May 12, 2020
The economic impact of COVID-19 brings back memories of recent crises. We find ourselves asking: When have we seen this before? How long will the downturn last? What is the best response to a drop in demand?
Understanding the above allows businesses to make more informed decisions and reduce risk. Due to its interconnectedness, the pricing function is in a unique position to provide insight. Pricing teams are often custodians of data (transactions, master data, competitive intelligence), equipped with analytical capabilities, and connected with multiple stakeholders (sales, finance, product management). A perfect combination to show leadership in volatile times.
Companies looking to improve their crisis response should leverage any excess analytical bandwidth to understanding drivers of the current economy. A demand crisis will see drops in volumes, but less likely price changes at initial stages. Pricing pressures will follow when competition manages to reduce their costs or clients start negotiating for higher discounts due to mitigating negative cash flows.
Use analytics during a crisis in these five ways:
Analyze previous downturns
We saw a significant crisis in 2008. Learn from the past. Investigate how did your company, customers, and competitors respond then. Which tactics worked and which ones didn’t? Look for answers to identify which segments of your business you should cut costs and which segments will not require any price concessions. If you have advanced analytics and segmentation capabilities, run those with data from previous downturns to understand how the market behaved.
Provide real-time performance
A segment focused price-volume-mix analysis helps to communicate results to executives. Identify root causes and work with your crisis war room to define action plans that protect the business. Constant monitoring of win-loss metrics will help you tune messaging and understand which concessions (temporary discounts, changed volume commitments, different payment terms) resonate with clients. Close the loop by translating the market feedback into commercial actions.
Monitor market conditions
The COVID-19 triggered crisis is an external shock to the economy. Leverage your analytics to identify leading indicators and critical indices to track market development. Use these measures to get an early indication of changes in demand and willingness-to-pay. Understanding the market in a crisis helps to parachute down and rocket up in recovery.
Create possible responses to both V-shaped and L-shaped recovery scenarios. Investigate the impact of your action plans and model how the price actions of competitors would change outcomes. Response options will highly facilitate crisis war room discussions. Remember though that scenarios are not forecasts, they do not secure outcomes, but help to build a better response process.
Propose new ways of doing business
Making up for lost volumes and margin in short-term and long-term is critical to stay afloat. As the world goes on a virtual path to do business, invest in your digital channels. Ask your analytics team to model the expansion of those channels to identify required support capabilities. Build new pricing models (e.g. subscription-based) to test whether you can provide more flexibility and risk mitigation to your customers.
Most likely, your solution providers have told you at some point during sales cycles that they will “partner with you.” Now is the time to lean into that. Reach out to them and ask how can they help, ask for advice, benchmarks, and best practices.
For more on how Vendavo can help you during these volatile times and set you up for a stronger growth in recovery, contact our Value Consulting team.
To learn how Corning Optical Communications improved their margins with Vendavo Profit Analyzer and Value Consulting, download the case study: Smarter Pricing Lights the Way to Improved Margins for Optical Fiber Giant.