Navigating business challenges during the COVID-19 crisis
We are living in unprecedented times. Not since the 1918 Spanish Flu pandemic have we seen such an impact on people, society, and our economic way of life. Even in the three previous recessions, we have not experienced the impact Coronavirus is having on our daily personal and business lives.
As history has shown us, regardless of recessions or extreme events that impacted the economy, we will eventually get through it and thrive once again. History has also shown us that businesses tend to be reactionary with responses like cutting budgets and employees, as we have seen in this pandemic. As cash is king, when there are unknown business implications, preserving cash is understandably of utmost importance.
Don't get me wrong, I'm not saying I don't agree with this approach or strategy; it’s just that I believe there needs to be a balanced approach to operations and investments – marketing, innovation, and M&A.
That said, marketing is, unfortunately, the first line item to often be cut. Marketing is, in my opinion, the strategic engine for any business as it impacts every department within your company. It provides opportunities for sales, differentiates your brand in the marketplace, and helps to fend off competition. Without it, I believe a business leaves itself vulnerable.
A Historical Viewpoint
When news of the global spread of coronavirus disease (COVID-19) emerged, global financial markets reacted and behaved in ways not seen since the 2008 financial crisis. Fully understanding the potential future economic impact of the virus remains difficult because, as a society, we have never experienced anything like this in our lifetime.
During the Spanish Flu pandemic, large US cities, including New York and Philadelphia, were virtually shut down as their citizens became sick. Like today, businesses were closed, sporting events canceled, and private gatherings banned to stem the spread of the disease.
According to a March 14, 2020 article in Mother Jones, "while the coronavirus pandemic is unlikely to be as severe as the Spanish flu which killed 700,000, the Spanish flu had a surprisingly modest effect on the economy in 1919 and beyond."
Learning from History
The comparison between the Spanish Flu and the Coronavirus is not meant to downplay the impact of the current pandemic or the Spanish Flu, but to point out that in the long run, the effect on our economy may be short-lived. How short-lived is defined is another article!
"This, of course, is wonderful, thank you very much, but I didn't live in 1918, and the Coronavirus is impacting me plenty!" said one of my earlier readers of this article.
I don't disagree. This pandemic is wreaking havoc on most businesses and the people who work for them. Not on all of course, as some businesses are thriving and growing as a result of these unique societal and behavioral changes. Companies providing technology to assist with the "new normal" of working from home, cybersecurity, medical companies, HR consultants, employment lawyers, and others providing products and services to facilitate our business and personal wellbeing are doing pretty good. They may not have even had to pivot their business model, but naturally, we must ask the question: what is their course of action when this is all over? Is their current or new business models sustainable in the "next new normal?"
Take a Breath - Don't Make Rash Decisions
Make the best business decisions and avoid business disasters. It sounds simple. Great advice!
However, business leaders tend to, probably more often than they should go with their gut or intuition based on previous experiences. In doing so, there are many cognitive biases that can impact these decisions.
Dr. Gleb Tsipursky, Disaster Avoidance Expert, and a recent guest on my podcast, Business Growth Café, writes that there are over 100 cognitive biases that can impact decision making. In his latest book, Never Go with Your Gut, he addresses 30 of them. While the pandemic did not exist when he wrote the book, its contents are even more relevant today as business leaders are trying to navigate these troubling times.
One way to mitigate the risk of bias is to talk with your customers and your prospects. If you have listened to my podcast or read my previous blogs, you know this is a mantra of mine. Know your customer. There is only one way to truly know them, and that is to talk with them.
Ask the right questions to understand better the impact of this downturn and pandemic are having on them personally and professionally. Showing you care as a leader and how important they are to you, not just as a revenue line on your P&L, is essential (in non-crisis times, too). The learning and insights you derive can be used to help in your sales and marketing messages to help you stay relevant.
Talk with your Customers
Qualitative or quantitative studies it does not matter. What methodology you use depends on the outcome you are trying to achieve.
Imagine, with everyone working from home, your customers will have something to tell you about what's happening in their business and how you can help. And they may be easier to reach than ever before.
So, don't guess–quit talking to yourselves in the boardroom or bedroom to come up with the definitive solution–talk with your customers. Don't let biases like "group think" where people tend to go along with the leader in the room (or Zoom meeting), lead you down the wrong path.
Understanding the behaviors and motivations of your customers are essential when developing marketing strategies. Ensuring you know them is essential when appealing to them during this crisis. When speaking with your customers, you can dig into more of their psychographics: their behaviors, motivations, concerns, needs, and wants to help focus your efforts.
Demographic segmentation may be less relevant than segmenting on psychographics in your marketing and sales efforts in this economic downturn.
Protect Your Brand
During crises, when sales start to decline, companies are inclined to go after low hanging fruit. It's a good strategy, especially when you're focused on generating cash flow.
However, you must be careful you don't change the essence of your brand.
