Looking Back at 2020 and Forward to 2021
Earlier this month, our friends at Pricefx asked me to contribute to an upcoming article about how the events of 2020 have impacted the pricing industry and what to expect moving forward. For their article, Pricefx needed pithy responses (after all, other pricing professionals were contributing as well).
However, I feel like there may be more to explore and develop in the issues I identified. If only I had a platform to broadcast my thoughts out into the aether of cyberspace…
So, here we go!
Economic recovery from the coronavirus crisis will not be even
There is no talking about 2020 without talking about the coronavirus. The coronavirus crisis has impacted every person in the entire world to varying degrees. Economists tell us that we appear to be experiencing a K-shaped recovery (where some people and firms are elevated and where some people and firms are struggling). Thus, there is a divergence of outcomes. Some customers (people or firms) are flush with cash; others are in danger of slipping into ruin.
This transformation of our entire economy has some elements that may revert back to a pre-coronavirus state (someday). Other elements likely indicate permanent change and a continuation of long-term trends that the coronavirus did not cause; rather, the virus just sped up the timetable. For example, the shift away from brick-and-mortar retail stores to digitization and ecommerce has been occurring since Amazon launched in the 1990s. But the coronavirus may have sped up these trends by several years, if not by a full decade. Just look at the holiday shopping trends for 2020.
So, changes have happened, and we don’t know which of those changes are going to stick around in the future. Additionally, those customers who are doing well on the upper-K will have very different profiles from those customers who are struggling on the lower-K. This implies that their willingness to pay may have shifted dramatically.
A lower-K customer may be making purchase decisions primarily from an attitude of fear or anxiety. They may be only making their highest priority purchases as they wrestle with not knowing whether they will have a dependable source of income next month. Their willingness-to-pay will likely plunge for anything they conclude is nonessential or frivolous. (Granted, they may also treat themselves to some small “personal luxury”: an item that may not meet an economist’s definition of a “luxury good,” but which helps a customer feel normal or affirms their humanity. “No matter how bad things get, I will still eat/drink/consume XYZ Brand!”)
On the other hand, an upper-K customer most likely has been stowing away money in their savings account in 2020. Their needs are met, they are most likely working from home with a dependable source of income, and they are spending on those home improvement projects that they have put off for years. Upper-K customers have more money to spend, but their spending habits have changed, partially because their behavior and environment have changed in 2020 (just like everyone else).
So, we have a bifurcation of customers in the marketplace. Customers (and their spending habits) have changed, market segments may have moved or changed in size, and you cannot be sure if your most profitable customers last year will be your most profitable customers moving forward. You’re going to have to find some way of verifying your value proposition (and adapting, if necessary).
Value proposition verification in a time of uncertainty
Things have changed, things are changing, and things will continue to change. Someday, some of it may go back to “The Before Times,” but nobody really knows for sure. However, some outcomes will be more likely than others. E.g., it is unlikely that the shift towards digitization and ecommerce will reverse itself, even after people can freely shop in person in brick-and-mortar stores. Black Friday may start looking more and more like Cyber Monday.
Companies will have to verify the match between their value propositions and their customer segments more frequently. Looking at this only annually may be dangerously inadequate for 2021. It is more important than ever to ensure that you are providing value to your customers (i.e., that your offering ACTUALLY meets the needs of your customers) and that your customers ARE AWARE of that value.
The customer segments that you had in 2019 may have experienced some dramatic shifts in 2020. They will probably change again in 2021 and then again once the coronavirus crisis is truly contained.
For many businesses, resources are tight. That means that you may not be able to do a full market research survey (e.g., a large conjoint analysis study) for all your products. It may be more appropriate to scale back your approach in the interests of cost and expediency. Perhaps that means doing a study for only your most profitable product line or customer groups. Perhaps it means that you need to visit more customers face-to-face with your sales team. Assuming that your customers are exactly the same with the exact same needs as before could be a critical error in these times. Additionally, any firm that can get in front of an emerging trend in their industry during these times could secure a sustainable competitive advantage for years that their competitors will find difficult to emulate.
Approximations may have to be enough. After all, going through a pricing process with your sales members that spend 80% of their time in the field will give you a better answer than throwing a dart at a board. You can still acquire directional information about your market. For example, a regular flag flapping in the wind at an airport will let you know WHICH DIRECTION the wind is blowing, even if you don’t know HOW HARD the wind is blowing. For additional precision, you’ll want a windsock or (ideally) an anemometer. But firms simply cannot afford to use their anemometer on every project because additional precision requires additional marketing funds.
Companies (and employees) need leadership
The bottom line is that businesses and business leaders will have to become more comfortable with dealing with an environment laden with uncertainty.
This also means leading your pricing team through uncertainty and being honest and transparent about those uncertainties. Do not be afraid to share your entire thought process and to readily identify potential pitfalls with your best plan.
For me personally, I am much more likely to follow a leader that displays intellectual humility about their plans and empathy towards their team regarding the realities of our present moment. If I encounter a leader who tries to portray themselves as an inerrant decisionmaker, I’ll make a beeline to the exit as quickly as possible.
Being honest about uncertainties does not mean engaging in “paralysis by analysis.” Decisions must be made, and leaders will eventually have to draw a line in the sand. Project confidence in your decisions, but also let your team know that you are acting on the best information you have available right now and that your best information may change next week. Commit to iterating towards an optimal solution for your business as a team. Remind your employees that you care about them, that you want them to be successful, and that you are all going to weather the storm together.
We must take care of ourselves and take care of those around us. Stay safe. Keep fighting the good fight. And I wish you all the best of luck.