Executive Executive PerspectivesPerspectives The CEO’s Dilemma How to Win Market Share in a Downturn January 2023

Introduction to this document Current global disruptions and macroeconomic headwinds are creating unprecedented volatility and competitive pressures. Given the unique profile of this downturn, traditional recessionary playbooks are no longer enough. In this BCG Executive This document outlines a new, tailored top-line playbook, Perspectives edition, we providing guidance on how to protect value but also drive look at how to turn growth in the next downturn. To thrive, organizations will uncertainty into an need to gain visibility on market shifts, safeguard value in the short term, and invest in seizing competitive advantage advantage and win market in the long term. Our integrated approach, therefore, share balances three key dimensions: sensing, defense moves, and offense moves. This playbook provides an array of concrete actions, across marketing, sales, and pricing, from which organizations can develop their own custom toolkit. Best-practice examples illustrate how clients have successfully navigated prior uncertainty. Source: BCG Resilient Pricing Study, September 2022

Executive Summary | Winning market share in a downturn This downturn cycle is different with relatively high supply chain pressure, high oil prices, and high inflation, combined with relatively low unemployment and medium interest rates. We see a polycrisis Why a new unfolding, with a unique combination of economic and noneconomic shocks entangled at the same approach time, creating increased uncertainty and volatility is required Against the uniqueness of this crisis, having a pure focus on cost will not be sufficient With every crisis comes opportunity, but to seize that opportunity, companies need to invest. Smart leaders invest in digital capabilities to grow market share and build customer loyalty in times of high volatility Our new top-line framework helps companies thrive through this polycrisis and future downturns, building on specific approaches around sensing, defense moves, and offense moves How to win SENSING: Establish a peripheral radar to ensure visibility into what is happening in the market and to market assess the impact of any defense and offense moves share in a DEFENSE:Safeguard against volatility and maintain market share through defense levers to stabilize downturn the top line and protect value – mandatory for each company entering this downturn OFFENSE:Unlock a unique opportunity to win share through a keen focus on each step of the customer life cycle and an integrated top-line program cutting across marketing, sales, and pricing (e.g., Beiersdorf case study)

Continued uncertainty about future demand and economic stability 1 Global growth outlook 3 Financial markets 5 Labor market 1 4 7 GDP forecasts (Real GDP YoY) Equity market performance (YTD change) Job openings rate 2021A 2022E 2023E 2024E Oct '22 Nov '22 Dec '22 Q2 '22 Q3 '22 Q4 '22 Change US 5.9% 1.8% 0.4% 1.4% 8 S&P 500 -18.8% -14.4% -19.4% US 6.8% 6.5% 6.4% -0.1ppts Eurozone 5.3% 3.2% -0.1% 1.5% Eurostoxx 50 -15.8% -7.8% -11.7% Eurozone 3.2% 3.1% - -0.1ppts Global 6.0% 2.9% 2.1% 2.9% Unemployment rate9 5 Corporate spreads (High Yield) Oct '22 Nov '22 Dec '22 Change 2 Commodity prices and inflation Oct '22 Nov '22 Dec '22 Change US 3.7% 3.6% 3.5% -0.1ppts Commodity prices2 US 4.64% 4.48% 4.69% +21bps Germany 3.0% - - - Oct '22 Nov '22 Dec '22 Change Eurozone 6.05% 5.26% 5.21% -14bps France 7.1% - - - Brent oil 86.5 80.6 80.3 -0.4% Natural gas 4 Monetary policy 6 Manufacturing US 6.4 6.9 4.5 -35.4% Eurozone 84.0 140.0 74.0 --47.1% Monetary policy rates6 PMI manufacturing (<50 = contraction)10 Consumer price inflation (YoY)3 Oct '22 Nov '22 Dec '22 Change Oct '22 Nov '22 Dec '22 Change Oct '22 Nov '22 Dec '22 Change US 7.7% 7.1% - -0.6ppts US 3.25% 4.0% 4.5% +50bps US 50.2 49.0 48.4 -1.2% Eurozone 10.6% 10.1% - -0.5ppts Eurozone 2.0% 2.0% 2.5% +50bps Eurozone 46.6 47.1 47.8 +1.5% 1. Bloomberg, data as of 01/06/2023. 2. Data presented as end of month figures. Brent oil in $/bbl; US natural gas (Henry Hub) in $/MMbtu; Dutch natural gas (TTF front month future) in EUR/MWh. 3. CPI monthly seasonally adjusted data from Bureau of Labor Statistics; HICP monthly data for Eurozone from Eurostat. 4. Bloomberg. 5. Bloomberg US Corporate High Yield Average OAS; Bloomberg Pan-European High Yield Average OAS. 6. Federal Reserve for US; ECB for Eurozone (main refinancing rate). 7. Seasonally adjusted rates; Bureau of Labor Statistics for US; job vacancy rate from Eurostat for Eurozone. 8. As of 11/30 2022. 9. Bureau of Labor Statistics for US; Eurostat for Eurozone. 10. ISM manufacturing PMI for US; S&P Global Eurozone Manufacturing PMI from Markit for Eurozone. Note: All displayed numbers are based on end of month figures. Changes based on incremental changes vs. previous months, except for Job openings rate which is based on changes vs. previous quarter.

