European B2B Strategies: Surviving the COVID-19 Impact
In this video, Victoria Dreharova interviews Hans-Peter Klug and Reno Koepp, Senior Strategic Consultants of PROS, on how the COVID-19 crisis is affecting European markets and accelerating the shift to Personalization and eCommerce. You’ll hear Hans and Reno’s perspectives on the challenges European companies are facing right now and where they are focusing their efforts to survive the crisis. Hans and Reno will also discuss evolving buyer expectations and offer pricing advice to businesses, from those which are experiencing skyrocket demand for their services to those who have seen severe decreases in sales.
[00:31]: Victoria asks Hans for a retrospective overview and possible lessons learned from other historical economic downturns
[01:55]: Hans discusses what certain industries are experiencing since the lockdown measures began
[03:50]: Reno shares his market observations and offers pricing advice to impacted businesses
[06:43]: Reno points out how digital projects are affected and what current priorities are
[07:53]: Victoria asks what customers’ biggest challenges are right now. Hans outlines three key initiatives amongst companies: to protect, to evaluate and to innovate the business for the future and changing needs
[10:45]: Reno discusses German businesses impact, highlighting specific industries and what measures companies are taking in these uncertain times
[13:31]: Hans evaluates the positive effects from the crisis and how important the shift to digital has become with personalization and eCommerce coming to the forefront
[15:32]: Reno emphasizes on the significance of pricing discipline
[16:50]: Hans talks about how buyers’ expectations are evolving, outlining 3 key areas, one of which being digital channels
[18:48]: Post Covid-19 reality: the recovery phase and how businesses can prepare for the future
Victoria Dreharova (00:01): Hi everyone and thank you for tuning in. My name is Victoria Dreharova and I'm Product Marketing Manager at PROS. And today, April 24th, I'll be talking to Hans-Peter Klug and Reno Koepp, our pricing experts in Europe. Our goal from this conversation will be to understand how the pandemic and lockdown measures have affected European businesses. We will focus on the Central European region and Hans and Reno will try to share some insights with us on how businesses are reacting to these restrictive market conditions....
Victoria Dreharova (00:31): Hans, these are challenging times for everybody on so many different levels. I believe neither of us have experienced anything like this before in our lifetime. But from your business perspective, can you think of any events historically that we can draw any valuable lessons from and perhaps apply them in this situation?
Hans-Peter Klug (00:49): Well, Victoria, I agree with you. It really feels like a whole world has been turned upside down. Even if I cannot think of any other event that has had the same impact like this one, I believe. We can still draw a few lessons from the past. They have been quite some a few severe recessions in the past. For example, the financial crisis back in 2008/2009 or the crisis of the technology industry back in 2001. However, they tend to be due to declining consumer confidence caused by inflation or collapse in the housing market or some other significant external trigger. I believe the situation we are now in is completely different. First of all, the situation started in China. That's on the one hand side, the biggest market for many industries and companies and on the other hand side it's also a big part of the suppliers or originating from China and all of Asia.
Then also on the home front due to actions taken by governance, almost across all of Europe, to combat the Corona virus. Many aspects of both demand and supply that been shut down with almost an immediate effect. This is impacting the industries in different ways. On the one hand side some industries, for example, airlines, hotels, restaurants, just to name a few, have seen demand almost completely wiped out. Car manufacturers and car parts suppliers for example, were already struck before the crisis, due to the diesel scandal, they are now in really big trouble. For example, besides the sales of new cars, also many people shift their workshop appointments, for example, to change the tires, to have maintenance done to basic repairs. So about 70 to 80% of the employers in that industry now in part time work, one of the biggest workshops in Germany ATU have closed all of their affiliates and that's just now starting to open them slowly again. Other industries have seen the demand shoot up. For example, if you look at logistics or cargo businesses, medical, medical device industries, the food packaging companies or even insurances, the same is true for exercise equipment. Have you tried to buy any home exercise equipment lately? It's almost impossible.
Victoria Dreharova (03:30): Yeah, I have. And I know people who have. So, in this unprecedented situation, how are companies reacting, Reno? Are there any helpful advices we can offer to impacted businesses based on current events?
Reno Koepp (03:42): Well, I think that generic recommendations are very difficult to apply to each and every customer and each and every situation. But certainly there will be winners and losers all for that crisis. And as Hans mentioned, the Corona crisis is impacting businesses in different ways. So we see companies that are experiencing a significant drop in demand or demand, basically halted. I think in general, B2B businesses think you know, in very medium and long-term. So we do not expect or you're not seeing drastic changes in business and pricing strategies. And I think this is the right thing to do. Stick to your strategy. I think you should understand what your customers really value, that is now more important than ever before and trying to meet those underlying needs, rather than reduce the price. So to have procedures and pricing policies in place to prevent tremendous price erosion. There's no point chasing additional volume that is not there at the moment, at the expense of a longer term. margin erosion. So really focus on the pricing discipline within your organization and try to continue your digital transformation projects and pricing projects. And I believe that this coronal crisis could be a potentially accelerate those efforts. And then on the other hand, we have those companies that are experiencing the search in your mind as Hans mentioned. So I think for those, it's really important to be seen as a responsible and trusted partner, right? And not take advantage of the situation. So be very careful with skimming, not to keep a bad taste in the mouth of your customers. A great example is hygenic masks, right? Their prices they go through the roof, but often during a crisis. I mean, customers will remember the names of those suppliers. So at the same time, I think the policy should be nimble enough to cut promotions and unnecessary discounts. And I would really urge companies to have processes in place to especially look after their loyal customers, so that they are not the ones who are left with no stock.
