Commercial and sales response strategy for COVID-19
As the COVID-19 crisis has thrown the world into a turbulent time, Inflexion has been focusing on supporting its management teams in a number of ways, including experience sharing across our portfolio and inviting professionals from our network to share their expertise. We are hosting a series of virtual events to foster this so please do be in touch for more information or to be invited to upcoming webinars.
Acting quickly to minimise negative impact of COVID-19 on business
What we’re experiencing is not just a COVID-19 crisis, but also a developing oil and financial crisis if this goes on for too long, according to Nicolai Broby Eckert, Partner at strategy and marketing consultants Simon-Kucher & Partners. Here he speaks with Maria Orlowski, Inflexion Director with responsiblity for overseeing portfolio companies’ go-to-market strategies, about actions firms can take now to mitigate damage from the current situation.
The world has recently seen a significant reduction in mobility, which means customers not buying products, sales people not going out and visiting clients and suppliers struggling to meet commitments. Rapidly changing demand profiles mean excess inventory is the case in some areas, while others are seeing huge surges in demand and creating short-term supply shortages. This makes forecasting very difficult and so we are seeing risk aversion in the way of reluctance to invest, cancellation of orders and scaling back of products and services.
Previous crises have shown us that some companies will use this drop in demand well. For example, during the last downturn Starbucks reacted nimbly to move towards a licensing model, which helped them enter new markets. We also saw car maker Hyundai adjust its commercial offering to new customer demands by increasing its lease offering and enabling free returns during the last recession, which helped them to gain market share.
There are six actions companies should take at this time, with a cross-functional commercial crisis response team put in place to ensure continuity and adherence to changing policies.
Adjust costs and plan for multiple scenarios. This involves looking at your own costs as a business and rationalising where possible. It also means carefully stress-testing your business under multiple scenarios.
Conduct rigorous scenario planning, for example if there is a delayed recovery or a faster one, as we’re seeing in China. In the shorter-term, execute no-regrets cost cutting to reduce your company’s burn rate. In the longer-term, look at more significant cost levers, including your liquidity, working capital, debt restructuring. And consider more insular-looking changes, such as adjusting your commercial policies (ie shipping charges) and divesting non-core areas.
Stay close to customers to protect the revenue you can in a declining market. Here the 80:20 rule is particularly apt. Focus on your most important clients from a revenue point of view.
Double down on high-value customers, adapting quickly to their changing needs. For example aim to understand their own pain and then develop strategies to address them, such as consider extending their payment terms, void fees for them, make someone available to them 24/7, freeze loyalty tiers and over-deliver on the service you offer them. It is also worth trying to up-sell to them or cross-sell as you deepen the relationship. It is important to not spend too much time on lower value customers, for whom simply communicating about any big changes and voiding select fees may be sufficient to ensure you’re using your time and resource wisely.
Look how you price in a crisis to protect margins. Discounting your pricing may not be helpful for your revenue or bottom line, whereas adjusting your pricing model to reflect usage, or amending pricing terms for certain clients, may help during this period.
Avoid price cuts as it will impact the business now and in the future. It’s a demand crisis and so people won’t buy plane tickets now if you discount them; they simply won’t fly.
Instead, offer price alternatives. For example de-bundle products to kill ‘nice-to-have’ extras, or reduce performance and offer ‘good enough’ solutions. Carefully consider which features/services are must-haves, nice-to-haves and no value.
Be careful with price metrics if you do find yourself in a discounting conversation. If it’s a user-based pricing model, refrain from pure discount. Consider pitching a reduction in number of users and respect list price volume discount curves. If you operate enterprise pricing, be careful with giving discounts and it’s notoriously difficult to claw back once crisis passes. Instead, strip the value down. For usage-based metric, keep a close analytics eye on things like denial reports to help with up-selling and cross-selling.
Revise your commercial model and re-align resources. A sales team member typically spends 10-30% of their time travelling. With that amount of time now freed up, these people can re-focus on remote selling, which should mean they can reach more prospects than before, even if it is virtual rather than face-to-face.
Small changes in key sales levers can dramatically impact sales performance: a 5% increase in the number of leads (use salespeople’s extra capacity with extra virtual meetings), your win rate (double down on key deals with extra resource) and average order size (focus on up-selling and cross-selling) combined with a 5% decrease in the length of sales cycle (focus on deals in later stage of pipeline) improves your results by 21.8%.
Capitalise on growth areas. There may be areas, now and when we exit this scenario, which are worth exploring more. For example expanding into adjacent markets which are not currently served and focusing on after-sales service.
Prepare for the eventual rebound. It is important to remember long-term planning amidst the current crisis, because we will come out of it.
The duration of economic impact is unclear, though history indicates a relatively quick recovery: prior epidemics such as SARS, H3N2, Spanish Flu all saw V-shaped recoveries. Our customers are reporting a strong uptake in orders in China as the COVID-19 crisis reduces in strength. We don’t know in Europe if it’ll be a V, U or W shaped recovery.
Throughout all of this, we must remember to keep the exit in mind. Some of your resources should be shifted to focus to areas less affected and to capitalise on growth opportunities. This happened quickly in China but we’re not sure about how the situation will evolve in Europe and the US. It is about keeping a long-term perspective to ensure your ability to capitalise on strategic opportunities.
Commercial and sales response strategy - summary
- Adjust costs and plan for multiple scenarios
- Stay close to customers to protect the revenue you can in a declining market
- Look how you price in a crisis to protect margins
- Revise your commercial model and re-align resources
- Capitalise on growth areas
- Prepare for the eventual rebound