Revenue growth management in times of crisis
During periods of great crisis, when markets fall dramatically, many companies react instantly and fast by cutting costs. They do this in order to protect at least their bottom line as much as possible. This may be a rational response and it may be efficient too, but how effective is it, especially if plans and actions are limited to that only?
Before a company decides to cut costs, it should do a detailed exercise regarding the potential opportunities it may have in relation to top line/revenue growth (both, in terms of volume and value) and gross profit protection. This process will help them become more effective, efficient and make the right strategic choices in relation to the long–term course of business.
This holistic approach is particularly useful and necessary in periods of falling/stagnant markets and intensified competition.
Premium and value for money, not meaning the cheap but well worth its money, will gain ground. At the same time, consumers’ income will be squeezed.
What companies need to do first is redefine the price positioning of their products in an objective way and in accordance with the new market conditions. Second, run price elasticity studies, in order to measure the response of consumers at different price levels. This will help in making the right decisions in terms of pricing. To put it simply, companies have to ensure that for every dollar they invest in their customers, they get correspondingly profitable sales.
Discounts of all kinds, contractual and non-contractual, are usually one of the biggest expenses of a business.
In times of crisis, due to the pressure in sales, there is a tendency to loosen the management of this very critical line. This is a result of the pressure that salesforce has in order to sell-in or sell-out more and thus grow the top-line. It is not necessarily that in times of crisis companies must reduce discounts, but more that in such situations, companies have to revisit their discounts and ensure that they handle them as an investment and not just as an expense or merely as a ‘cost of doing business’.
To make this happen, companies should revisit the terms and rethink their approach. Ideally, they should end up in a model with the following characteristics in trading terms:
- Clarity in definitions
- Simple (understandable)
- Easy to execute
- Balanced (between customers and across channels)
- Transparency (contractual and non-contractual)
- Effectiveness and efficiency
- Maximum conditionality
- Return on investment
Remember this is a thorough Sales – Finance exercise.
It is not necessarily that in times of crisis companies must reduce discounts, but more that in such situations, companies have to revisit their discounts and ensure that they handle them as an investment and not just as an expense or merely as a ‘cost of doing business’.
Mix of Sales
What is the mix of sales in terms of brands, channels and customers? This is important to revisit. Ideally, the business has to defend its ‘cash cows’, invest in rising stars, take some reasonable risks with a few important questions marks. Doing this you will find opportunities even in the deepest crisis.
When you do this and identify all positive combinations, the next step will be to reallocate investment across brands, channels and customers.
Promotions is another important area, because during consumption pressure, promotions are an ‘obvious’ driver in order to improve the top line. But consider:
- At what intensity?
- With what objectives and goals?
- What exactly will be the revised mix of A&P?
- And most importantly, how does the business evaluate promotions effectiveness and efficiency (ROI)?
In relation to the latter, we know that there are various models of promotions evaluation. I recommend two simple things:
- Make promotions evaluation an integral part of trade marketing grid
- Keep it Simple. And this is a very difficult task. will always be the risk of not having all the necessary data, or the risk of becoming very analytical and building unnecessary complexity. The simpler the process, the more efficient it will be - you just need to draw some basic conclusions and measure RO
The development of distribution is one of the most effective ways to grow the top line. And this is because it is simple, straightforward and direct:
- Measure the gap of distribution per brand, channel and customer
- Benchmark this gap vs major competitors
- Set specific distribution objectives
- Develop a plan, including specific incentives (customers/salesforce) that will help to boost distribution
- Execute, measure, evaluate and reward
Under this topic, businesses may review and include new product launches. The key here is to be highly focused, selective and have a cohesive plan of development, supporting both the sell-in and the sell-out.
Credit Risk Management
In periods of severe recession, the lack of liquidity increases significantly the credit risk.
The problem with credit risk is that if it happens, it has a full and direct impact on profit, with painful effects. As a result it should be a key priority (especially during recession).
There are three things that highly affect the final result:
- Very good knowledge of the market and customers
- Very good routine coordination between Sales, Credit Control and Finance
- Speed of reaction in case of negative developments
Stay loyal to Customers
It is during these hard periods that customers need to feel you by their side. This doesn’t mean that you will do what customers want. But it means that you have to listen to their needs, understand them and take them into account when making decisions.
Your customers want to that you stay calm, disciplined, consistent, trustful and see empathy as you manage the situation.
Take care and focus on commercial agility
To be commercially agile, you need to ensure that in these difficult times your salesforce remains sharp, speedy and with high morale. So, take care of your salesforce.