Victoria Dreharova (06:18): Absolutely, sounds right. And many companies started their digital transformation long before the crisis, we all know that. And the big part of that journey was streamlining pricing to make it more agile and responsive to the market and to the conditions on the market. And of course, more relevant to customers and their demands. Do you see any impact on those initiatives, Reno?
Reno Koepp (06:42): Yeah, well, we have seen different trends in the market when it comes to those initiatives. Some companies we engaged already before the crisis, they completely stopped their projects and most of the times the reason is that they completely cut down investments. On the other hand, we see an increased number of support requests for proposals, especially during last three, four weeks. So I guess some companies are trying to make use of these periods of low business activities to work on that pricing and sales initiatives. Which is really an encouraging sign for us. For example, we have signed a, as promised a huge contract just a couple of weeks ago just in the middle of the Corona crisis. So I think this is really not a question of invest or not invest in such projects. And typically the initiation period for such a digitalization project is a couple of months. So I think companies should try now to prepare for the time after the crisis.
Victoria Dreharova (07:52): And Hans, you've been keeping close contact with some of our customers. What are the biggest challenges companies are addressing right now?
Hans-Peter Klug (08:01): That's true. I've been talking to many of our customers and prospects. Most of my customers are actually active in the energy and chemicals industries and those industries have significantly been inhibited during that crisis. Not only have the demand almost been completely wiped out, but on top of that, the oil price dropped to a record low, due to a combination of various reasons. Chemicals industry are an early indicator of the economy has already started to suffer even prior to the Corona crisis. And that trend unfortunately has now been significantly accelerated. Many of the leaders in those companies are focusing on three elements. So first of all, how to protect their business. That's the most important one. This includes to ensure business continuity, to see, which revenues can we protect and still make sure the cashflow, is working into their favor and other business relevant factors in a nutshell, in flexible and nimble, stopping any non-business critical tasks and projects and locking in business at risk. That's the key one to protect the business. The second element that they're focusing on how to develop and nurture their business that focuses basically on evaluating the company's strengths and how to use it even in these environments considering, the current situation to win more business than the competition. How to strategically price their products and services, but also which services to provide to keep loyal customers happy. And thirdly, how to innovate their business. That's also important for the time when this crisis is over, that they want to get out strong of that crisis. How can they develop new capabilities, new skills? How can these be developed that can be leveraged to gain a competitive advantage in the future? But also, which technologies, like for example, e-commerce, the use of AI will need to be implemented or strengthened, to enable the companies to serve the customer differently and better in the future.
Victoria Dreharova (10:29): Absolutely. You're right Hans, technologies are really important now that we have moved to a virtual working environment, almost all businesses. What is your experience from talking to your clients, Reno?
Reno Koepp (10:43): Well, Victoria, I cannot speak for all industries, but most of my customers, they are in the chemical space and industrial manufacturing and in the automotive aftermarket. So let's talk about them a little bit. I was talking to a material distributor, mainly distributing steel products, right? The demand for steel has decreased dramatically. At the same time, that company has a business unit producing plastics, which is a benefiting from the low crude oil prices right now. And B, there is a huge demand for plastics packaging. So certainly I think companies which have a vitally diversified product portfolio can manage such situations much better because businesses compensate for each other. Then in industrial manufacturing, there are a lot of companies depending from export, especially in Germany. And in a lot of cases they also dependent even more on other industries like the car industry, like aerospace industries, and so forth. So for example, the aircraft seat manufacturer, Recaro Aircraft Seating from Schwäbisch Hall, Germany, they are suffering, because you can imagine the demand for aircraft seats has plummeted. Then the situation of aftermarket suppliers, especially automotive aftermarket suppliers is precarious. Some of them were already in trouble before the crisis and they will suffer further and as natural reaction, what we see, they are focusing on cost cutting and on their cashflow. But however, when talking to them and we found that some of them believe they will be even stronger after the crisis, and they continuously working on their pricing initiatives and they are working on that e-commerce strategy. Typically those companies, they think rather in the long-term, you know, so also one of them told us, for example, that they expect further consolidation in the supplier market for the car industry.
Victoria Dreharova (13:11): Yeah. The long-term vision is really important for any business. You're right. Reno. Hans, has this outbreak affected the way companies do business and in what ways has it changed? Are there any positive effects from the situation?
