5 Ways to Stimulate Cash Flow in a Downturn

Business leaders have rightly focused on the most urgent issues regarding Covid-19, such as the safety of their employees and customers, and the security of their supply chains. The critical next step is to try to keep cash flowing by managing near-term revenue and expenses.

History teaches us valuable lessons for managing cash during a nasty downturn. Companies that successfully navigated prior crises pursued near-term cash-flow strategies that were both radically generous with customers and partners — and thoughtfully aggressive with near-term revenue and expenses management.

These may seem like opposing ideas, but in reality, these two ideas perfectly balance the empathy required to cajole customers to help while ensuring the economics of the business remain sound.

To achieve this balance, leaders can take five complementary actions:

 

1. Secure near-term sales by taking risks with warranties, guarantees, and return policies.

Companies can secure near-term revenue by reassuring customers who are nervously navigating a ton of uncertainty. Taking a risk with generous warranties and return policies can both calm nerves and close sales.

Hyundai demonstrated this successfully during the 2008 recession, with their Hyundai Assurance return program and their breakthrough 10-year, 100,000-mile warranty program. The marketing campaign promised that if you lost your job after recently buying a Hyundai, the company would buy it back from you. Hyundai’s market share grew in the first 10 months of 2009 from 3.1% to 4.3%, and their sales grew nearly 24% the following year. They are reprising a similar version of their program today.

 

2. Implement new revenue/pricing models.

Companies should test new revenue and pricing models with their “superconsumers,” many of whom will gladly jump at the chance to secure goods and services they know they will want and need at a meaningful discount. This may require alternative revenue/pricing strategies, like gift cards and subscriptions, as opposed to traditional transaction-based models.

Blaze Pizza, one of the market leaders in fast-casual pizza, recently launched a #BlazingItForward gift card campaign on social media and via their 2.4 million email member list. Under this promotion, someone who purchases a $20 gift card gets a free pizza on their next purchase. Daniela Simpson, general manager of digital growth and head of marketing at Blaze, noted gift card sales have exceeded expectations. Gift cards can be tricky from an accounting and go-to-market standpoint, but remember that Starbucks has 25 million mobile users who pre-load cash onto their rewards cards as an interest-free, negative working capital loan. In aggregate, this provides Starbucks with more than $1 billion in working capital. Other companies can try this, too.

Gift cards may seem like a retail specific idea, but it is a tactic more companies should try. The travel and leisure segment can offer their best customers ways to secure their elite status for next year by forward-buying travel in bulk at a discount.

Remember that superconsumers have a shared interest in your survival. While the revenue must be recognized over time, this does have meaningful cash flow and balance sheet benefits, as well as forecasting benefits too. For categories and companies that have toyed with the idea of migrating to subscription pricing, now is the time to try it. Companies that successfully make the transition to subscription pricing may see their valuation multiples increase once the market stabilizes, given Wall Street’s current affinity for subscription and “X-as-a-service” business models.

 

3. Accelerate innovation.

Launch near-ready innovations in the pipeline now. Most companies are risk averse regarding innovation, but just as generosity begets generosity, empathy begets empathy. Customers who may typically nit-pick new innovation will now be grateful for new and improved products/services — even if they’re released before all the kinks are worked out. They likely will help you identify problems and fix them before a broader rollout.

This is what Tesla is doing effectively with its auto-pilot software. The software is not finished, but they know that the best way to improve it is to gather actual driver data from Tesla owners using it in the wild.

Others are simply moving up launch dates sooner to both help consumers hungry for distractions. ESPN, for example, is accelerating the launch of its highly anticipated Michael Jordan documentary from June to April. Many Hollywood studios are making the mistake of delaying launches to maximize mass market revenue, missing the opportunity to launch these as high-priced, pay-per-view events.

 

4. Cut “sacred cow” marketing costs.

Take a swing at marketing costs that are suspected to not pay back but are too politically difficult to cut during better times. These are often hard to measure marketing costs and/or are geared towards motivating distributors/channel partners more than consumers.

A good example of this is when back in 2009 Anheuser-Busch InBev cut a number of sports sponsorships (e.g., Manchester United, exclusivity on the Winter Olympics) that motivated distributors, but had little evidence of customer awareness or impact.

 

5. Engage in new kinds of customer acquisition.

Finally, companies should seek to proactively acquire customers during this crisis. One of the best ways to do this is strategically sampling to acquire new customers. This is especially true of companies that sell intellectual property, like software, training, and services, which have low marginal costs.  Zoom has generated a lot of attention by offering its services for free for K to 12 education. These investments now not only enhance their category and brand long term, but they often will convert into paying customers six to 12 months down the line.

Another way to drive customer acquisition is via M&A. Valuations are as low as they’ve been in a while, so companies with the means should be aggressively shopping for acquisitions that bring over new customers, cross-selling opportunities, or new business models and categories. Consider The New York Times, which just acquired Audm, a subscription-based audio app that offers long-form journalism read aloud by celebrated audiobook narrators. Given that print is migrating towards podcasts, this is a great time to make a bet on the cheap for the future.

Companies need to resist the temptation to stay hunkered down on defense during these difficult times. Instead, go on the offense by using radical generosity and thoughtful aggressiveness as guiding principles. Dark times are when legendary companies and leaders are forged.

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