July 08, 2020
In many ways, in many markets, today’s global pandemic has reset the game board. Now brand leaders are forced to regain lost ground, while brand laggards willing to act quickly, decisively and boldly have a chance to lead.
“One of the biggest surprises has been how big of a dichotomy there has been in the potential impact on business leaders,” says Brian Gregg, senior partner at McKinsey & Company, Americas leader in the Marketing and Sales practice. “You basically have a tale of two stories. Both stories are quite significant with the potential to be game-changing and sustained.”
McKinsey has been at the forefront of researching the pandemic’s impact on brands. Known for keen business insights and comprehensive market reports, McKinsey has conducted as much research in the last 90 days as in a normal two- to three-year span. Given how swiftly things are changing, McKinsey takes a weekly pulse of consumer sentiment across 45 countries.
Obviously, a main theme of the pandemic’s story is one of fear and uncertainty. Consumers across the globe are not feeling very confident about the economy with only ~36 percent of adults feeling good about the economic recovery in the next two to three months. This has shown up in consumer behavior too. In April, the United States had its lowest monthly retail performance. As Gregg notes, this version of the story can seem quite pessimistic.
But within this bleakness there’s a glimmer lighting up the other side of the story. It’s a theme of hope and optimism. McKinsey found that one out of three Americans is actually changing brands. While a scary time for many management teams trying to protect their customer base, it’s an opportunity for others to catapult ahead.
“In a moment of great uncertainty, we expected a flight to familiarity and trust with consumers sticking to brands they had used, but we actually saw the opposite,” Gregg says. “This had a lot to do with what was in stock and the new consumer journeys being formed with digital platforms as the first step. For many brands and companies, this is a unique moment to increase their share and relevance with consumers. This is the second side of the story.”
Late last month, the CMO Council sat down with Gregg to learn more about the shifting consumer sentiment landscape and this tale of two stories happening during one of the most tumultuous economic times in modern history.
Can you help us understand the scope, impact and staying power of the low-touch, digital lifestyle?
Gregg: Across all countries, consumers are adopting and intensifying digital and reduced-contact ways of accessing products and services. As we look at the United States at a more granular level, this digital trend is magnified for Gen Z and millennials and for higher-income consumers.
The magnitude is surprising. It took consumers the last 10 years to add ~10 points of digital penetration across all retail. That’s 10 points in 10 years. Now, we just witnessed an additional 10 points of digital penetration in the last 60 days. This kind of consumer behavioral dislocation, or disruption, is quite extraordinary. You have this real moment of not only a digital surge and a shifting leaderboard, but a moment to really connect with consumers in new ways as they reformulate their habits and decision journeys.
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Some categories, such as online fitness, telehealth and wellness apps, are gaining new customers who intend to stick with this new behavior post-COVID. In contrast, consumers demonstrate less of an appetite to continue with other categories, such as restaurant curbside pickup, professional videoconferencing, mental telehealth and remote learning for children.
With this type of disruption in-flight, some brands are really positioned to lead coming out of the crisis. Even in the last 30 days of purchase data in the United States, we are seeing a significant divergence in market shares across competitors, where there are clear winners and those falling behind.
How can brands get ahead of this?
Gregg: This is where it’s very helpful to have the global view. Speaking to management teams in China, Hong Kong, Taiwan, South Korea, we hear some similar themes of what they wish they would have known a little earlier. As the United States is a step or two behind these geographies in terms of the crisis, it is helpful guidance for many management teams located here.
We have essentially identified five hallmarks among companies that are really strengthening their position through this crisis:
The first hallmark is the ability to be ambidextrous. You have to operate at two, if not three, speeds simultaneously — and do them well. There’s obviously the navigating the here and now, the day to day, the hour to hour speed. That’s a critical capability. CMOs need to make sure every customer and employee is safe as stores reopen. The next speed is to prepare one, two, three months ahead. How do you continue to win consumers in the recovery? And then there is the third speed: reimagining what life post-COVID is going to look like — the customer experiences to offer, the revenue streams to invest in, and the business model evolution itself.
The second hallmark is this idea of reimagining the business. Consumers tell us virtualization of products and service is not going away. The amount of digital media being consumed and the importance of digital touch points is likely going to stick. In fact, one of our big findings is that over half of consumers believe they will stick with some of the new brands and new digital journeys after the crisis. Therefore, now is the time for CMOs to reimagine the value proposition in this more virtual world.
The third hallmark is granularity. Marketers have always needed to be personalized, of course, but we are hitting a whole new level. For example, the importance of hyper-local has never been so strong. We’re seeing a new magnitude in sales variability from zip code to zip code, category to category, that is critical for marketers to understand. This variability is likely to remain true for some time given consumer uncertainty; marketers must be able to quickly identify and predict where demand is going to surge (and not). This is a unique opportunity to meet this demand with the right messaging, content and customer promise.
The fourth hallmark is adopting an agile operating model in this virtual context. We have talked a long time about agile marketing and the importance of being able to be where the consumer needs you to be at the right time, but how you pull that off in a virtual world is even more interesting. We are seeing some companies rewire their ways of working — viewing the virtual context as a “clean sheet” opportunity — rearchitecting media plans and thinking about reallocation of dollars across different messages and media channels.
The fifth hallmark is the concept of self-banked growth. Many companies are unclear on the near-term future of revenues and cash flow. And yet winning consumers and keeping them engaged and loyal isn’t free. Therefore, marketers need to consider how to self-bank their investment. We have seen marketing leaders achieve anywhere between 10 to 30 percent of efficiency across the marketing cost envelope, where reducing the spend does not have to affect the customer — and ultimately can self-bank growth investments.
Sounds like analytics will play a big role in all this decision making.
Gregg: I recently had a conversation with a CMO of a leading company who noted that the most critical thing their CEO (and, frankly, their board of directors) has been focused on is predictive analytics. Specifically, they built a dashboard looking at daily customer demand by zip code, customer cohort, and product category. It helped them predict where demand is likely to surge in the next 48-72 hours.
Historically, this company looked at demand planning and demand management in six-month or 12-month increments. In light of current customer dynamics, they are now looking at data and analytics to feed decision makers in 72-hour or even 48-hour horizons. Pointing internal and external data at this specific use case can be an effective way to harness AI and machine learning resources.
While this is an impressive example of tapping the power of analytics and applying some of the hallmarks discussed, not all marketers are having the same success. The current crisis is not allowing anybody to hide, shining a bright light on those unprepared. Adopting some of the five hallmarks can help put marketers on an accelerated trajectory in the right direction.
Tom Kaneshige is the Chief Content Officer at the CMO Council. He creates all forms of digital thought leadership content that helps growth and revenue officers, line of business leaders, and chief marketers succeed in their rapidly evolving roles. You can reach him at firstname.lastname@example.org.
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