Invesco Ltd: Influence of COVID-19 Pandemic and the New Product Introduction

Economic Recession

Economic recession can proceed in various patterns and shapes depending on the time to recover. The most prevalent figures are U and V, but there also can be W and L patterns (Jankoff, 2021). The ongoing COVID-19 pandemic caused a significant disturbance to the Australian economy. It is believed that the country’s central business districts (CBDs) will recover in a U-shape rather than V-shape. The latter can be described as a brief and sharp economic downfall, followed by recovery and growth at the same rate as previously (Jankoff, 2021). The former is a long period of recession with a long time to return to pre-depression levels (Jankoff, 2021). These graphs are utilized to describe past slumps and predict potential outcomes of similar economic crises in the future.

Slow recovery from recession is always disturbing for a country and its citizens. According to Duke and Wright (2020), if Melbourne and Sydney CBDs “don’t bounce back in a V-shape, the national economy won’t have a V-shape either” (p. 2). The main reason why the Australian economy may follow the pattern of its largest CBDs is that Melbourne and Sydney comprise 10% of the country’s gross domestic product (Duke and Wright, 2020). I agree with this statement because the world has struggled with the pandemic and its consequences for almost two years. Indeed, many businesses were affected by the COVID-19 crisis, which seems to be far from ending. Therefore, the recovery period may take an extended period, resulting in a U-shape recession graph.

It seems that the pandemic put the world’s life on pause, leading to the global recession, and the Australian economy was equally affected by it. The southeastern parts of Australia, including Melbourne, also experience a substantial decline in all sectors, with a 15% fall in development in 2020 (Duke and Wright, 2020). Ideally, political leaders strive to maintain the country’s economic balance by regulating inflation and deflation rates. Indeed, the goal of policymakers is to attain maximum employment for citizens (Farnham, 2014). It appears that for Melbourne’s suburbs and rural areas to recover from the recession, specific macroeconomic changes should occur. Specifically, the government may need to provide financial assistance to local businesses to reinstall and create new jobs. This approach should decrease the unemployment rate and raise the outcome of the industrial and agricultural sectors.

Companies in Melbourne should be prepared for the significant influence of the macroeconomy. In fact, positive changes for these organizations can happen if international trade returns to a pre-pandemic state. Furthermore, recovery from recession in this region will start when capital flows and trade balance increase, Australia’s selling and buying capacity and its import and export, respectively (Farnham, 2014). Lastly, if policymakers stabilize prices, Melbourne’s firms will experience minimum decline and have sufficient resources to restore faster from the crisis. Overall, the economies of suburbs and rural areas of Melbourne will recuperate if the country’s government controls essential products’ costs, unemployment diminishes due to more jobs, and international trade returns to the usual track.

Invesco Ltd

The current COVID-19 pandemic forced many for-profit organizations to adjust their business and management to adapt to the global economic crisis and remain on the market. Similarly, the American company Invesco Ltd experienced a downfall due to the stock market crash at the beginning of the pandemic (Allison, 2020). Invesco continued to focus on providing a positive investment experience for clients and ensuring the wellbeing of its employees worldwide (Invesco, no date). Since our company is now in the stabilization stage, this report aims to present the plan for the firm to enter the recovery phase smoothly.

Invesco currently manages about $1.6 trillion of customers’ assets, offering investments possibilities in the fixed-income market, real estate, and commodities (Invesco, no date). There are multiple offices in 25 countries, employing more than 8000 workers globally who provide high-quality service across various distribution channels, geographies, and markets (United States Securities and Exchange Commission [USSEC], 2020). Invesco’s financial products are mutual funds, separate accounts, exchange-traded funds, closed-end funds, liquidity funds, and unit trusts (USSEC, 2020). The new product, the variable annuity plan that Invesco will introduce, should help the firm in the recovery phase.

