January 05, 2023
When demand slows down, the game changes. High inflation, the impacts of sudden wars, volatile markets and several other factors are having a significant impact on all organizations right now, and will continue to come up even during periods of seeming stability in the future. But how does this affect the digital businesses across B2C and B2B corporations?
Common for most digital business leaders is that current market conditions are different to those we all operated in some months ago. While many online and omnichannel players benefitted from lockdown, they are now experiencing the lowest growth rates seen for many years.
This change has happened fast, and most digital organizations have, to some extent, been caught by surprise. No one really expected that growth would disappear like this despite the fact that the growth also kicked in very fast when COVID hit (see our previous article on this topic here). However, times are different now whether we like it or not.
What happens when demand slows down is that the game also changes. Most digital leaders initially turn attention to classic moves. That could be increasing spend a little to compensate for the totality of lost customers, increasing frequency of campaign newsletters etc. However, essentially these types of activities are very short sighted, non-differentiated, costly/less profitable, and only compensate marginally to reaching your budgets. As an example, online search volumes are down as much as 30% in some industries and advertising prices up 30%. In essence, efforts like increasing spending are therefore very unlikely to provide real business value. Strategies like these might seem to work in the short term but might alienate customers long term.
The challenge for you as a digital leader
The point is not to stop you from being aggressive, and spending more could be a good business case in some situations. However, what is crucial is that you asses your own situation before acting.
The important questions to address in the current situation are:
- What moment of reflection does this call for in your position as a board member, C-level and/or digital leader?
- What is the right prioritization of focus in your market?
- Have some underlying assumptions behind your digital business case and investments changed?
- To what extent should you react in such a situation?
To help leaders navigate the current uncertainty, we would like to share strategies and areas of focus to protect your revenue, profit and growth during conditions of crisis and uncertainty.
In the current situation we generally recommend you:
- Stay focused on underlying business drivers, i.e. do not change strategy and be nervous just because you are experiencing headwinds
- Revisit priorities making sure to
- Address the areas that can actually unlock value in your current market condition
- Focus your own capabilities and internal activities to make sure impact is sustainable for you to benefit both short- and long-term (and more difficult for competition to just copy or overspend your moves)
In other words—now is the time to look more critically than ever at your own internal prioritizations and ability to execute on in your digital business.
Where should you focus your efforts to unlock value?
The first step is to do a proper analysis of your current situation. Your situation can be very different depending on the market you operate in. Some companies experience the lowest growth rates seen in many years, other sectors are in the midst of returning to normal, like travel and hospitality, and some sectors are actually still expanding due to an underlying digital transformation in their market not being as heavily affected by the current conditions. And some companies might even have different products or divisions operating in a situation that will require very different actions and not a one size fits all approach.
We recommend you approach this analysis by taking an honest look at your own situation and assess whether the issue at hand is affecting only you or the broader market (due to external influences that you can’t change). Depending on your answers, you can detect and find out to which extent you should be focused on revenue and profit protection, revenue expansion or revenue growth.
Market Situation, Focus and Strategic Action
Viewing your digital business in this way will enable you to take the first step in refocusing your priorities and activities.
For most, the answer will be that revenue and profit protection needs to move up as a higher priority. But if you have the capacity and willingness to invest, you should obviously not ignore revenue expansion and growth.
Put simply, this means that you need to be able to:
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Reduce costs
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Increase profits
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Reduce waste
But how exactly do you achieve these things?
The only way to engage in activities that can protect revenue and profit is to look inwards at factors that are not tied to the current market conditions, but tied to how you operate your own digital business.
Creating Long- and Short-Term Sustainable Impact
The activities that you should turn to are all centered around the obvious drivers of your business. We recommend you mainly focus on four areas that typically drive your business:
Focus on the Key Drivers of Your Digital Business
In essence, addressing these four areas requires you to enter a “next level” of optimization focus. However, as simple as this is, this doesn’t really help you in terms of focus and execution.
Your current digital maturity and areas of greatest focus historically will affect what your specific situation looks like. And in order to ensure that you execute with impact, you will likely need to select only a few areas to double down on before moving to the next area of focus—focusing on all activities equally is not an option. Below we have listed some of the common activities that are right now being surfaced as even more important than ever to create an impact.
The disciplines might be similar to what you already worked on when market demand was high, but the purpose and focus of doing them under the current conditions have changed. Let’s take a look at what we see as the common stack of activities with impact and value to your digital organization when revenue and profit protection is suddenly high in the agenda.
