December 10th, 2010 by Stephen Jones Leave a reply »

As  revenues  drop,  cost  cutting  is  an obvious  strategy that businesses employ to maintain profitability.

 In fact, shares of Gap (GPS) jumped 27% in November 2008 even as the retailer’s sales fell 8%, due to successful cost-cutting that improved profitability.
Cutting costs is  a precautionary measure, best done earlier rather than later.
A fundamental step is an in-depth analysis of your business  and  the  economic  environment  to  understand  which  areas  are performing  and  which  aren’t,  and  what are  the  external influencers  and  trends .  For  example,  what  is  your  business performance  by  geography  and  region;  by  product  line;  against plan; by channel, by month, quarter… – and what are the recent trends that highlight how the downturn is aecting your business?

Perform “outlier”  analysis,  such  as  reports  on  the  least profitable  product  lines  and  geographies.

Typical  candidates  for cost cutting within sales and marketing include:
Reducing   headcount   across   sales   and   marketing   is   more complex  today  than  in  previous  downturns,  argues  David  Court from  The  McKinsey  Quarterly who  states  that  because  today’s sales  organizations  are  much  more  diverse  and  sophisticated than in previous times – with roles including product specialists,
telemarketers,   industry   experts,   and   competitor   analysts   – managers must be more careful when forced to make cuts:

Instead of making across-the-board overhead cuts, a company can rationalize its sales programs while maintaining performance in  a  variety  of  ways.  Assessing  the  current  sales-coverage  model helps  the  company  determine  which  selling  and  sales-support formulas are most effective for which types of customers and sales situations and then to rebalance resources as needed. In practice, this  approach  might  mean  handling  reorders  online,  covering basic  sales  and  account-management  tasks  through  telesales representatives,  and  using  larger  response  teams  to  address major requests for proposals. Another important step is to analyze win–loss  ratios  in  difficult  customer  negotiations  with  an  eye  to determining  which  sales  support  groups  are  most  effective  and which contribute less and can therefore be trimmed. Streamlining the  after-sales  process  and  establishing  the  appropriate  level of customer support can shrink costs as well. Critical to all these moves is an understanding of what customers expect and of the importance of after-sales support to their overall experience.”

Few businesses these days slash marketing budgets in a random manner. Tthe challenges during a downturn is  not  enough  revenue,  and  it  is  marketing  in  combination  with sales that are expected to  drive  more  revenue. The
basic  principle  is for marketing  budgets  to  focus  on  those activities  most  likely  to  deliver  cash and profit.
The  McKinsey  Quarterly’s  David  Court  asserts  that  the  previous approach to a downturn of focusing marketing budgets only on traditional,  tried-and-true  media  is  no  longer  the  best  approach.

“New   communications   vehicles   such   as   the   Internet,   social networking, and mobile devices are gaining scale and delivering  results. Meanwhile, classic media such as television have become, at a minimum, much more costly.” He goes on to say that assessing  marketing  media  only  by  reach  and  cost  to  determine their effectiveness is too limited – quality must also be determined. For instance, you may be able to analyze the response of previous
campaigns such as quantity and quality of leads coming in from email campaigns vs direct mail.Analysis  of  marketing  campaign  performance  is  critical  to determine  what  has  worked,  what  hasn’t,  and  which  campaigns
are  performing  in  a  changing  economic  environment.  It  is  also necessary to justify budgets and resource allocations, and to ensure you take a disciplined approach during diffcult timse. USe analytics to  closely  monitor  campaign  spending,  and to highlight immediately any overruns in budget, or those campaigns that are  performing  well  and  should  have  their  budgets  increased.

As  businesses  adjust  their  marketing  message  or product offerings during a downturn, ongoing measurement and adjustment  is  required  to  tweak  performance  and to  respond  to changing market conditions.Once  a  lead  comes  through  the  door,  who  is  responsible  for converting  and  tracking  that  lead?  Sales  or  marketing?  When times are tough, your company’s ability to qualify, close, and convert sales leads into revenue is crucial. You need to
squeeze the most value possible out of each lead.

Whether a lead originates from direct marketing, trade shows, or online advertising, it is well known that the more quickly you follow-up on leads, the better your chances of closing the sales. However, in the current economic climate, it is also just as critical to  ensure  you  are  chasing  the  right  leads  and  not  wasting  vast
 amounts of sales energy and resources on leads that go nowhere.

