Categories
Marketing

How to sell in a recession: 10 tips from experts

Amidst the coronavirus turmoil, it seems inevitable that we’re about to enter a global recession. Stocks have already taken a huge hit, but the real economy is just starting to see the effects.

This means now is a perfect time to start reading up on how to sell in a recession.

How to sell in a recession in retail

During the financial crisis, management consultants Ken Favro, Tim Romberger and David Meer published a piece in the Harvard Business Review about selling in a downmarket.

They use Starbucks as an example of companies hit hard, which feels a bit off in retrospect, given what a massive success it became in the following decade.

This choice of case strengthens two key points to remember:

  1. Starbucks did many things right during the financial crisis
  2. There are opportunities to dramatically improve your business during a downturn

Let’s explore what learnings the management consultants derived from Starbucks and other retail companies they studied.

1. Go where there is market to gain and avoid excessive action

First and foremost, rushing to action has a low likelihood for success. Managers typically feel the need for broad and immediate action, but focus yields better results.

Retailers should focus on where they can grow market share, which the authors call headroom.

We define “headroom” as market share you don’t have minus market share you won’t get.

Favro, Romberger and Meer

For retail, the headroom often lies with non-loyal customers.

When times are good, loyal customers are often the most profitable and the easiest to grow. But when spending goes down across the board, it goes down also with loyal customers.

Non-loyal customers, on the other hand, are spending only part of their money at any given retailer. So even if their spending goes down, you can grow by capturing a larger part of their total spend.

2. Understand what the non-loyalists want and give it to them

Gradual optimisation will not help you capture growth from the non-loyal customers. They are not loyal for a reason and you need to understand what the reason is.

The authors give the following example about Starbucks.

Many coffee drinkers want a self-serve food experience much like that offered by such outlets as Pret A Manger. Coffee connoisseurs want the espressos, cappuccinos, and experience that can be found in Italy’s best coffee bars. And many just want their original Starbucks back—the socially responsible “third place” between the office and home.

Favro, Romberger and Meer

The gap between what the switchers want and what you offer can also be found in product categories, such as in the example below.

However, this retailer’s headroom in apparel was disproportionate to the sales it was realizing. Even its most frequent shoppers were going elsewhere to purchase their clothing.

Favro, Romberger and Meer

These gaps are, of course, difficult to capture in data, since data mainly shows you what has and hasn’t worked historically.

You need to combine historical data with inputs on possible growth segments (i.e. headroom) in order to identify which categories could serve those segments.

3. Take out bad costs

Every business has both good costs and bad costs.

Good costs are the ones which drive things customers are willing to pay for. Depending on your business, this might be convenience, speed or assortment.

Bad costs don’t add anything to the business that customers are willing to pay for. Every business has bad costs. During a recession, these need to go.

Another example by the authors on Starbucks below.

Starbucks’s bad costs might involve too much seating in stores used primarily by take-out customers, or unnecessarily extended hours in certain local markets, or too much inventory and space dedicated to accessories (those coffeepots, movies, and whatnot) that few customers purchase.

Favro, Romberger and Meer

The need to cut bad costs isn’t specific to retail. In my experience, all businesses need to go after bad costs relentlessly. It’s a grateful job, since margins go up and the negative consequences are minimal, usually limited to some individuals getting upset.

During good times, companies just tend to focus much more on growth and much less on cost, so the bad costs keep creeping up, a little bit at a time.

Recessions force most to cut out this fat and improve the health of the business.

4. Cluster stores and not just customers

All retail locations are different, but many of them share traits. By understanding which, and clustering together similar stores, decision making and optimising become easier.

In theory, stores could be clustered just by clustering customers and then comparing customer profiles, but this is often impractical if only for the reason, that many customers don’t fit neatly into given customer profiles.

The store clusters can be used to figure out which type of “headroom” exist for which cluster.

5. Adjust research and KPIs

During a recession, retailer’s research should focus on finding headroom and understanding what these new customers want and how to give it to them.

One supermarket chain we know of, for instance, routinely asks patrons, “Did you find what you need?” at checkout. But when the answer is “no,” the next question clerks ask is, “Did you ask for help in finding it?”

Favro, Romberger and Meer

The same goes for KPIs and performance management. The normal measures won’t help you understanding if you’re nailing headroom and closing the gap.

How to sell in a recession in B2B sales

B2B sales has a very different dynamic than consumer facing retail and hence the toolbox for B2B sales reps and managers will differ significantly from that of retail. Let’s dive into what previous downturns have taught us about this craft.

