For huge numbers of businesses, the argument between whether to focus on top-line or bottom-line metrics has been side-lined in the pandemic.
Salaries, overheads, creditors, the taxman. All need satisfying and while some governments offered some relief for some organisations in some circumstances, for many cash was, and is, likely to remain king.
Cash of course, comes from customers. Certain sectors – hospitality and the leisure industry chief among them – were effectively banned from having customers by government-imposed measures. Others – notably fast-moving consumer goods and food retail – found their ability to effectively reach customers severely hampered.
In happier times, companies were free to wrestle with the vanity/sanity debate without such restrictions. It was even the basis of strategy for many, often boiling down to a simple choice: should we focus on volume, or value; should we 'pile it high and sell it cheap'; or sprinkle it in glitter and double the price?
I have seen and worked with many companies who successfully implemented a ‘premiumisation’ strategy, where value share has grown at the expense of volume share. This looks terrific on paper – you are producing less product but making more money, and the resultant financial reports paint a very rosy picture.
I have to declare a (very conscious) bias here. While a focus on the positive financial metrics that premiumisation brings is reassuring, it often feels to me that it loses sight of what drives these results – consumer needs and behaviour. Value share may make the financials look good, but volume share gives you a customer base you can rely on.
This tension between consumer behaviour and financial metrics was at the heart of a recent article I saw about the effect recessions have on customer preferences: www.warc.com/newsandopinion/news/why-unilever-will-focus-on-volume-share-inthe-recession/43894.
In the article, Unilever CEO Alan Jope announced a shift of strategy to driving volume share during the pandemic. He evidenced this shift by saying “brands which grow volume during recessions tend to grow value share over the subsequent five years 1.4 times faster than those that don't”.
Being a sucker for a bit of data analysis, and in the lucky position of working with an FMCG client who collects and uses global category data, I had a look at corroborating this. In their category, I looked at 70 large brands who grew their volume share from 2008 to 2009 (ie in the last big financial crunch) and compared them to 69 large brands whose volume share declined in the same period. The value share performance from 2009 to 2014 of these two groups of brands is starkly different:
The brands which grew their volume share in the recession grew their subsequent value share by an average of 1.6 percentage points (from an average of 6.6% to 8.2%)
Those which declined in volume share grew value share by only 0.5 percentage points afterwards (from an average of 7.1% to 7.6%).
In this category, a focus on volume in tough periods tripled the value growth afterwards.
It is perhaps obvious why, particularly if you are a fan of behavioural economics. Humans are creatures of habit - it takes something significant for us to change our minds and our behaviour.
The pandemic certainly classifies as ‘something significant’, representing as it does a huge challenge to how we live our lives and how we perceive value. It is driving changes in behaviour, in preference and in purchase patterns. Once these changes are made, consumers will tend to stick with them – rewarding brands who were ‘on their side’ when times are tough with greater custom when times are better.
For FMCG companies like Unilever and my client, the implication on marketing strategy is clear - focusing on pack formats, outlets and pricing strategies that encourage volume sales during this period of consumer resetting will result in an enhanced customer base as times gradually return to normal.
It appears they reap what they sow – cultivate the top-line today, to grow the bottom-line tomorrow.
Do get in touch if you’d like to understand more, or discuss how your organisation needs to change how it thinks and what it measures.