Focus Areas in Order to Execute on Your Revenue and Profit Protection
Activities To Consider to Better Thrive
1. Invest in Core Experiences and CustomersInstead of losing your consumers to an economic downturn, offer them value that increases loyalty. Leverage your distinctive value: What do you do best? What sets you apart from your competition? Revisit what you think you know. Reevaluate your existing customer segmentations and get back to understanding the people you serve. Your best customers are those that buy from you again and again and therefor provide the highest value to your business Invest in the best possible customer experience for your best customers. Do you really serve your customers optimally when they are interacting with you? If you give your best customers a superior experience, they will reward you with repeat business. And investing in providing a great customer experience you also future proof your business. Make reducing customer churn a key priority. You can’t afford to lose existing customers. If you can optimize your business and website for your best clients, your CAC will significantly fall. Is your strategy optimized to bring back customers again and again, or are you focused primarily on the first conversion? Are you sure that you are making the best possible effort to turn a falling volume of interactions into business? Step up within online trading and merchandising. Trading and merchandising is the practice of displaying and promoting the sale of the right products online. Right product at the right time at the right price is and has always been key. Often the “head of store” mentality that we’ve seen work well in the past is not being prioritized properly as a discipline in online businesses (main growth could be harvested elsewhere). Now is the time if you have not addressed this. There are significant revenue uplifts/optimization to be gained by focusing on this. 2. Challenge Marketing PrioritiesMarketing efficiency also needs to be brought to a new level now. This is not about spending. It is about how you spend your budget and being even more certain that it supports your priorities and the short- and long-term business impact. Optimize your acquisition funnel and approach paid digital marketing more granularly. Discuss targeting and granularity of your paid marketing efforts with your internal team and performance marketing/media agency to find pockets of growth and all small areas of improvement. Double down on demand generation and lead generation effectiveness. If demand and lead generation are a key activity in your business, then identify the demand and lead generation tactics that are proving most effective, test different approaches, and optimize around those that work best. The clearer the visibility you have into the quality of your leads and the route they take to converting, the more scope you have to optimize your lead generation efforts, apply learnings and keep improving ROI. Focus on your highest value acquisition channels. Some marketing channels have a higher ROI than others; you want to put most focus on those high-value channels. When you focus your spending on and optimize the conversion rate of your highest performing channels, it tends to have a compounding effect. Establish a clear picture of the impact spending has on your bottom line. Figure out where spend is having the greatest impact. Commit to a granular understanding of where your target consumers are and whether the money you’re spending is really reaching them. 3. Establish Data as the Key EnablerA data-driven mindset helps your business run at maximum efficiency, even in times of economic decline. And it is the foundation to understand the actual situation itself. When an external shock like this occurs, digital leaders need to double down on data to understand what is happening and why. Don’t rely on historical metrics and baselines. When things move fast, you need to look at more indicators than normal to make sure to make the right decisions. Double down on analytics. Operating analytics as a proper discipline can help you, no matter how hard the world is crashing around you. Of all aspects of business, mastering this discipline can provide new valuable insights and reveal value in interesting places if approached seriously. As mentioned previously, your focus right now should be on identifying your highest-value customers and tailoring your user experience to meet their needs. With a data-driven mindset, you will constantly work with behavioral data (qualitative and quantitative) of your customers and website visitors, prove out your hypotheses, and take action based on that proof. Identify all revenue uplift opportunities across the customer journey. Looking across the customer journey with a data-driven approach, there are still opportunities to gain that extra revenue by applying best practices. Some companies can even go that extra mile to execute on what might previously have been considered areas with potential for marginal gains compared to other lager scale growth focused activities. Master conversion rate optimization (CRO) and test-measure-learn processes. When customers’ interactions decline, you must put in all efforts and walk the extra mile to make sure that you convert on the valuable traffic that you have. If you haven’t already done it, establish a test-measure-learn “machine” internally. There are no secure ways to win; you can only test your way to perform marginally better than competition when all normal activities and processes have already been trimmed. 4. Revisit Ways of Working InternallyWhen market conditions change or take a turn for the worse, you need to turn your business into a highly efficient machine. Double down on what works. When you find your budget, resources and team limited, it’s important to focus your efforts on areas that will carry the highest impact. Change the way work is done in select areas. Identify the inefficiencies in the way you work to come out of the current market conditions with an improved operating model. Apply faster decision making. Speed up decision making to move from a linear hierarchy to a decentralized model where designated squads/teams are given highly focused tasks.
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Go Lean and Thrive
So, how do you get your business to thrive in an economic downturn? The answer is clear: You must go lean and mean now.
As described in this article, there are actions you can take that increase your chances of surviving, or even thriving, during an economic downturn. Revenue protection is expensive, time consuming and never goes away. However, when done right, it not only drives customer retention and revenue protection short-term, but expands revenue long term too.
While this article can seem “defensive” due to its focus on revenue protection activities, it is important to be aware that this will also prepare your foundation to move into expansion and growth as soon as these opportunities arise again.
Companies that outperformed their peers in the last two recessions protected and optimized their businesses before recession hit. By doing so, they positioned themselves to take advantage of new opportunities and pull ahead during and after the uncertainty. The same logic applies to your digital business now? Are you up for the challenge and trying to take advantage?