. While Anheuser-Busch markets these new products to gain sales and market share, the company is still focusing advertising and marketing on the everyday consumer of Budweiser and Bud Light. Anheuser-Bush must use its name as a "jumping -off-point" to reach the new consumer.
The market share that Anheuser-Bush has created allows the corporation flexibility in creating new products. Anheuser-Bush must use the market share coupled with unique, new, hip, products to continue the increasing profit line. Anheuser-Busch needs to increase advertising toward the younger adult consumer. Bright colors, popular music and popular trends must permeate the advertisements.
The new product labels must be bright, bold, and d eye-catching directing the attention of a younger market. Anheuser-Bush must insist on prime locations within the coolers at the liquor stores to increase the appeal of the new products. Another operation Anheuser-Bush must change in order to account for the decline in business investment, employment growth, housing starts and an increase in interest rates is to minimize costs. In order to accomplish this Anheuser-Busch must maximize productivity from its breweries and its wholesalers. Anheuser Busch will accomplish this buy accurately forecasting the amount of beer consumer will drink and not over producing or under producing any single product. The breweries must take full advantage of the brewing cycle so they do not have to interrupt the cycle to brew a beer that production level was short of sales.
In addition, they do not want to over-produce a product because of slow sales and then have to destroy the extra product and lose any revenue that it could have generated. The wholesalers system must make sure to sell the appropriate corresponding amount of beer to the retailers. A third issues Anheuser-Busch needs to address, to stop declining sales and survive the economic trough, is to utilize its presence as the number one brewer in the country. Anheuser-Busch can utilize its presence, of being number one, by lowering prices or not increasing the prices as they have done in the previous years of growth. This will help keep existing sales and gain new sales. By lowering the average total costs, the need for price increases will not be necessary to keep profits high.
Lowering prices enough to stimulate growth may actually help sales and profits more than it would hurt the individual profit per case sold. By performing these three operational and marketing changes, Anheuser-Busch will be able to curb declining sales and possibly increase their overall market share during the interest rate increase and housing, employment and business investment slump. If these changes are profitable and affect the market positively during the economic decline, then when the market increases in a few years Anheuser-Busch will have a head start to further increasing their sales and their dominance of the ethanol market. All suggested changes would only enhance the viability and profitability of Anheuser-Bush. For these reasons alone, the suggested changes should be fruitful to the corporation. The possibility of a slowing economy makes the changes even more necessary and productive.
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