The New Product: Variable Annuities

Annuities are considered a promising investment type because they guarantee deferred income even after a one-time financial contribution. This term can be defined as a contract between an insurance company and an investor (Cautero, 2020). The latter gives a lump sum to this organization, which will return disbursements over a specific period (Cautero, 2020). Five types of annuities are known: fixed, variable, indexed, immediate, and deferred (Cautero, 2020). According to Moenig and Zhu (2020), variable annuities account for approximately $2 trillion assets managed by U.S. insurance firms. It is popular because it offers “a unique combination of investment flexibility, tax benefits, and long-term investment guarantees” (Moenig and Zhu, 2020, p. 1). It is mainly utilized to create insurance plans, which are long-term savings that are better to be withdrawn closer to the end of the contract.

The advantage of purchasing variable annuities for investors is deferred taxes and guaranteed death payments. At the same time, the primary benefit of selling variable annuities for an organization is the fees and commissions associated with this investment (Fisher, 2019). Therefore, Invesco should consider this product to obtain additional capital that will be crucial for the recovery from the recession when the pandemic reaches its resolution.

How Will It Be Produced?

Since Invesco is an investment firm that provides consulting and management services, the production of goods is not a part of this business. Still, different investing opportunities are considered the company’s products; hence, variable annuities need to be produced and polished by our organization before its final version is offered to clients. Each customer will receive a detailed consultation from our agents about the advantages and drawbacks of distributing investments in a specific manner throughout mutual funds. The advertisement on social media and press will announce Invesco’s new product and cheaper service for a particular period. Furthermore, the firm will also send emails to our existing clients, offering to invest in annuities with additional benefits.

The plans of variable investment that Invesco will offer may differ in their length before first payments to purchasers begin. Clients will be provided with a possibility to allocate their variable assets throughout mutual funds, with a 5-15% annual return rate. Furthermore, Invesco’s customers will be able to alter their investment options, during the accumulation period, based on the stock market fluctuations without the requirement to pay taxes. Our firm will pay the earnings entirely during the period mentioned in the agreement; however, if a client decides to take their money earlier, one should pay a 10% penalty. Invesco will offer customers two options to receive their gains, gradually or as a lump sum. Our company’s agents’ commission rate will be 5%, while annual distribution fees will be 1%. Lastly, our clients will have a guaranteed death payment, which means that if they die before receiving their benefits, the beneficiaries can receive a specific amount of money from variable investments.

The Target Audience

The new product will be offered both to the existing clients and new consumers of Invesco. The current customers will be incentivized to invest in variable annuities by reduced distribution fees and commission rates if they purchase these plans before July 2022. Specifically, the agents’ commission will be reduced to 3% and distribution fees to 0.75%. New clients will also be offered a 2% discount for the commission rate if they start investing with Invesco. Moreover, each customer who purchases a variable annuity plan will be automatically enrolled into the lottery with multiple prizes. Overall, Invesco should motivate customers to buy variable annuity plans to increase its profit and be prepared for its recuperation phase when the pandemic starts to decline worldwide.

Implementing Managerial Economics

Microeconomic outcomes are primarily dependent on an organization’s managerial decisions about prices for goods and services that should remain desirable in the competitive market. Indeed, it is the manager’s duty to regulate supply based on the product demand among consumers and monitor rivals’ behavior to respond quickly to any external changes (Farnham, 2014). Indeed, firms should know what competition model exists in their industry. This information is helpful for organizations to understand the future outcomes of their current position and performance. Moreover, they should review the macroeconomic environment constantly to make internal adjustments (Farnham, 2014).

Although the overall situation on the stock market improved after the reopening of businesses and borders, the global economy is still in its stabilization period. Many companies have not recovered yet from the consequences of the economic crisis, and thus unemployment remains to be the governments’ primary concern. Invesco’s managers should consider the macroeconomic situation when making microeconomic choices. It is essential to conduct consumers’ attitudes and preparedness for the new service. Furthermore, prices should be contained within certain limits for many clients to afford the product.

Changes in Demand and Supply

Supply and demand are the two most used terms in economics that need to be discussed in this case to evaluate if the new product will be successful among customers. The demand is a functional relationship between a price of a service or good and their demand among consumers (Farnham, 2014). High demand indicates clients’ increased willingness to purchase a product, while low demand means that an item is not popular among purchasers. The proper advertisement can increase product demand; conversely, accidents and scientific reports proving the harm of particular goods can reduce consumers’ desire to buy them, regardless of the supply and prices. People’s income also influences the demand for some products and purchasing behavior.

