The new year is here and it’s time to bounce back after a strange and unexpected past 12 months. I know many people are excited to see 2020 in the rearview mirror; most of us are ready to welcome 2021 with open arms. As January rolls around, there is a renewed excitement in the air for the possibilities of a post-pandemic world: seeing family again, going out for a nice meal and maybe even going on a vacation!
2020 was a very polarizing year—in the political realm of course, but also in the world of business. While some businesses saw record demand and revenue, others struggled to keep the doors open. The external conditions of COVID-19—with the mass movement toward digitization and away from brick-and-mortar business models—vastly dictated marketplace performance.
I am sure many hope that 2021 will see an eventual return to normalcy (as much as possible). However, there are others who, for the sake of their bottom-line, hope to keep the foot on the gas of marketplace demand. If I could see into the future, I would make sizable bets in the capital markets; but like everyone else, it’s hard to know what 2021 has in store. Yet, despite the uncertainty, there are a couple of practical reflections that can help many businesses get ahead in 2021 in terms of revenue growth—whether that looks like recovering a damaged financial statement or accelerating an already revving profit engine.
Here is what you need to do for your business to bounce back in 2021.
1 . Plan for Continued Channel Mix
2020 saw a significant shift in consumer behaviour and accelerated the movement online; we can be confident that this trend won’t be changing anytime soon. Even after the height of the initial wave, Amazon reported a 37% increase in net sales for Q3 of 2020, down slightly from a 40% increase in Q2. These numbers represent significant uplifts for digitally native businesses.
Other industries saw similar shifts by channel. Most notably, food manufacturers saw surges in demand in retail channels but experienced a drop in the food service space, as large gatherings were limited.
In order to thrive in such conditions, businesses need to do the following:
Understand the Impact of Channel Mix
It is important to analyze how the P&L is impacted as volume shifts from one channel to another; this will help determine if you have a headwind or a tailwind. When making these calculations, make sure to quantify the absolute dollar amount.
For example, if you have 50% of a $100M business selling in Channel A at 25% margin, and half of that business shifts to Channel B at 40% margin, it would result in a positive 3.75M tailwind. Now, this is a rather simplified example with one product and two channels, but as we know, real-life scenarios are never as simple as we’d hope.
Accelerate Higher Profit Surging Channels
Another major 2020 trend found e-commerce growing significantly, causing many major companies to invest in driving growth in their e-commerce presence. The examples of Unilever (with Ben and Jerry’s), ABI and Colgate reveal the rising tides of attention on e-commerce and online purchasing.
Capitalizing on the natural shift of consumers is a tailwind in itself, but especially when these channels are higher margin. There can be significant bottom-line benefits for companies who bypass wholesalers and retailers and go direct to the consumer.
Manage the Declining Channels
Too often, I see companies deprioritize declining channels and focus only on growing segments. I implore you not to lose focus on other channels while you direct your attention toward growing your e-commerce capabilities. Even for the channels that are in decline, it is important to create the right incentive programs and structures to create balance where it is possible. This is especially true for those hardest hit by the pandemic, as the company slowly moves into recovery mode, allowing you to align your company’s revenue growth objectives.
2. Rationalize Discounting
Another trend that echoed through 2020 was the increased cost of many staples, namely consumer packaged goods. For example, groceries were up 4.5% in price in June of 2020 versus February 2020 in the United States.
These spikes, which were seen across the global market, were caused by a variety of factors including disruption in the supply chain, fewer discounts, channel switching and decreased consumer price sensitivity.
As we go into 2021, it is important for companies to control what they can in terms of discounting and promoting. I am not saying companies shouldn’t discount… in fact, they should expect increased investments, but they should take the following steps to ensure they make wisely calculated moves.
Re-evaluate the Status Quo Programs
Typically, promotions and discounts are often “recycled” in most industries. However, because of market pressures, 2020 saw much less of this recycling. Thus, it is a great control to understand which promotional efforts have actually achieved desirable results for your company, and which ones left something to be desired. A deep dive into these promotions and programs can yield new insight into what is “table stakes” for your company—do you really need to offer as steep of a discount?
Understand the “New Normal” for Consumers and Customers
Consumer behaviour has changed dramatically, along with the underlying motivations that determine what is important. It is integral for you to understand these shifts to make sure your price and discounts are still aligned.
This is an opportunity to capitalize on new behaviours—such as bulk buying—to drive more efficient spending. This is especially important for those companies who saw incremental demand in 2020 and want to sustain year-over-year volume.
3. Focus on Execution
Life is different. That is a fact. Zoom is going to be part of our lives for at least the better part of 2021. It is important for companies to communicate and prepare for new strategies and execution in each of the following ways:
- Prepare for a slow shift in consumer behaviour—it will take a long time for people to act like they did pre-pandemic.
- Managing price changes, JBP, promotions, category reviews were all a learning endeavour in 2020. As 2021 approaches, it is important to continue to refine the virtual process, but also to prepare for the next phase.
- Think ahead to in-store execution post-COVID-19. What role does e-commerce play in this?
Growth Opportunities in 2021
In this environment, you have the opportunity to think in terms of redefining industries rather than seeing the current situation as a hindrance for things to work the way they have in the past.
2021 will undoubtedly be an interesting chapter in the saga of COVID-19. As much of a struggle as 2020 has been for many of us, it’s impossible not to feel a renewed sense of hope for change, growth and recovery as we enter 2021. Let’s take advantage of the lessons we’ve learned and continue to push onward to reach your targets, making this year one that your company bounced back.
ABOUT THE AUTHOR Michael Stanisz is a Partner at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Michael at mstanisz@revenueml.com