Often it can be a struggle between quickly following-up the leads you have, and the need to carefully qualify those leads to identify those that pose a true sales opportunity. While the amount of information required to qualify leads varies between organizations, analytics can help to identify, by campaign, which leads are qualified and which are cold leads. Analytics pinpoint those opportunities with the highest probability of conversion  to  sales,  determine  lead  conversion  rates,  identify stale  leads,  and  ensure  well-qualified  leads  further  along  in  the cycle are given sufficient attention to close the deal.

In a downturn, sales cycles are often longer. Buying decisions are  either  delayed,  or  customers  are  increasingly  choosy.  This means that more attention needs to be given to nurturing existing leads. A study by the Aberdeen Group found that 56 per cent of businesses do not have a formal lead nurturing scheme in place and the majority of those that do are driven by productivity and fianncial reasons. “The  goal  of  lead  nurturing  is  to  solidify  your
company as a trusted adviser and a source of thought leadership for your prospects and customers,”
commented Ian Michiels of The Aberdeen Group. Just one example of a lead nurturing strategy is to produce more campaigns and material that show prospects how to put forward a solid business case and justify the return on an investment in your product

Without closely monitoring marketing campaigns – by tracking sales leads back to their source, measuring lead conversion rates, and recording campaign costs – measuring your marketing return on  investment  (ROI)  becomes  impossible.  This  information  is critical to make decisions about ongoing marketing investments, particularly in a changing economy.As  an  example,  if  your  company  distributed  10,000  direct mail  flyers,  it  is  simply  not  enough  to  identify  that  you  received 30   responses.   Considerably   more   information   is   required   to
successfully analyze the campaign’s eectiveness and ROI. Say for example, those 30 responses returned twice as much revenue as the entire campaign cost. Without proper analysis, a cursory glance at the campaign may have noted a low response rate to the flyer, and the campaign could have been shelved.Analytics can be used to highlight the cost to your organization in capturing each lead. By improving analysis of lead costs versus lead revenue, you will gain a greater visibility into what works best for your organization in terms of engaging and generating revenue
from prospects and opportunities. 

Pricing    comes    under    intense    pressure    in    a    downturn. Competition heats up, and existing market positions may become vulnerable.  Market  leaders  may  use  their  position  and  deeper pockets  to  pressure  market  followers,  or  alternatively,  market followers can sometimes turn a downturn to their advantage and leapfrog ahead of the market leader9.

Tony Cram of Britain’s Ashridge Business School also agrees that a downturn provides opportunities: “What you have in a recession is an opportunity to learn faster about changing customers than your  competitors  and  use  that  insight  to  gain  advantage.” He recommends  researching  the  likely  behavior  of  your  most  price-sensitive customers rst, and then extrapolating that out to your broader  customer  base  when  determining  where  to  make  price cuts.

In The McKinsey Quarterly, analysis and research are highlighted as  top  priorities  to  setting  pricing  strategies  in  a  downturn. “…Companies  need  to  manage  the  protability  of  individual customers and transactions with greater precision, develop richer insights into their customers’ changing needs and price sensitivities, and understand more clearly the microeconomics that shape their own industries and those of their suppliers.”

Some recommended approaches include:

Using  transaction-level  data  to  measure  the  profibility  of each customer and to ect where customers are becoming more costly to serve or falling below target profibility. “One industrial company found that more than 20 percent of its customers had fallen  below  breakeven  protability,  forcing  it  to  raise  prices selectively and, where possible, lower cost-to-serve by decreasing delivery  frequency,  reducing  sales  support,  or  fulfiing  orders through alternate channels.”

For  consumer  markets,  micromarket  analysis  may  highlight pockets of potential profibility. “One beverage company recently conducted  surveys  that  identied  staggering  dfferences  in  the potential  profibility  of  customers  within  individual  markets and micromarkets. The price sensitivity of the respondents varied
by as much as a factor of 13 across regional markets, a factor of 5  across  cities  within  them,  and  a  factor  of  3  across  zip  codes within individual cities. Armed with this level of detail, a company can  maximize  its  profitability  by  focusing  on  micromarkets  less sensitive  to  prices  while  also  offering  discounts  or  preferential pricing elsewhere to drive sales volumes.

