Navigating A Pandemic: The Business Strategy Imperative
Following the rude interruption in the operations of businesses across the globe; a direct impact of the on-going pandemic, it has become imperative for businesses to adopt a rather disruptive and perhaps counter-approach to navigating these mucky waters. Against the backdrop of a more intense global public health crisis, the ability to adeptly avoid traditional strategic choices will very clearly set businesses on a path to surviving these challenging times. Seeing as accelerating rates of change, increasing levels of complexity, escalating risks and uncertainty have become the new marketing reality, to defend itself from the external shocks of the pandemic businesses must increase their capacity for resiliency at all levels, and especially in marketing and sales.
With national economies being deeply connected and interdependent, businesses that enjoyed benefits like significant cost reduction while speeding up the production and delivery of goods and services have also come to face the dark side, an even more substantial level of risk and uncertainty.
A change in the realities of one nation (in this case China) causes a chain reaction that spreads very quickly to several other nations resulting in massive disruption, spinning the entire ecosystem into unpredictable outcomes. Economies typically begin a downward spiral. According to The Economist Intelligence Unit (The EIU, a division of The Economist Group), global growth will stand at one percent this year (from 2.3 percent before the outbreak started), as the pandemic affects both supply and demand and limits trade and travel. A sharp fall in global oil demand, coupled with tensions between Russia and Saudi Arabia, have prompted The EIU to revise its oil price forecast: it now believes that oil prices (Brent crude) will average US$45/barrel this year, and recover to US$53.8/b in 2021.
Businesses begin to make more cautious decisions including cutting advertising budget, suspending new product development among other cost cutting measures. Conditions hit rock bottom eventually. Government actions may put a floor on the losses and things begin to look up again. However, when normalcy returns to the economy, it does not return to every industry, market or individual business.
As the COVID-19 has continued to spread and its humanitarian impact has grown, particular challenges have arisen in global retail supply chains, where the pandemic's far-reaching effects have weighed heavily on the health and well-being of employees and jeopardized livelihoods and economic lifelines in many communities. The airline industry which was already marked by too much capacity may require a bailout. The global hospitality industry is on the verge of a hard fall. While it's too early to quantify COVID-19's total financial toll on the luxury-goods sector, the pandemic has certainly shaken some of the foundational aspects of the luxury industry—and some of these changes could be permanent. In a recent survey, McKinsey asked consumers whether they were planning to increase or decrease their in-store and online spending on various types of goods during the next two weeks. Only respondents in Italy and Spain said they were likely to increase their in-store spending on non-discretionary goods, such as groceries and household supplies. Respondents in the United Kingdom and the United States, by contrast, were more likely to say they would increase their online spending on groceries and household items. An analysis of retail traffic in major US metropolitan areas between February 19th and March 20th showed increases in traffic at grocery stores and warehouse chains, while movie theaters, restaurants, and malls remained closed. Downloads of delivery apps for grocery retailers increased by 100 to 200 percent over the same two-week period.
These can be dangerous times for all management. According to Kotler and Caslione (2009), even when a company seemingly does everything right, it can still be swept away by the turbulence that others close to them cannot resist. No one in the corporate world imagined, let alone predicted, the forced takeover of Bear Stearns, the conservatorship of Fannie Mae and Freddie Mac, the failure and rescue of AIG, the bankruptcy and sale of Lehman Brothers, the sale of Wachovia to Citibank and then to Wells Fargo, and the takeover of Countrywide by Bank of America—all of which occurred in a matter of months in late 2008. The global economy received a healthy dose of the surreal, and in the process, even these seemingly unstoppable business institutions have come undone.
Businesses must learn from history. While it is evident that businesses will require some cost cutting measures, it is even more important to understand where to cut, when to cut and in fact how deep to cut. The pandemic and its resulting challenges places businesses in different situation depending on size, history, competitiveness and other business specifics. Some are at more risk than others with regards to finances and overall liquidity. The more reason a one-size-fits-all is not a recommended approach. It is important for management to evaluate the business’ choices, strategies and consequent outcomes from a previous global crisis (e.g. the 2008 global recession).
