The 2020 Mid-Year Economic Update_long

How the 4 P’s Have Drastically Changed and What to Do About It

Optimize your product portfolio, shift your pricing strategy, place your product properly and re-think your promotion strategy, says Revenue Management Labs' Anthony Guarnaccia.
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As a top decision-maker in your distribution company, you may feel as though you’re running around like a chicken without a head just trying to keep up with all the demands on your time. Although the circumstances around COVID-19 have complicated everything, it is essential for you to consider four key factors that will have a major impact on your revenue: Product, Price, Place and Promotion.

Optimizing your product portfolio

The marketplace has been substantially altered by the pandemic, and it is important to examine whether your company has optimized its product portfolio for a COVID-19 environment. An example of how to pivot and optimize a company’s product offering occurred in the early months of COVID-19. Coca-Cola announced that it was discontinuing half of its portfolio, since it was earning less than 2% of the company’s revenue. By simplifying its operations, Coca-Cola was able to improve its level of service and have the focused energy to face other challenges caused by the pandemic. Additionally, Coca-Cola’s strategic portfolio differentiation allowed the organization to focus on the products and brands that would move the needle, both immediately and into a less-than-certain future. While your distribution company might not be facing a ratio as extreme as Coca-Cola’s 50%/2%, it remains true that every business has a tail, and how that tail is shaped can pay dividends now and in the future.

Moving beyond the rationalization aspect, it is important to analyze your company’s pack-sizing to ensure you are maximizing your customer reach. Due to the economic impact of the pandemic, there has been a rise of two distinct types of shoppers: those who are looking for smaller, low-dollar items and those who seek much larger pack sizes — either due to affordability (price-per-piece) or the idea of “stocking-up.”

Shifting your pricing strategy

Due to several factors, COVID-19 has dramatically changed the price curve for Fast-Moving Consumer Goods (FMCGs). For the past six months, percentages on deals have decreased between 20%-50% in the U.S. compared to last year. Retailers have played a large role in this shift, due to the fact that they no longer have the workforce to set shelves and stock products. As a result, manufacturers have had to cope with the reality that though the demand is stronger, the stock is consistently running out — which then causes FMCGs to cut spending on promotion in order to keep up. At the same time, the rise of online shopping sites like Shipt and Instacart — which don’t always feature price points that align with in-store realities — have created an environment where the traditional rules no longer apply.

In light of the shifting marketplace, how have you adjusted to this new normal? If your products are well-stocked and you have developed your product architecture, then it is time to evaluate your pricing strategy. How can you adapt your spending to better reach customers who are shopping online and making purchases in an environment where there are fewer deals? This is the time to reset your pricing ladders and thresholds, set new expectations and take advantage of excess supply.

Placing your product properly

Of all the disruptions to our daily life caused by COVID-19, physical location is one of the most prominent. The home has now become the base of most of our activity. Most customers aim to go out less and decrease their potential exposure by shopping in bulk or limiting the number of stores they visit. An example from the B2C market: I remember being surprised by a statistic from before COVID-19:  consumers would, on average, carry out their grocery shopping at seven more places a month for the sake of variety, price and convenience. How the times have changed!

With each of these changes comes a different impact on your business. As a result of the increase in online shopping, you must analyze your differentiation strategy, online assortment and the quality of the content. We have discussed larger sizes, but what about your club channel or bulk channel strategies? In the same vein, have you explored the assortments across customers? Do they all have optimized assortments or are certain companies carrying niche items at the expense of better items? In these unstable times, it is critical to make sure you have maximized your portfolio across all channels and within those channels. Balancing your mix is an important step to maximize your revenue.

Re-thinking your promotion strategy

In many ways, the methods that were successful before COVID-19 are much the same as what is working today — the trends have just been accelerated dramatically. Digital media, advertising in streaming media and leveraging online retail platforms were successful examples of promotion strategy pre-COVID-19; now they are over-performing baselines during the pandemic.

The drastic reduction in both travel and in-person events means that the benefit of out-of-home advertising has been starkly limited. In-store campaigns are also less effective due to the fact that customers are making fewer trips to the store. Another macro trend affecting promotional campaigns is the increased focus on the local marketplace as lockdowns and restrictions limit the consumer’s mobility. How are you thinking about this changing mix and program type?

Break down these impacts on your business to set your company up for long-term success.

Anthony Guarnaccia is a Principal at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Reach him at aguarnaccia@revenueml.com

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