Hans-Peter Klug (13:28): I believe Victoria, you're right. Many elements will certainly change in the future. A few things that comes come into my mind. First of all, the working from home, I think more people will continue to work from, from home or even start working from home companies that are really starting to appreciate that the productivity in some cases is actually increasing. It will also be more a drive to exploit modern technologies to enable this working from home. For example, one of the first German winners of the Corona virus pandemic was Teamviewer. Teamviewer is a Stuttgart based company which offers solutions for video conferencing and remote access to computers. Then secondly, most of the companies already had a long-term eCommerce strategy in place and even before recent events we are seeing an acceleration to its e-commerce. This is mainly driven by the number of digital native buyers, which is constantly increasing. But I think this latest crisis will further accelerate that trend. Another thing that I can think of is companies, they accelerate their pricing initiatives to have better processes, solutions, strategies in place to be able to quicker on changing market conditions. And last, but not least, I think companies which have already started to use AI, they see a big positive impact from this technology to be more nimble, flexible and faster, which is definitely a key element for survival's in these times.
Victoria Dreharova (15:13): You're right, AI has been a huge factor the last couple of years. Reno do you see changes in the way businesses price their products and services? I think that's an interesting topic.
Reno Koepp (15:27): Yeah, indeed. It's very interesting that when talking to some of our clients, we really see a fundamental new approach to pricing. So we don't see businesses radically changing that go to market approach or down the pricing strategy. And this is kind of logical before, because as I mentioned, they think rather medium or long term. So right now they are focusing on their digitalization initiatives, on their eCommerce strategy and they try to accelerate those projects. And some companies we were talking to they think about they are more on the side, you know, where supplies searches is visible, are thinking of moderate price increases. But however you know, I think those are exceptions because the bigger the company is they don't want to do it. There are loyal customers and you know, increase prices and then probably this would keep a bad taste in their mouth for the long term.
Victoria Dreharova (16:38): Of course you're right. Customers need to be a priority for any business. And Hans, what are buyers likely to expect from their suppliers when we see some level of resumption of business as usual?
Hans-Peter Klug (16:50): I think there are a few things. On the one hand side buyers will not forget, just like Reno said, the way that companies have treated them during this crisis. Also I think buyers are, they will be looking for suppliers that can best meet their post crisis needs. I think they are three important things that they will be looking for. First of all, especially with those supply chains being disrupted by is they want to work with suppliers that can provide them with confidence of a continuation of supply. That's important. I believe this will be a topic that we'll get more and more focused. Perhaps some suppliers will even partially move production back to Europe to be better set up for the future. And secondly, the buyers will want to be sure that they can use the eCommerce channels and that they can still enjoy a personalized experience through this channel. This means being guided to the right product, to the right services, to the right configuration that matches their requirements. And also, especially at a price that matches their willingness-to-pay. Nobody wants to resort to time consuming price negotiations through traditional channels. And finally, I think buyers will be more aware of the importance of having flexible fear and reliable trading partners. Companies that look after their loyal customers in a flexible enough to still adopt to changing circumstances.
Victoria Dreharova (18:25): I think you're right, Hans, fairness is really important in trading relations. Reno, recently, we've seen some great online videos with tips on how to stay physically fit during this period with gyms and parks being closed. What do you think are some of the activities businesses could be doing right now to ensure they're in good health, when we enter the recovery phase of the economy?
Reno Koepp (18:49): Indeed Victoria, just like you seem to be working on improving your flexibility and reactions, I think businesses will want to do the same. Our research shows that B2B buyers really value with timely personalized experience and all in fact ready to pay more for it if they get an immediate and personalized response. So, therefore companies are looking and focusing on the sales teams so that the sales teams really go out trying to understand the needs of the customers. Maybe those needs and demands have changed during the crisis and understand what combination of products and services will appeal to each type of customer. And maybe sometimes that might be the case that those products and services are not yet there. And then be able to generate these personalized offers across all the sales channels and understand the customer's willingness to pay that off and finally made sure that our systems and processes are dynamic enough to quickly adapt to changing circumstances in the future.
Victoria Dreharova (20:12): Absolutely. Right now, having the right systems and platforms in place for the future is really, really important in order to remain sustainable on an uncertain market. Hans, with lower sales volumes and hopefully some commute time freed up, are there any activities, leaders responsible for the different aspects of pricing, could be engaged in right now?
Hans-Peter Klug (20:34): I believe they are various elements. The one topic that I would like that stands out to me is customer experience. Customer experience was a topic that has been very important even prior to the crisis and that will be most certainly the, the highest priority of the crisis. Going back to what we just talked about now is really a good time for businesses to make sure they know their customer, they know their expectations, they know their needs and how those needs are changing. Only by getting to know their customers, they will be in a position to offer them the right product and services at the right price. And the algorithms can also be very, very valuable in helping to predict a customer's willingness to pay. So definitely a customer experience is the one that stands out to me.
Victoria Dreharova (21:31): Absolutely. Reno and Hans, thank you both for this interview. European companies are experiencing new challenges at the moment and are trying to find ways and solutions to cope with this unordinary situation to remain sustainable in the market. And we all acknowledge that generic advice can be very difficult to apply right now, but for those businesses that have started to move beyond survival mode and are looking forward to resuming their pace of operations, PROS can offer free pricing consultancy to help them accelerate their recovery. You can reach out to our experts for advice simply by clicking on the link in the description below. Stay tuned for more video interviews from our professionals and partners on PROS YouTube channel.