This was first published by on May 19, 2020.
The previous article looks at the near-term commercially focused moves to help companies emerge stronger from a crisis. In this piece, we explore the applications of these concepts and provide practical guidance and examples.
As a reminder, there is no single formula that works for all companies and industries. However, we believe the following principles can serve as a guide to a balanced plan of attack:
1. Double down on your best customers – and prospective customers.
In our previous article, we discussed the importance of understanding customer economics and applying learnings to a segmentation-and-targeting strategy to allocate constrained resources purposefully. In this environment of change, the best customers moving forward may also be different. Players that recognize how customer lifetime value is shifting and act accordingly will gain an advantage in the marketplace. To better evaluate customer mix, consider the following drivers:
- Future customer value, considering likely changes in volumes, mix, and channels
- Customer’s creditworthiness or ability to pay on-time
- Ability to meet the customer’s needs and the cost to serve them
- Loyalty (or conversely the propensity for attrition) of a current customer or the “stickiness” of a potential new customer
The returns from focusing on the best customers can be striking – even in good times. We saw one business services company drive 45 percent sales growth over two years, just by focusing their sales teams’ time and attention on the most promising customers (and eliminating the lower-value, high-touch segments at the tail of profitability).
During a crisis, customers are often reluctant to disrupt operations, leading to increased risk-aversion to switching suppliers. This can create a unique opportunity to strengthen the relationship and create more stickiness. One natural way to do this is through more aggressive cross-selling and upselling practices, which has the added benefit of also filling in the void left by the slowdowns in new business generation caused by the current environment.
In an analogous fashion, in consumer tech businesses such as mobile telecom and video streaming, we’ve observed a large reduction in customer churn as subscribers seek to avoid disrupting services they view as a “lifeline” in a world under lockdown. In one major mobile telecom market, there has been a 50 percent reduction in gross churn and a 60 percent reduction in the creation of new accounts. During this time, providers should look to cross-sell and upsell additional services to increase their share of customer wallet and focus less energy on new customer acquisition.
2. Avoid the temptation to engage in dilutive pricing practices. We previously warned against price adjustments that lead to unnecessary margin erosion.
Be wary of mistaking your willingness to accept a price for your customer’s willingness to pay; just because the bottom has fallen out of demand doesn’t mean the bottom should fall out of your pricing. For example, in the airline industry, from nearly 2.5 million TSA daily checkpoints per day, in February, to something around 100,000 passengers per day in April, reflecting roughly a 96 percent drop in air travel demand. A mid-April shop, three days in advance, for a one-way fare from one Florida airport to a Midwestern hub showed two non-stop flights available: one for $19 on a discount carrier and another for $449 on a traditional carrier. Imagine how many more tickets the discount carrier has to sell at their price to make up for the revenue dilution their fare represents (nearly 24 times as many) – and were the few people who elected to fly then really that price elastic? (Interestingly, by mid-May, the discount carrier had done the math; in fact, their fare is now $37 higher than the traditional carrier!)
In the event that discounts are determined a necessary action to stimulate or preserve demand, ensure that they are offered in a way that isn’t permanently dilutive to prices and clearly temporary in nature. Winning tactics that have been observed in both B2B and B2C settings include committing to volume (or share of wallet) in exchange for price decreases, providing free products or services in the place of price reductions, and increasing loyalty benefits. For example, one industrial component manufacturer received a request from a large off-road equipment manufacturer customer, struggling in a down market: “We need an across-the-board 30-40 percent price cut.” Instead of acceding to the demand as put to them, the component manufacturer managed to negotiate a deal where they provided some meaningful discounts on some products that were very important to the customer. At the same time, they actually were able to negotiate a slight increase on other products. What made the deal work was that the component maker received new orders for a portfolio of products that had previously been sent to their competitor. The net impact was that overall pricing came down (a victory for customer’s procurement department), but that overall revenue and margin dollars went up for the component maker (a victory for them).
3. Adjust commercial resources to reflect shifting demand and buying habits. We previously mentioned that as demand patterns and purchasing behaviors change, channel preferences and mix likely will shift too. While shifts to digital and away from face-to-face or in-person interactions have been occurring for years, this trend has accelerated during the latest crisis and likely will persist even when mobility restraints are lifted.
What is driving this shift? In part, the next generation of buyers and consumers prefer digital forms of communication. They also typically complete most of their research before the first touchpoint with a sales representative, shifting the nature of the sales touchpoints to more focused questions with a preference for greater insights and speed.
While B2B and B2C sales organizations will still likely need some level of in-person interactions or physical channels, companies with digital sales capabilities and channels will be more resilient during the crisis and will be better positioned to accelerate growth and emerge stronger after the crisis.
One footwear retailer, faced with the closure of their stores amidst stay-at-home orders in many states, entered into a partnership with a grocer to get their shoes to the end customer. Customers could order shoes online, and then pick them up, along with their groceries, at the grocer’s stores, which were still open as an essential service. Even if the fulfilment is still offline, agility with the digital sales channel was critical to keeping the shoe business on its feet.
4. Redesign and re-articulate your offerings to adapt to your customers’ realities. We previously discussed how marketing efforts and offerings should be altered to account for the new reality of target audiences. Key considerations in assessing potential adjustments to the offering may include the following:
- How have customer preferences changed? Are these changes likely to be temporary or more permanent shifts?
- What is the impact of these changes on demand for your current offerings?
- How can you leverage current assets (such as products, services, technologies, end markets, footprint), unique skills, or special relationships to reposition and adapt the offering to the changing customer preferences?
- Which opportunities are most promising when considering key criteria such as potential demand, ROI, time to market, competitive landscape, and likelihood of success?
One destination services company that sells side tours to travelers visiting new places faced a complete “demand vacuum” as the pandemic has stopped most international and domestic vacation travel. Instead of shutting down, the company recently rolled out more than 100 virtual experiences as part of its #RoamFromHome campaign. The virtual experiences include cooking classes, hanging out on a beach with penguins, and virtual sightseeing… “all from the safety of your sofa.” While the company is certainly not making as much money as they would in better times, the new offering keeps them relevant to consumers and helps their partners (those who are offering the paid experiences) make some money in an otherwise challenging time.
While we acknowledge that keeping the business afloat during a crisis is the priority, history has shown that companies that look ahead are the ones that end up capturing the full benefits of an economic recovery. Remember, a mindset of positioning your business for long-term success is relevant in both good and difficult times.
