February 5, 2015
Since the Swiss National Bank abandoned its currency's peg to the euro, many companies are reacting to the fallout like they would to a bad accident, especially the tourism and export sectors. Everyone knew that something like this could happen, but now that it has actually come to pass, businesses were taken by surprise.
Just like when an accident happens, companies have to react right away. The first thing an organization needs to do is to form a crisis team to quickly take stock of the situation. This team needs to determine how decisions will be made and how the company should communicate. It also has to establish what immediate measures are to be taken.
Direct and honest communication with staff must be initiated at the very beginning. Management shouldn't make any false promises or try to make the situation seem worse than it is. It should be clear which procedures will be put in place and when management will communicate.
In parallel, the crisis team should examine the company's finances and marketing. On the financial side, it is important to calculate the company's assets for the short term using the current exchange rates and to include monetary risk into the overall assessment. If necessary, the team must reconsider or adjust clients' access to credit.
On the marketing side, there are two key things to look at. First, companies must establish which 10 to 25 clients are most affected by the Swiss franc exchange rate fluctuations, taking into account any ongoing or expected contracts, deliveries and payments. Then, a set of measures must be put in place for each of these clients. The company has to be in constant contact with them, even if new conditions can't or don't need to be negotiated. We know from experience that clients can put pressure on prices even if they are satisfied with the current value for money. The art here is to figure out how willing and able the client is to pay through the course of these conversations. The worst mistake is to unjustifiably lower prices temporarily, because lower prices can damage a brand's image and can be difficult to bring back up later on. If it is absolutely necessary to lower prices or make special offers, it needs to be clear that they are temporary and subject to special conditions, such as minimum purchase quantities or flat rate prices.
Next, the team should categorize the company's entire client base by the following categories: "high vulnerability to currency shock" and "low vulnerability to currency shock" as well as "high customer loyalty/high impact in case of loss of client" against "low customer loyalty/low impact in case of loss of client".
The clients the company should worry about first are the ones who fall into both the "high vulnerability to currency shock" and "low customer loyalty" categories. In this case, it has to be decided quickly if the relationship can be saved. If yes, the client should be contacted or be communicated to immediately. If it is decided that the clients would be difficult to keep, it is better to concentrate sales efforts on the clients who have been categorized as "high vulnerability to currency shock" and "high customer loyalty/high impact in case of loss of client". These clients cannot or do not want to change their supplier for the time being, but will demand renegotiation of their contracts and prices sooner or later.
If those tactics don't work, companies can learn from the following lesson drawn from pricing psychology: It is never good to lower the price for the same product or the same offer. On the contrary, businesses should try to offer a lesser product for a lower price, and at the same time, a slightly better product at the same price. If possible, they should also offer a much better product for an even higher price. Even if very few clients buy the most expensive product, the middle range product will seem more attractive. In other words, companies have to divert attention away from the actual price and instead need to focus on value for money. A lot of Swiss companies are still competitive from this point of view, in spite of the current strong Swiss franc.
Stefan Michel is professor of marketing and service management at IMD and director of IMD's EMBA program. He will also direct a new IMD "Global Leadership in the Cloud" program on pricing. For more information on this new program, please email firstname.lastname@example.org
In addition, he serves on the board of Bossard, a publicly listed company, and is the chairman of the foundation board of the Swiss Society for Marketing GfM.