Over the past twelve months at Simon-Kucher, our global team of experts have been advising businesses on how to emerge from the crisis, not just in one piece, but actually positioned to accelerate top-line growth. CEOs Mark Billige and Andreas von der Gathen reflect on the creative solutions and strategies that enabled companies to shape their own success and discuss three mega trends dominating the commercial agenda.
Following an unprecedented year in 2020, which was focused on helping companies to navigate the crisis, 2021 for Simon-Kucher has all been about getting back to growth.
Many companies we work with realized they had been left with largely blank pieces of paper for strategic planning. Crisis management was replaced by an urgent need for growth management – with many unable to fall back on their evolutionary approach to transforming commercial operations.
Our clients needed to be able to act in this new world immediately, but without the statistical certainty that came from previously safe assumptions and high-quality historical data. Meanwhile, their own customers were increasingly open to explore and commit to new ideas, with new ways of finding, buying, and using products.
We knew that there was very little point in analyzing the past and helping companies find the answer to “what happened?” Instead, we have focused on developing solutions for “what happens next?” When traditional, pre-crisis business practices don’t apply seamlessly to the post-crisis world, you need to get creative in ways and in areas that you never previously imagined.
Commercial creativity: The fast track to top-line growth
To be commercially creative, companies needed to understand their customers, and fast. The harsh reality is that most companies never had to be really creative on the commercial side. Most had traditionally seen commercial operations through a lens of efficiency or compliance. Our work has centered on the fundamental belief that this needs to change, helping companies find brand new levels of creative commercial inspiration.
We’ve supported companies in embracing the demand revolution with a commercial revolution of their own. We’ve been advising them on how to shift the digital mindset toward revenue and value creation. And we’ve been providing solutions that enable clients to monetize for an immediate impact.
Of course, each industry and sector has its own opportunities and challenges to address. But one thing that unites us all is that simply reverting back to how things were is not an option – for anyone. At Simon-Kucher, we have been tackling three mega-trends that every business, regardless of sector, will need to manage.
Three mega-trends dominating the commercial agenda
1. Inflation is back! Managing the uncertainty of the economic environment
Cost increases, material shortages, slow supplier deliveries, and, in many industries, lower availability of labor. All these factors force companies to adjust in the short term. We expect these tougher market conditions to continue for at least another year – maybe longer. While companies need to adapt to these circumstances, both in their supply chain and production management, there is also a need to adjust their commercial strategies. For many, successfully implementing price increases is a question of survival.
Often managers have not had the need or the training to manage cost and price increases of this scale. In our latest Global Pricing Study, only five percent of the participants told us that they successfully implemented price increases, and companies on average achieved only one third of the price increase they were seeking.
It's a new skill to learn. In very volatile markets the challenge will be to have multiple price increases in a year. This will only be possible with a price increase management program, including targeted customer aims, battle cards for price negotiations, and the right incentive for sales.
Price is not the only lever to become commercially more agile. Many far more creative solutions are required. This can be a more differentiated product portfolio to target more differentiated customer segments, differentiated communication, or completely new ways to monetize products and services, such as subscriptions or dynamic pricing.
2. Having a digital top-line strategy has become a basic hygiene factor
It’s hard to imagine anyone living in a major economy who hasn't shifted some part of their business or life online, either by choice or by default. The big mindset shift for most executives now is that digital is a “revenue-up” and not a “cost-down” strategy. Most companies had a digital transformation already underway long before the pandemic hit. Now is the time to refocus those digital transformation efforts toward reconnecting with customers and creating greater value for them, rather than focusing on automation, cost savings, and sales efficiencies. This leads to two immediate and inescapable challenges:
- The relationship between customers and their data: Accelerated digital migration has exposed a major irony. Companies may well have more data than ever about what their customers are doing, but potentially far less on why they are doing it, and this is combined with a completely new level of data privacy and data-consciousness. Many haven't seen their customers “in the wild” since the beginning of last year, while COVID-19 tracking apps and vaccine passports have made society more data aware than ever before. This presents a tough challenge requiring creative solutions to understand what makes customers tick in a digital world.
- Ecommerce: The pandemic has shown that ecommerce is eventually going to be the most relevant channel for everyone, not just B2C retailers. The big question is not whether direct-to-customer will happen. It is how to make money out of it. And the KPIs of ecommerce economics are completely different to retail and field sales. Companies need teams that understand customer lifetime value and customer acquisition cost. They need to work out how and whether to sustain physical footprints next to online. And they need to challenge long-held truths about the need for expensive field sales teams. The reality is that most businesses have powerful organizational structures built around the very model companies are now trying to rapidly shift away from – this will not happen without radical intervention.
3. Sustainability has truly reached the marketplace
The pandemic has exposed vulnerabilities in societies and now, it has become impossible to escape the ubiquitous and loud rhetoric about sustainability. Beyond the political arena, the questions around sustainability have reached consumers and companies, too. And as with every transformation, it holds opportunities and risks for businesses.
Our survey of over 10,000 consumers in 17 countries in the summer of 2021 revealed that there is now a critical mass of consumers that want to spend their money on goods and services that will help them lead a more sustainable way of life. It's time for companies to direct a massive technological and marketing push to meet the growing consumer pull for sustainable products and services. They need to respond with solutions, not words. This will require adjustments from some companies, and full transformations from others.
Market opportunities will emerge at different speeds, depending on the clarity of customer needs, the intensity of their demands, and their willingness to pay when someone offers them the right solutions. In many industries, the fundamental relationships between consumers and companies will change, requiring new business models: think a circular rather than a linear economy. The question to answer is whether brands should sell their own products second-hand – something very normal in the car industry, but not in furniture or fashion. Or proliferate more durable, high-quality goods instead of products that have a built-in lifetime of a couple of years only.
The reality is still that many established business models rely on consumer sacrifice and waste. This makes some industries an ideal candidate for the forces of creative destruction, but business leaders can mitigate those effects through commercial creativity.
There’s still time to unleash your commercial creativity
Commercial creativity can involve borrowing or transferring proven business models from one industry to another. It can mean entering alliances or joining ecosystems instead of relying primarily on one's own resources. It can also mean find a winning strategy when industries and business models converge.
There is still clearly a lot of work to be done! Moving beyond the pandemic, these three mega-trends – inflation, digitalization, and sustainability – will force companies to find new levels of commercial creativity.
And industry leaders agree: commercial creativity works. Companies that have embraced creativity, such as Pizza Express, have even been able to emerge with a much stronger balance sheet than when they entered the crisis.
So for the commercially creative, these trends are far more of an opportunity than a threat.