Surviving the Economic Downturn Caused by the Coronavirus
As the world struggles to contain the COVID-19 coronavirus, most businesses are struggling as well. They're struggling with ensuring the health of their employees, store closures mandated by the government, unanticipated drops in sales due to pullbacks in consumer spending, fulfilling orders from distribution centers, and identifying how to replace lost sales from brick-and-mortar stores.
Right now, we can learn something from past recessions about what does and what doesn’t work, as well as what the impact might be as we emerge from the downturn. Let’s begin with a few facts from a Harvard study done on the heels of the 2008 Great Recession:
- 17 percent of the companies in the study didn’t survive;
- 80 percent had not regained their pre-recession growth rates for sales and profits three years after the recession ended; and
- 85 percent of companies that were growth leaders coming into the recession didn't retain the leadership position coming out of it.
However, there's a bright side. A time like this does offer companies a chance to focus on their business and make some strategic changes that can be difficult to do in busier times. What do companies that prosper coming out of a difficult period do? Let’s explore:
First, don’t cut too deeply, too quickly.
Defensively-led companies don't fare very well coming out of an economic slowdown. In fact, the firms that cut faster and deeper first have the lowest probability of pulling ahead of competitors when better times return. Cost-cutting mentalities focus on loss minimizing, so innovation and operation efficiency tend to take a back seat to initiatives focused on doing more of the same with less.
Avoid going 'all in' and aggressively investing to win market share.
Companies that adopted aggressive marketing and investment strategies did better than the defensively led ones, but they still only had a 26 percent chance of becoming leaders after a downturn. The largest detractor to this strategy is that a culture of optimism and groupthink can often develop, leading the company to deny the gravity of the situation. Costs rise while realities (e.g., cuts in customer budgets or delays in orders) are ignored until it’s too late.
What's the winning strategy?
It's a combination of defensive and offensive moves. These companies have a 37 percent chance of outpacing their competitors coming out of a recession. The trick is what offensive and defensive moves they made. From a cost-cutting perspective, a focus on operational efficiency allows organizations to reduce operating costs, run their supply chains more efficiently, and scale when better times return. Morale also tends to be much better as the focus is oriented toward operational improvement rather than a person’s own job security.
Increased investment in customer-focused marketing and R&D can produce modest gains even during a downturn. The longer-term goal of these efforts is not just intermediate-term profits, but also to redefine the product category or market, forcing your competitors into a game of catch up.
As a commerce company with decades of experience, here are the most impactful areas retailers can focus as they consider their next moves — both offensive and defensive.
Plan your path to the top of the funnel.
It’s well understood that while 80 percent of retail purchases happened in-store, the initial inspiration and research process begins online. With physical stores closing and shoppers avoiding communal spaces due to the coronavirus, consumers are developing new purchase habits and increased levels of comfort shopping online. When purchasing, they're turning to those same sites they usually do for research, mainly Amazon.com and department store sites. Leveraging marketing dollars to move your own dot-com site and social content higher up in the discovery and consideration phases can help those shoppers convert on your site instead of wholesale partners.
Double down on SEO.
Search, more than any other medium, is the one channel where a potential consumer will tell you exactly what their intent is. Focus on a strategy that pulls your site and/or product rank up within the top five organic results, as these account for almost 70 percent of page-one clicks.
Map out your consumer's complete ecosystem.
It's essential to have a complete picture of the different states of intent of your customers, how you can address those needs in each of your channels and, ideally, what the next steps you’d like your customers to take. This map enables you to create a more purposeful, intent-driven ecosystem, increasing the chances of engaging and elevating the interactions you have with them.
Get your data in order.
Mastering, making sense of and monetizing data is a herculean effort in the best of situations. If you haven’t done that yet, take this time to master smaller subsets of it, such as customer and third-party data sets oriented around improving customer lifetime value. You should also take this time to ensure you have the appropriate product metadata in place so that it can be matched with customer preference data for better personalization.
Focus on inventory management and distribution.
For those that haven’t mastered the art of universal inventory, now is the time to do it. Once the omnichannel world reopens for business, customers’ expectations to move seamlessly through both physical and digital channels will return. Having warehouse, store, customer service and e-commerce stores all working from a common understanding of products, locations and availability will be critical to meeting those returning customers’ expectations.
While this isn't an exhaustive list of everything you can do, a mix of efficiency and investment activities, combined with organizational agility, is the best path to success in this challenging time.
Chris Hogue is vice president of strategy and products at LiveArea, a full-service global customer experience and commerce agency for B-to-C and B-to-B brands.
Chris Hogue is vice president of Strategy & Products at LiveArea, a full-service global customer experience and commerce agency for B2C and B2B brands.
Chris has more than 20 years of experience launching innovative digital solutions and services. He works closely with B2B brands on expanding their capabilities in new ways. Before joining LiveArea, Chris was head of strategic initiatives at Isobar where he led the development of a new data platform, optimizing campaigns and user experiences and combining behavioral and emotional data.