If you're a luxury brand, for example, and you now begin targeting and pushing more of a commodity product, the perception of your brand could change, leaving your loyal customers confused.
I'm not saying you shouldn't explore and examine every possible avenue; I'm just cautioning to be careful of short-term gains/opportunities versus the long-term impact on your brand.
Ask yourself what it would take to get back your position in the market, especially if a competitor stepped in to take your place.
Seek Operational and Marketing Balance
Based on studies that examined previous recessions and the impact they had on business, they found that selectively reducing costs by focusing more on operational efficiencies, and even investment in marketing, R&D, and new assets helped them achieve more growth than their competitors in post-recessionary times.
A March 2010 article in Harvard Business Review, "Roaring out of Recession," confirms that cutting costs deeper and faster didn't cause flourishing after the recession. Those that succeeded implemented a delicate balance of cost-cutting to survive, but also invested in planned growth for tomorrow, and did well after a recession.
The study conducted by HBR and the basis for the article was a yearlong project analyzing strategy and corporate performance during the past three global recessions, which included the 1980 crisis (which lasted from 1980 to 1982), the 1990 slowdown (1990 to 1991), and the 2000 bust (2000 to 2002). 4,700 public companies were included in the study. The study grouped the data into three periods: the three years before a recession, the three years after, and the recession years themselves.
According to the study, those that cut operational costs quickly had the lowest probability (21%) of pulling ahead of the competition when times get better. Those that invested heavily only had a 26% chance of becoming a leader after the downturn. The study also concluded that about 85% of companies that were pre-recession growth leaders often couldn't retain their momentum through the recession and failed.
However, those that deployed a combination of defensive and offensive strategies in a more balanced approach resulted in the highest probability (37%) of breaking away from the pack in post-recessionary times.
As quoted in the September 5, 2019, Forbes article, "When A Recession Comes, Don't Stop Advertising." When marketers cut back on their advertising spending, the brand loses "share of mind" with its customers and, in turn, can potentially lose future sales. An increase in "share of voice" can lead to an increase in share of the market, which can lead to increased profits.
Finding an operational balance is key!
Number 1: Cash is King. Number 2: Communicate. Number 3: Buy or Bury the Competition." – Jack Welch
Keep an eye on your competitors. You should spend time watching to see if their strategies have changed to determine if they have created an opportunity for you. They will also most likely be watching you for the same.
If you've sent out a press release letting the market know you've laid off or furloughed your employees, have delivery or production issues, pulled your marketing from some or all of your channels or any other number of actions, you've just rung the dinner bell for one or more of your competitors, and potentially companies that were not competitors before, but now see the opportunity you just created.
I've spoken about this before in my blogs, on my podcast and even in my eBook on "Establishing a Competitive Intelligence Program" on my website: you need to have an active program in place. Having a competitive program is just a good business strategy and shouldn’t be just a program that you are putting in place because of the current crisis.
Having a program helps you and your business identify the opportunities that may arise. Maybe the things I described in the previous paragraph are happening to your competitors, hence presenting you with opportunities to expand your customer base, introduce new products, open up new markets and, possibly, even acquire a competitor or two.
For example, in the 1990 – 91 recession, Pizza Hut and Taco Bell took advantage of McDonald's decision to drop its advertising and promotional budget. As a result, Pizza Hut increased sales by 61% and Taco Bell 40%, while McDonald's sales decreased by 28%.
In 2009, Amazon sales grew 28% in the "great recession." According to an April 10, 2020 article in Vox, Amazon, which already accounted for nearly 40 percent of all US online retail sales, is up 35 percent from the same "recessionary" period last year, according to estimates from Facteus, a firm that analyzes more than 30 million daily payment card transactions
In March 2020, Airbnb stopped all its marketing activities to save an estimated $800 million. As a result, Airbnb lowered its internal valuation by 16% and experienced a 40% drop in bookings. While most hotels, travel, and leisure brands are suffering during this time, the question becomes, was there an alternative strategy and what is the long-term impact of this move on the brand?
These are lessons for all brands. How you allocate and how much you cut marketing budgets should reflect the shift from spurring demand to maintaining customer relationships.
Lastly, stay flexible and adjust your strategies and tactics on the assumption of a prolonged difficult downturn, yet be able to respond quickly when the upturn comes.
One possible way is to think of or play out "What if Scenarios" or "Scenarios Planning."
The decisions businesses make in the near-term will most likely impact how they sustain their business in the long run. Now is the time for leaders to be decisive and implement well-thought-out actions to minimize the economic impact yet to come, and at the same time, prepare for what changes may lie in the months ahead.
The bottom line: don't wait until the economy is in full recovery to ramp up or even act. Seek a balance between operations to preserve cash and investing in your company’s future.
I love this quote by C. S. Lewis, and I believe it is a rallying cry that business leaders should embrace:
You can't go back and change the beginning, but you can start where you are and change the ending!
To read more blogs or listen to my podcast, Business Growth Cafe visit www.theponzigroup.com