We are living through a period of tremendous uncertainty. Many have joked that the past month felt like a year. There’s breaking news every hour, and it affects both our professional and personal lives.
But through it all, we still have to wake up every morning and run our businesses. The good news is that there are methods to empower you to make strategic decisions now that will keep you well-positioned to succeed in the future.
Although we haven’t lived through a pandemic like this, we have seen other tumultuous times. And businesses who know how to navigate those stormy seas while keeping their eyes on strategy are the ones that come out on top in the end.
Here, we share our tips for maintaining a focus on strategic decision-making, no matter what is going on in the world around you.
How Are Businesses Faring in This Climate?
Some companies are feeling less-than-optimistic about current prospects. In a survey conducted by consultants Mitch Gross and David Steward, 65 percent of businesses indicated they expected their Q2 revenues to be down, with nearly 50 percent of them expecting their revenues to be halved (or worse).
According to CNBC, nearly half of all companies expect layoffs to be in their future, and the Federal Reserve of St. Louis anticipates that unemployment rates will spike to 32 percent. We’re also seeing an ad spend panic pause overall. Marketing Week reports 90 percent of companies are reviewing or delaying their marketing spend at present.
Why This Crisis Affects the Way We Do Business
We needn’t tell you that this is a challenging time for people around the globe. But why is it that a situation like a global pandemic has such an adverse effect on the way we manage our businesses (beyond the obvious, like a drop in customers)?
It comes down to value-based management principles. During normal times, companies forecast all sources of revenue and cash, brainstorm ideas for investing in value creation for shareholders and customers, and then fund those projects that best achieve strategic goals.
A pandemic upends this way of operating. We’re struggling to forecast even a week ahead, so how can we possibly make informed financial decisions? The uncertainty has businesses focused on survival, rather than developing next-level experiences for customers and maximizing gains for shareholders.
Once We’re Stabilized, Let’s Get Strategic
This situation has been shocking for us all. It’s normal at first to be frozen with fear. However, as we acclimate to the new normal, we need to explore opportunities to become strategic in our current reality. History shows that the companies that make smart investments during downturns experience significant growth over those that freeze activities or scale back.
This chart from AdValue demonstrates the differences between those companies that invested in advertising during a recession versus those who did not. The companies that did experienced 0.9 market share growth. In comparison, those who decreased their spend saw only 0.2 growth.
Why is that? It’s about excess share of voice. The theory goes that if you spend 10 percent on marketing, you also have about 10 percent of market share. So to gain excess share of voice, you either need to spend more or hope that your competitors spend less.
During times of uncertainty, there’s suddenly a huge, triple-whammy opportunity. If your competitors rely on their gut reaction, they’ll likely scale back on marketing efforts. Meanwhile, people are currently spending a lot more time online, out of necessity, but ad rates have plummeted. Businesses that invest in online advertising now can generate an incredible ROI and outpace the competition that’s ceased all marketing efforts.
How Do We Get Ready to Invest?
Hopefully, we’ve convinced you that this is a compelling opportunity. The key is not to spend your marketing dollars willy-nilly, but rather to find your sweet spot.
In baseball, hitters often have a zone where they are most likely to make contact with a pitch. Pitches outside of this zone are hit-or-miss (literally). But when the pitch is in their sweet spot, they find themselves knocking it out of the park.
With that baseball truism in mind, we created the Scout Customer Value Matrix.
This matrix is designed to help you think differently about how you segment your customers. It’s not just about demographics or one-off actions. Instead, if you consider their behavior and attitudinal data, you can develop a more comprehensive picture of why they buy from you.
Understanding the Scout Customer Value Matrix
Armed with behavioral and attitudinal information, you can segment your customers into A, B, and C groups. Those A segments are your top customers (or as we like to call them, your whales). They love your brand and are incredibly loyal. C segments, meanwhile, add little value to your business. They’re costly to acquire, price-sensitive, and difficult to serve.
On the other axis is customer lifetime value (CLV). Who are those customers who will stick with you, continuing to make purchases for years to come? When you identify those passionate fans who also have a high CLV, you identify a valuable opportunity to invest in those people.
When it comes to acquiring new customers, rather than taking the same sales and marketing decisions across the board, allocate your budget to go after those A-segment customers. If you need to pull the money from elsewhere, consider cuts targeting new C-segment customers, who aren’t adding much value to your business overall.
This approach allows us to think more strategically about how we speak to each segment.
There’s a second lever at play. No matter where someone is on the Customer Value Matrix, how do we move them up? What can we do to get them to buy more often, take on higher bundles, or stick around for longer?
The great thing about this strategy is that it won’t just serve you during this current downturn. It will continue to pay dividends well after the crisis ends. By setting up a strong sales and marketing framework, based on data and segmentation, you’ll be well-positioned to move all of your customers up to a higher CLV in better times.
About the Sterling Woods Group, LLC
The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.
We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.
About the Author
Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.
Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.
He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.
Rob lives outside Boston, MA with his wife, Kate; daughter, Leni; and black lab, Royce.
