Paul Sinkinson, managing director (Asia and Australia), Analytic Partners
Just over two months into the current Middle East conflict and the data is stacking up showing just how much businesses are being impacted. Across Asia and the Pacific leadership teams and boards are meeting to assess the long-term commercial consequences and make some tough decisions.
The facts are stark recent analysis found just 12 weeks of stock disruption is enough to erase 1.5% of annual sales. That figure, drawn from commercial analytics data aggregated across thousands of businesses globally (Analytic Partners’ ROI Genome), is what Australian executives should be stress-testing their operations against.
Early interventions and market reality
Governments across the region are already stepping in with measures that signal just how material the disruption has become. Australia is managing fuel supply pressures, the Philippines has declared a national energy emergency and Singapore has issued electricity conservation directives.
These are not precautionary signals; they are early-stage interventions that flow directly into higher operating costs, constrained supply and shifting consumer behaviour. For businesses, this is where macro disruption becomes commercial reality and where delayed decision-making starts to carry a measurable cost.
The balancing act for many will be how to reduce costs whilst maintaining demand and ensuring there is enough product on hand to meet that demand. Availability is the pressure point. When a product disappears, customers don’t wait, they switch.
And once they switch, competitors have the opportunity to reset loyalty, making that lost share far harder to recover.
With fuel costs spiking, input costs rising and budgets being continually squeezed by inflation, the conditions that drive consumers to switch brands become more acute and the probability of lost customers reverting back to your business is lower. All of which means, the time to act is now.
The cost of waiting
The commercial data from COVID-era disruption is instructive here. Our ROI Genome also tells us that businesses that held their operational and investment position through disruption recovered revenue faster when conditions normalised. Those that made deep cuts, particularly to activities like marketing that maintain consumers’ familiarity with the brand, found the recovery slower and more costly than the savings from the cuts.
All the data shows the consequences of pausing marketing activities, even for a quarter, often hit your brand equity six to 12 months after the change, when they are hardest to attribute and reverse.
The pricing cascade
The cascade running from energy costs into inflation, from inflation into pricing decisions and from pricing decisions into customer loyalty is already in motion.
The instinct of most businesses facing rising supply chain costs right now is to raise prices. But price elasticity is not an industry average – it is category-specific, company-specific and market-specific.
What you do with your price in isolation barely matters. What matters is what happens to your price relative to every other price in the category. Your competitors are likely facing the same cost pressures, so your decision should be how you adjust relative to them, not how much you need to move to protect a margin that may already be gone.
Adapt or face the costs
Businesses that had built genuine pricing power before this moment – enough differentiation that customers will absorb a price increase rather than switch – are in a materially different position from those that competed primarily on price. Something like the Middle East conflict can’t create that gap, but does expose it for all to see.
Most business plans were built to optimise, not to adapt. Executives must realise that assumptions about cost, demand and consumer behaviour embedded in those plans have fundamentally shifted.
Executing against them unchanged isn’t prudence, it’s the pretence of stability in conditions that are clearly not stable.
In the grand scheme of things, 12 weeks is not a long time. But for the businesses that are yet to reckon with what this conflict is actually doing to their revenue, it may already be the most expensive year they never planned for.
Feature image- Paul Sinkinson, managing director (Asia and Australia), Analytic Partners: supplied.