1. Risk-aversion does up, which means you should focus more

In the wake of the financial crisis, CBS news interviewed sales recruitment and sales training experts to figure out how to win in a downmarket. The key finding evolves around risk.

During bad times, people become more risk-averse. This means potential problems matter more than potential upside. If someone is scared for their livelihood, they will do whatever it takes to avoid bad decisions.

Adjust your story and focus accordingly.

Focus on risk slows down decisions. This means each prospect or lead needs more contact points to close a sale than during good times. In sales, you should focus more time on fewer leads, even if the default tendency would be to hedge bets by working as many leads as possible.

2. Change your attitude

Sales consultant Liz Wendling writes about attitudes.

When the going gets rough, we need to up our game to make it. In sales, the good news is that every sales rep can affect their outcomes, even when circumstances are bad.

In order to do this, you need to focus on your work instead of your circumstances. Up your activities and commit to getting deals.

3. Challenger sales methodology was created to sell in a downturn

The challenger selling method was created when the consultants behind it noticed, that some reps were able to keep hitting their quota while the majority underperformed during a recession.

So they dug into it and identified five different seller profiles:

  1. Hard worker
  2. Lone wolf
  3. Problem solver
  4. Relationship builder
  5. Challenger

The conclusion was that the challenger was the most likely to keep getting results in tough environments.

The challenger model builds on three fundamental parts from an individual sales reps point of view:

  1. Teaching
  2. Taking control
  3. Tailoring

Let’s take a look at each in turn.

Teach for differentiation

Key concepts for teaching are insights and reframing. What the challenger seller does, is to teach the customer something about their own business that they didn’t previously know.

One way of doing this is by reframing the customer’s problem or their proposed solution, or how they view their entire business.

Take control

The challenger will have control over the dialogue, push customer to action and resist any requests for discounts, expensive tailoring of the solution or other bad terms and conditions.

Pushing the customer to move is especially powerful in a downward market, since customers are more risk aware than normal.

Tailor for resonance

Tailoring doesn’t mean the solutions you sell need to be tailored. It means the messaging needs to be tailored and the customer needs to feel like they are getting something that’s as good a fit for them as if it was tailored.

In order to increase sense of tailoring, use the same reframing techniques as when teaching.

More information about challenger selling and rolling it out can be found in e.g. this Gartner summary and this Pipedrive summary.

Conclusions about how to sell in a recession

Selling and succeeding in a downward market is possible, but requires different tools and methods compared to selling and succeeding in a normal or growing market.

How to sell in a recession is different.

Because downward markets stir everything around, it can give a good opportunity to reposition your company for growth down the line. Like for Starbucks during the financial crisis.

There’s always business available somewhere, it’s just harder to find now.

Categories
General

What are retailers thinking about in 2018?

I attended the eTail Nordic 2018 event and wanted to summarise some findings from selected keynotes on 2.10. – 3.10.2018.

Peter Mold, CDO, ICA

Peter Mold, the Chief Digital Officer of Swedish grocery and pharmacy giant ICA was first up. He stated ecommerce for groceries still hasn’t picked up in Sweden, concluding only 2% of the purchasing volume was coming in through digital channels in 2016.

One of the issues with ecommerce for groceries are the expensive and cumbersome logistics. As a grocer, you need to store, pick and transport fresh produce taking care of the cold chain all the way to the consumer, making it expensive.

Mold continued by describing the importance of data telling us that data is what feeds AI, which will become even more important.

Mold described the future of physical retail being all about the customer experience. He said retailers need to provide good experiences and even become a sort of hub connecting like-minded people or people with similar interests.

One of his views did not resonate that well with the audience. It was the future of voice vs keyboard controlled devices. Mold believed that we’ll see the keyboard vanish within the next five years. Asking the audience, there was quite some scepticism around this happening.

I’d like to support Mold’s view here. Looking at where efforts by Apple, Google, Amazon and other tech giants are, it’s AI enabled voice control. The technology is slowly but surely growing out of being a curiosity into being a usable interaction method.

Being a Finn, I expect to be among the last to use natural voice control, but in English the technology is maturing fast.

Mikael Lenneryd, Director of Digital and Loyalty, Apoteket

Mikael Lenneryd from Apoteket described a case from his former employer, Samsung. He told the story about how they connected their own first party data with the second party data from a telco to run better digital campaigns.

They used the combined data to target real people based on their interests. This was a challenge both technically and legally.

The technical challenge was combining the data and feeding it into the normal programmatic buying architecture. The legal issues were around sharing data between two large companies and then feeding it onto the other actors in the value chain. It took seven months to sort out the legalities to be able to execute.