For example, normal goods are popular more when populations’ earnings start to rise, while inferior goods are more prevalent when consumers’ income falls (Farnham, 2014). Supply can be defined as “the functional relationship between the price of a good or service and the quantity that producers are willing and able to supply” at a given period (Farnham, 2014, p. 58). Demand and supply are interrelated functions that can impact product price.

It is crucial for Invesco to employ knowledge about these concepts to increase the popularity of variable annuities among clients. These two terms can also be applied for determining the legitimacy of introducing the new product by Invesco. Annuities can be considered a normal good due to the fact that people prefer to buy when their income is high because they have extra money for investment. Since the COVID-19 pandemic caused the economic crisis and increased unemployment, clients’ financial gains decreased and may be low until the end of the coronavirus crisis. Hence, the demand for annuity plans is expected to be diminished during this period. Still, long-term savings are essential for an average citizen; thus, designing compelling advertisements and offering discounts for Invesco’s services can attract more customers to invest in their future.

Demand Elasticity for the New Product

The investment market is a dynamically changing field with unstable prices for various products. Similarly, the profit from annuities directly depends on the cost fluctuations of mutual funds on the stock market. Such “percentage change in the quantity demanded of a particular product relative to the percentage change in … the variables included in the demand function” is known as demand elasticity (Farnham, 2014, p. 78). This coefficient is needed to determine and compare elasticities for goods and variables. Moreover, price elasticity is understood as an alteration in need for a given item relative to a change in the price (Farnham, 2014).

Indeed, knowing price and demand elasticity is crucial for companies to predict profit from a particular product. Since many people want to have more long-term savings apart from their retirement plans, variable annuities are attractive for them in terms of the flexibility of this type of investment. However, at the times of the pandemic, clients may exhibit more frugality due to the relatively high costs of this service. Therefore, making Invesco’s service less expensive may increase the demand for the new product.

Test Marketing and Pricing Strategies

Before the new product is introduced, the firm needs to identify how the target audience will respond to the cost of the new service. In this case, test marketing can be implemented to explore customers’ reactions. This concept is defined as an approach to analyzing consumer behaviors and responses to specific products in simulated or real markets (Farnham, 2014). Furthermore, test marketing allows conducting price experiments to determine the most compelling prices for the customers and find if the rise in cost significantly affects the demand. However, these experiments are not always practical because people’s behavior in the experimental setting may differ from real-life situations (Farnham, 2014). Still, creating models can help predict potential outcomes for particular goods and services, especially if a pragmatic approach and accurate data are used to develop scenarios for testing.

Since social experiments are expensive and still risky to conduct as the coronavirus continues to spread because many people have not received their vaccinations yet, Invesco will perform simulation studies using artificial intelligence (AI) software. AI can help to obtain unbiased information about people’s potential responses because complex algorithms will utilize data from their previous behavior and attitudes in similar situations. Furthermore, AI can evaluate different variables more precisely using regression analysis. Thus, Invesco will use the services of Economic AI company that offers prediction analysis using mathematical statistics, machine learning techniques, and econometrics (Economic AI, no date). This firm will be asked to complete the research within the next two months so that Invesco can start introducing the new product by spring 2022.

Competition Models and the Analysis of Industry

Healthy competition is beneficial for customers and companies because the latter strive to produce better products and establish lower prices. Four types of rivalry exist in the economy: monopoly, perfect competition, oligopoly, and monopolistic competition (Farnham, 2014). First, perfect competition possesses such features as multiple firms in an industry, ease of entering the market, availability of information, and product undifferentiation (Farnham, 2014). Second, monopoly is described as the market structure with one provider of services or goods without other alternatives (Farnham, 2014). Third, monopolistic competition is close to the perfect model, but the companies offer differentiated products (Farnham, 2014). Lastly, oligopoly is characterized by a small number of organizations in a particular industry and high entry barriers (Farnham, 2014). The investment management business is a competitive field, and it appears that it is closer to the first model because of an abundance of firms offering these services.