Identify how the changing market is impacting customer needs and the benefits they value. “One plastic resins supplier that had developed  a  fast-curing  resin  (to  enhance  capacity  of  injection molders  when  the  economy  was  strong)  has  now  developed  a less costly resin that doesn’t cure as quickly. The new resin helps the supplier’s customers decrease costs, because molders are not running at full capacity during the downturn.”

Starwood’s  Director  of  Revenue  advises  against  across-the-board  price  cuts.  He  says  that  from  his  experience  in  the  hotel industry, in-depth analysis often shows that decreases in demand are  confined  to  a  certain  area  of  the  business,  such  as  weekend bookings, or corporate bookings from a particular industry sector.
“Don’t  give  in  to  the  desperation  of  dropping  your  rates  and crossing your fingers; generating business is hard work,” he states. Instead, he advocates value-adding to stimulate demand, such as offering free breakfasts or internet access

In   times   of   economic   slowdown,   directors   and   investors demand   more   frequent   and   accurate   forecasts   and   reports. Long-standing  assumptions  are  questioned,  and  the  business  is dissected  from  every  way,  searching  for  problem  areas  and  new opportunities. This puts immense pressure on sales and marketing
managers to provide views of data from multiple sources at more granular  levels  and  more  frequent  time  intervals.  If  this  entails manual  processes  and  endless  hours  in  spreadsheets,  managers will struggle with the extra reporting demands, and are likely to produce  reports  that  are  prone  to  errors.  An  investment  in  the
right tools can be far more valuable than sidelining resources for endless manual reporting, and is also an investment in the longer term that will ensure that the business is agile and responsive to any future change.

Conclusions
For sales and marketing managers, it is normally analytics from the Customer Relationship Management (CRM) system that provides the most useful insight. Some of the reasons these managers must have analytics capabilities in an economic downturn include:

  • The volume of reporting and forecasting required increases. 
  • Relying on manual tools and processes will mean delays and inaccuracies in providing information back to business decision makers.
  • When sales and marketing managers are buried in producing reports, less time can be spent in the field, interpreting data, and helping the business to act on opportunities.

Managersneed to reduce manual processes and to provide strategic advice and market condition feedback to their teams and business directors as one of the most valuable parts of their job. Formal, structured reports are not enough. Many established businesses have long-standing reports in place. However a downturn requires ad-hoc, instant questioning of the latest data to determine trends, answer questions and challenge assumptions. This requires far more speed, agility and exibility than is necessary for “standard” management reporting.Data must be communicated accurately and easily. For example, providing decision-makers with dashboards, scorecards and charts help to convey performance metrics instantly, rather than using tabular reports. If formal report
packs need to be generated, it is much more effective to use an online reporting tool that enables multiple types of data to be pulled together and for sales and marketing teams to collaborate, rather than using multiple oine, unsecured tools.

The past few years have seen an increased investment in the use  of  analytics  technology,  and  case  studies  show  that  users are  seeing  a  return  on  those  investments.  In  a  tougher  market, purchasing new technology can often be delayed until times are more certain. Contrary to this, slower times of economic growth can actually be the best time to invest in technology that helps to maximize performance and enhance decision-making, and secure
a company’s future.Decision-makers who embrace business analytics applications find that the initial investments in such tools are a  low cost way to gain a competitive edge. Slow business  periods  are  the  best  time  to  launch  new  initiatives, for  example,  implementation  times  are shortened when business is slowest. This is due to excess capacity in the times of business slowdowns, whereby acceptance of new systems is higher and implementations are more thorough. Th bened for change is also more evidetn when times ae tough

Often  organizations  are  reluctant  to  change,  preferring  the devil they know such as spreadsheets, even when they realize the inaccuracies and operational ineciencies of remaining stagnant. Smart  organizations  understand  that  the  real  question  is  not whether  your  company  can  afford  an  investment  in  business analytics, but in such lean markets, what are your competitors doing with analytics, and how can you best target limtied resources.?

Understanding    that    business    analytics    is    your  organization’s  greatest  shield  against  a  market  downturn  is  a significant  advantage  to  all  decision-makers.  By  transforming raw  data  into  business  intelligence  and  undergoing  rigorous questioning  and  ongoing  measurement,  your  business  will  be better placed to make accurate and informed strategic decisions, ensuring your organization emerges from a downturn leaner, and
in a strong competitive position.

If you are considering how  analytics can help your company then ask about our rapid deployment solutions.

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