But the results were good. Average click to conversion had a 35x uplift and the best segments had a 50x uplift. Which is, in one word, impressive.

The campaign was run on a regular promotion and not an extra sweet deal. So the results should be comparable. The product was a Samsung S8 with a 24-month contract.

Mei Chen, International Business, Alibaba

Next up is Mei Chen from Alibaba. Personally, I found this keynote very interesting given I have almost no knowledge about the Chinese market, but have been interested in it for a while.

The first shock is grasping the sheer volume of the market. The Chinese version of Black Friday is Singles Day. During the sale, Alibaba hit more than a billion dollars per hour for a 24-hour period. This means they totalled over 25 billion dollars during the day and night.

One key difference comparing China with the US or Europe is the age of the consumer. China has a huge number of young consumers and they want to stand out. This can be done by choosing what to wear, what to put on their faces (particularly women) or what to eat.

Alibaba is carrying a lot of European and Nordic brands as well. Given the wish to stand out, products coming from small and (from a Chinese point of view) obscure markets might have a lucrative opportunity ahead. And that’s how Alibaba wants to be seen: as an opportunity to move product, not a threat to local retailers focusing on Europe or a particular country within the region.

In China, marketplaces have a much stronger position than in the US or in Europe. Chen’s take was that the Chinese consumers don’t see a point in using a lot of different sites when you can find almost everything bundled together in just one place as well.

This is a trend we can see in the US as well with Amazon seeing that they have surpassed Google as the most used search engine for product search. So maybe this is the future of retail with platform players acting as supersized department stores and landlords deluxe for whomever wants to get their product out there en mass?

Caroline Carlqvist, Program Manager Personalization, Zalando

Caroline Carlqvist, working on personalisation for Zalando, talked about the challenges of fashion in particular. She described a small boutique in Italy where the owner got to know her so well her boyfriend could shop there for her and the shopkeep would make sure the clothes were a fit for her, in both style and size. That’s what Zalando wants to be as well, but at scale.

The particular challenge for fashion is size. It’s difficult to know if a medium is the same medium as you’ve gotten used to with another brand.

Sizing connected back to data. Zalando has a lot of data about returns and the reason for said returns. This data can help find the right fit. If you have a lot of people who bought brand A in medium sending back brand B in medium since it’s too small, Zalando can warn the next buyers of brand B to size up if they see medium from brand A as a good fit.

Zalando is also pushing this data back to the manufacturers so they know if their brand is consistently getting a bad fit from multiple people.

The threat of Amazon and the Intersport approach

There was a debate hosted on Amazon. I’m not going to dive into more detail about the debate, but I’d like to highlight something interesting presented by InterSport. They have started a cooperation with Tmall (a part of Alibaba) in China.

The partnership is an experiment into combining the upsides of physical retail and ecommerce into one package. Instead of bringing your shopping with you, you can stroll bag-free to lunch and get your new sneakers delivered to your house two hours later.

Louisa Nicholls, John Lewis

Louisa Nicholls from John Lewis shared some insights from the UK market. This is interesting for Nordic and Swedish retailers given that Amazon is already active in the UK market.

Nicholls pointed out that consumers are moving from buying more stuff for fulfilment into searching for experiences.

Given the trend, John Lewis have started adding services to their offering to lure people into the stores. E.g. their style studio service gets an uplift of 30% measured in revenues compared to fashion shoppers who don’t use the service.

Nicholls added to the stories by others before her on the value of data. She told us retail used to be about three things: location, location and location. Now that has changed into data, data and data.

Summary and reflections

Amazon is, of course, on everyone’s mind given the rumours about them entering the Nordic markets. Sweden would be first up, given it’s the biggest population in the region. The severity of the threat seems to divide people.

As a reflection on Amazon’s possible level of threat, I’d like to reminisce on video rentals in Finland. In an article published in 2013, the two major video rental companies thought companies such as Netflix and HBO are a curiosity, not posing any real threat for them. In hindsight, it’s painfully obvious how wrong they were. Disruptors have a way of looking harmless early on.

Data, both the importance of data and how to use it properly, was a part of most keynotes and case studies. Well, it was the main topic of my case study as well, so I might be a bit biased. Yet I’d conclude the significance of data is well understood in retail, but many companies still lack in tools and tactics to actually make the data work for them.

The future of the physical store was also a big debate. This is natural, given most incumbents come from the physical space and have expanded into ecommerce. The issues is, no one really knows what role brick-and-mortar will play in the years to come.