It is normal for businesses to be more conservative in the face of budgetary concerns, but companies that don’t take risks, don’t invest in product development, and misjudge the need for collaboration will find it difficult to compete when the market is on the upswing. Businesses that invest in R&D and new product development when times are tough, on the other hand, will continue to make money. In fact, more than merely continuing to make money, they will be winners that always emerge out of the most difficult economic times and almost always beat their competition because of something new.
The typical mistakes many companies make regarding their suppliers and distributors before a crisis hits are the same ones that many make as knee-jerk reactions during a crisis as a way to preserve cash flow and right the ship. Regrettably, during a crisis, and especially during tremendously turbulent times, companies need their best suppliers and distributors fully on board with them—fully integrated into company operations.
Seeing as the short term is very uncertain, business leaders must manage this strategically. However, business leaders who make aggressive moves now can enhance their positions in the medium and long term. Tightening up distribution channels by eliminating weaker players and increasing support for the stronger ones, realigning sales and marketing strategies by increasing marketing investment measurement and accountability, restructuring product management and portfolio management processes, eliminating wasteful investments on nonperforming products while freeing development time to focus on new, re-engineered products.
The goal is for business leaders to create organizations that are responsive, robust, and resilient—in short, organizations that have the ability to live and thrive. These are organizations that aspire to and attain Business Enterprise Sustainability (BES)
The main thing to remember during this period is that your customers are likely to change; therefore, you have to change. If you know where your customers are moving, you must be ready to adjust your offerings. It is not enough to cut your costs. You must adjust your product line and service package. A very good example is what Fanatics, Inc. an American online retailer of licensed sportswear, sports equipment, and merchandise has done with its production line, switching from producing sports apparel to producing nose masks for customers and gowns for healthcare practitioners using the various baseball team’s jersey fabrics. A perfect example of unorthodox response to the sudden change consumer behavior.
Marketers should be aware of the growing likelihood of deflation for two reasons. First, there is no need to get locked into long-term commitments on advertising time and space because ad rates will be among the first targets of discounting when times get tough. Add deflation to the mix and media/advertising rates will likely drop a lot. Second, marketing strategies will need to be honed to appeal to increasingly skittish customers who will be in no hurry to buy your products (or anyone else’s) this month when next month’s prices may be lower. The signs of a crisis are all over, and they are not going away anytime soon. In fact, marketers need to keep in mind the following factors as they create their marketing strategies:
1. Secure your market share from core customer segments.
2.Push aggressively for greater market share from competitors matching up to your core customer segments.
3.Research customers more now because their needs and wants are in flux. Everyone is under pressure during times of pandemic which means all customers are changing their habits even those customers in your core segments whom you know so well.
4.Seek to increase or at least maintain your marketing budget. With the market being buffeted by turbulence and your customers getting whipsawed by it (and aggressively marketed to by your competitors), this is the worst time to even think about cutting anything in your marketing budget that targets your core customer segments.
5.Focus on all that’s safe and emphasize core values. When the pandemic is scaring everyone in the market, there is a massive flight to safety by most consumers. This is the time when they need to feel the safety and security of your company and your products and services. Do everything possible to communicate that continuing to do business with you is safe. Sell customers products and services that continue to make them feel safe and spend whatever it takes to do it.
6. Don’t discount your best brands. When you discount them, you instantly tell the market two things: Your prices were too high before you discounted them, and they won’t be worth the price in the future once the discounts are gone. If you want to appeal to more frugal customer needs and wants, then create a new, separate, and distinct product or service offering under a new brand with lower prices. This gives value-conscious customers the ability to stay close to you, while not alienating those who still are willing to pay for your higher-priced brands. Once the pandemic subsides and you see some calm skies ahead, you may consider discontinuing your newly introduced branded value product line or maybe not. Remember, it is better for you to cannibalize your products than for your competitors to do so; at least you can upsell them to customers if they are still your customers.
7.Save the strong; lose the weak: In pandemic markets, you need to make your strongest brands and products even stronger. There’s no time or money to be wasted on marginal brands or overly fragile products that not supported by strong value propositions and solid customer base.
In conclusion, challenging times calls for many changes. Some of which are strategic, others tactical. From a strategic point of view, businesses must remain focused on satisfying their target customers, paying attention to their best customers. It is important to hold off on cost cuts until the business has full understanding of what is happening to its customers, competitors, suppliers and dealers. Before a decision is made, be sure to develop a sense of the possible scenarios and work out a view of appropriate responses to address each scenario.