Invesco’s Rivals

In the modern times of advanced technologies, investment management business became relatively easy to enter. Furthermore, there is much information about this field on the Internet; thus, our company has many rivals. According to USSEC (2020), Invesco wrestles “with a large number of investment firms, commercial banks, investment banks, broker-dealers, hedge funds, insurance companies, and other financial institutions” (p. 9). These companies are the Bank of America, Citigroup, the Bank of New York, Franklin Resources, the Goldman Sachs Group, Huntington, Janus Capital Group, Lincoln National Corporation, and many others (CSI Market, no date). Nevertheless, our firm provides high-quality products and services that allow Invesco to succeed in this market.

The Impact of Inflation and Unemployment on Invesco

Inflation and unemployment that became more prominent during the ongoing pandemic can negatively impact Invesco in several ways. Specifically, inflation may lead to two negative scenarios for our firm. First, it can result in the rise in Invesco’s “cost structure, especially to the extent that large expense components such as compensation are impacted” (USSEC, 2020, p. 63). Second, inflation may cause an increase in interest rate, reducing the value of assets that our firm manages (USSEC, 2020).

High unemployment rates affect the demand for all products of our company because people without a job and constant income are usually reluctant to spend their savings for such purposes. Since this variable is related to the macroeconomy, our firm cannot influence it. The best strategy, in this case, is to wait until the situation with employment improves and continue to perfect the existing products and services to preserve the trust of our clients and recruit more investors.

The Effect of the COVID-19 Pandemic on Invesco

Invesco’s assets under management were substantially affected at the initial phases of the pandemic. Furthermore, to ensure our staff’s safety, most employees were transferred to remote work (USSEC, 2020). The main concern of our organization is that if the coronavirus infection is not contained due to people’s resistance to vaccination, operational issues will be more challenging to rectify in this mode (USSEC, 2020).

Moreover, Invesco considers the importance of strengthening cybersecurity because “the increased frequency and sophistication of external threat actors” can put our firm “at increased risk for data privacy” (USSEC, 2020, p. 11). Unfortunately, rapid viral mutations and adaptations make it hard to predict the outcomes of this situation. Still, the hope is that the implementation of vaccination worldwide will allow attaining herd immunity, and countries’ lives and economies will return to their pre-pandemic levels.

Conclusion

In summary, the current pandemic harmed the global investment market, resulting in significant losses for Invesco at the beginning of the lockdown. Increased unemployment and inflation also negatively affected the investment management organizations because the demand for their services among purchasers diminished. Since the introduction of vaccination, the situation has improved, and our firm is currently at the stabilization stage. To prepare Invesco for the recuperation phase after the recession, our company should introduce a new product to bring profit. The new service is variable annuity plans that will be offered to our clients at a reduced price.

Annuities are advantageous for investors because these long-term savings are not obliged for taxation until the time of withdrawal. Indeed, this information can be utilized for creating a proper advertisement to attract more customers. Moreover, our firm will use the service of Economic AI to conduct simulated market analysis using available data about consumer behavior and machine learning algorithms. Overall, this service is expected to recruit more investors and finances to our company to be better prepared to recover from the economic recession caused by the current pandemic.

Reference List

Allison, D. (2020). ‘Atlanta’s Invesco mortgage capital rocked by COVID-19 pandemic, shares lose 50%’. Atlanta Business Chronicle. Web.

Cautero, R. (2020). Explaining the different types of annuities. Web.

CSI Market. (no date). Invesco Ltd. Web.

Duke, J. and Wright, S. (2020). ‘Melbourne CBD needs to ‘swing hard’ to recover from double-digit economic hit’. The Sydney Morning Herald. Web.

Economic AI. (no date). About us. Web.

Farnham, P. (2014). Economics for managers, global edition. 3rd edn. Pearson.

Fisher, S. (2019) What is variable annuity?. Web.

Invesco (no date) About us. Web.

Jankoff, C. (2021) Economics manual, summary materials, Economics MCR001E, University, Web.

Moenig, T. and Zhu, N. (2020) ‘The economics of a secondary market for variable annuities’, North American Actuarial Journal, pp. 1-27. Web.

United States Securities and Exchange Commission (2020) Invesco Ltd. Web.