Manufacturers shouldn’t focus too heavily on an “after corona” world, rather put resources towards surviving the “with corona” period that will endure for the next 18 to 24 months. By innovating their Go-to-Market model they can develop commercial agility, the key to surviving this crisis. As Peter Colman explains.
Disruption is here and this crisis is different from previous ones. For manufacturers, their typical response of focusing on efficiency and operational excellence, while useful, won’t be enough.
What you need is an innovative response to address demand changes and disruptions to your go-to-market model. We define this as commercial agility – the ability to make pricing, product design, sales, and cost management decisions with unprecedented speed and flexibility until some form of equilibrium returns to your market.
There has been a lot of discussion and speculation about when businesses will be able to go “back to normal”, but while many are understandably eager for a quick return to normal, this is a resurgent crisis.
We don’t know how often the resurgent Covid-19 virus will force businesses to hit the reset button between now and 2022. The answer to the question of whether the recovery from the Covid-19 crisis will have a U, V, or L shape is, “all of the above.”
Established strategies won’t work with Covid-19
In a resurgent crisis, demand fluctuations are greater than what most manufacturers will have ever experienced, with some lasting and fundamental changes to demand patterns.
The corresponding stress on the go-to-market models is likewise unprecedented. Social distancing and supply constraints mean it is much harder to sell products and services, deliver them, and maintain control over customer safety and the customer experience.
Meanwhile, customers are receiving a crash course in what they can (or can’t) live without, and companies are confronted with what they can (or can’t) do well in response.
Every industrial company lies within one of four scenarios:
Some manufacturers experience that demand shifts are working in their favour:
- Thriving – challenge is to remain in this scenario by monetising and holding onto the demand, e.g. by adapting pricing and expanding their range of channels.
- Overwhelmed – might not be able to maintain quality and service standards. Improving revenue and operating models, as well as investing in digital capabilities, can be a remedy.
Due to declines or changes in the nature of the demand, demand shifts have worked against many other companies:
- Overweight – significant demand issues but experience limited stress on the go-to-market model, warranting few if any changes. They can fall back on proven crisis responses.
- Threatened – low demand services that require human-to-human contact and have no obvious digital mirror. Therefore, face complete collapse unless they literally invent additional ways to deliver their products or services.
Whether a manufacturer can move to a better position, or defend a desirable one, will come down to their commercial agility.
Commercial agility – the key to surviving this crisis is based on five pillars:
1. Agile offer design: Companies can react to changes in customer needs, product alternatives, and channel choices by rethinking their product portfolio.
For example, is there a need for a Less Expensive Alternative (LEA) within the product line-up. These stripped-down offers can appeal to price sensitive customer segments but must be carefully fenced so as not to cannibalise the sales of premium products.
A focus on aftermarket products and services becomes increasingly important.
2. Agile sales: Digital selling and e-commerce channels need to be the sales department’s highest priority, especially remote sales using videoconferencing, in order to replicate face-to-face or field sales interactions as closely as possible.
This requires specialist training, both in terms of the technical skills and relationship building. Key accounts will still require close attention even in a remote world, particularly those who need complex solutions.
Virtual war rooms can help coordinate these activities across sales, product management, pricing and commercial leadership roles to improve win rates.
3. Agile cost management: Commercial agility does not come cheap, which makes it essential to pass at least some of these investment costs on through the value chain.
Add to this a supply chain shift from ‘low cost’ towards ‘low risk’ and we will soon move into an era of significant cost inflation. To change prices quickly at such a sensitive time will require great agility.
4. Agile pricing: Adding agility to pricing processes and price models, e.g. through differentiated pricing, enables companies to seize opportunities and respond to volatile demand.
Doing this requires changes to governance and tools; companies need to decentralise their price decision-making, which in turn requires a real-time infrastructure for delivering discounting guidance and monitoring selling prices.
5. Economic resilience: Companies need an economic model that can cope with the further shocks this crisis will inevitably cause.
That means emphasising profit and cash flow over market share and grasping the opportunity to implement – and even force – shifts to recurring revenue models, e.g. subscriptions and servitization.
Commercial agility greatly increases companies’ chances of surviving
The COVID-19 crisis is exposing the inertia of many manufacturers. Shifts in demand are leaving some companies overwhelmed and struggling to keep up, while others face record-high levels of idle capacity.
In the last crisis we saw many businesses panic and attempt to recover lost volume (units) by reducing prices.
The drop in demand was not caused by pricing however and so even with lowered prices, volumes still fell, denting profitability and in some cases starting a price war. Later, during the recovery, these same companies found that they struggled to return to pre-crisis price levels.
With the benefit of hindsight, they would have been better to protect profitability, by holding their nerve more on prices and accepting that in many cases volume drops were inevitable. Manufacturers need to remember those lessons this time and avoid overoptimistic or kneejerk reactions.
The hard truth is that many businesses continue – even through a conventional recession or crisis – primarily because their customers cling to their established ways and see neither the desire nor the need to change. A resurgent crisis gives them enough impulse to overcome their inertia, and many old habits will never return back to the old “normal”.
If you don’t have a plan and strategy for surviving and making money during Covid-19, it may well be that you don’t get to see what after Covid-19 looks like.
Innovating your Go-to-Market model to create agility in pricing, offer design, sales, and cost management – combined with the economic resilience to endure several resets – will greatly increase your chances of surviving the multiple stop-starts and emerging stronger when the resurgent crisis ends.
Hear Peter Colman discuss these topics at 10:55am on 17 June during his keynote session during the Manufacturing Innovation Summit. Click the banner below to register, and for more information.
The full paper ‘Surviving the Resurgent COVID-19 Crisis’ is available on request.
Dr. Peter Colman, Partner and shareholder at Simon-Kucher & Partners
Peter leads the consultancy’s Technology, Industrials and B2B Services practices for the UK and Ireland. He has 22 years’ experience in consulting and industry, including helping clients through two past crises (Dot-Com Bubble & Global Financial Crisis).
He specialises in Commercial Excellence programmes to address strategy, pricing, sales & marketing, product management and digital transformation topics. Peter is a regular presenter at The Manufacturer’s Manufacturing Leaders Summit, has contributed numerous articles for the magazine and is a judge for The Manufacturer MX Awards.
Simon-Kucher & Partners, Strategy & Marketing Consultants
Simon-Kucher & Partners is a global consulting firm with more than 1,400 professionals in 39 offices worldwide focusing on TopLine Power®. Founded in 1985, the company has more than 30 years of experience providing strategy and marketing consulting and is regarded as the world’s leading pricing advisor.