BCG Executive Perspectives AGENDA Why a new approach is required How to win in a downturn

Pressure on companies is growing during the polycrisis, with the combined impact of regulatory changes, COVID, war, and the economic crisis RELATIVE VOLATILITY/ CHALLENGE TIME NOW Pre-COVID, Regulatory Regulatory + COVID Regulatory + COVID + Post-crisis, volatility & regulatory pressure +COVID +war war + economic crisis supply issues remain Pressure on sustainability Initial “business freeze” and On top of COVID, war Forecasted decreasing Several pressure factors are and data privacyalready lay-offs faded & transformed brought political unrest and GDP, uncertainty about the set to continue; timeline of growing (e.g.,end of 3P into issues with supply further squeezed the future, and high inflation energy crisis is unclear, cookies) chain and labor shortage. supply chain (raw driving rapid change in strengthened focus on Increasing number of CO2 materials, energy) consumer patterns privacy and sustainability reduction targets likely to persist announced Source: Press search, BCG

Economic situation two quarters before start of recession vs. Q3/22 1 Data for US Early 2000s Global financial Current recession crisis crisis Global supply chain Low -0.4x 1.4 High pressure index 1,2 Global price of Brent Crude Low 27 89 98 High Unprecedented mix oil ($ per barrel)1 of disparate shocks Inflation rate (%) Low 2.6 2.9 6.0 High results in unique Unemployment rate Low 3.6 4.8 5.9 High polycrisis (%) Interest rate (%) Low 1.4 2.2 4.5 High Business expectation Weak 99.2 99.5 99.7 Strong Additional index indicators Consumer sentiment index Weak 56 78 84 Strong

Levers that focus only on cost no longer apply in current downturn Approach on cost is effective … Push on suppliers? Successful supplier renegotiations for increased flexibility Streamline organization? Simplification leads to leaner cost structure But caution is needed to protect the top line … Reduce brand spending? Short-sighted measure: COVID proved brand spenders saw 1 2x growth vs. average Aggressively decrease marketing Increased competition makes eroding market share likely and sales costs? Cut tech programs? Rapidly evolving pressures require advanced solutions Rely on consumers? Strongest downturn in consumer sentiment is yet to come 1. Top brand spenders defined as brands in top quartile of increasing brand spending over 2017-2021, methodology: 17-21 CAGR for a sample of large advertisers Source: BCG project experience, BCG-Google branding study

Every crisis offers opportunities, but past downturns have shown that only a few companies are able to capture growth in times of uncertainty 75% of companies intend to use Historically, few companies succeed in uncertainty as an opportunity for growth1 their mission Only 14% of companies improve growth and 25% marginduring downturns Increasing Offense sales growth playbook 75% Expanding 14% 14% EBIT margin Shrinking 44% 28% 75% rank pursuing growth as a top EBIT margin priority during economic uncertainty1 Defense Falling playbook sales growth 1. 75% ranked growth in top three (Question: "In your opinion, what are the most important actions an organization can take to protect itself during times of economic uncertainty?") – BCG survey Source: BCG Resilient Pricing Study, N = 1.400 pricing decision maker, September 2022

BCG Executive Perspectives AGENDA Why a new approach is required How to win in a downturn

How to navigate uncertainty | Integrated playbook required to take advantage of adversity Competitive environment Integrated top-line playbook Sensing Support business decisions by understanding customers’/clients’ changing needs and by discerning market trends Select actions Assess spending behavior Forecast supplier prices Evaluate impact of market trends Develop economic scenarios In times of swift competitive moves and rapidly changing consumer Defense Defend the top line by building resilience across the value chain and demand, the ability to see where the functions, and reallocating resources to identified priorities market is shifting becomes an essential element for survival Select actions Renegotiate against volatility Focus sales on high-churn customers Hence the peripheral radar needs to Optimize marketing allocation Shift to less labor-intensive channels be established and augmented This radar serves as a prerequisite Offense Seize opportunity to win market share by investing in capabilities to for every defense and offense expand the top line move of the market Select actions Initiate Voice of Customer program Enhance sales by AI "next best action" Drive personalized communication Apply green premium pricing

SENSING | Establishing transparency on consumer and competitor bune trends is key to evaluating “where to play” Sensing creates insight on market and … which are prerequisites for targeted growth spaces along 3 dimensions … selection of defense and offense moves 1 Understanding of demand spaces and Reframes market and competitor Case example market dynamics viewthrough consumer lens Global hotel chain leverages BCG Insight into own and competitors’ demand sensing forecast (DSF) to 2 positions improve accuracy, model adoption, Enables data-driven decisions and transparency about where to compete Updated model with new data: Sizing and prioritization based on 3 opportunity and advantage • Property clustering • Market demand data • Airline traffic using powerful ML algorithm Creates growth mindset tailored to each property BCG DSF improved accuracy Demand maps identify by 37%1 demand spaces. For each 37% space, detailed profiles Derives agile test and learn show, e.g., consumer needs, initiatives to respond to volatility competitors, and value BCG DSF Prev Fcst 1. Difference in error relative to capacity Source: BCG case example, BCG Lighthouse

DEFENSE | Hygiene “must-do” actions to protect the top line, DEFENSE safeguard against volatility, and maintain market share Hygiene “must-do” actions from the integrated playbook Customer Monitor and respond Predict category demand via unified data sources to enable steering of pricing and promotions demand to demand shifts & innovation Understand changing channel mix and resulting impact on volumes Identify and cut low- Optimize allocation of working and nonworking spending from low to high ROI Marketing return spending Enhance trade spending (i.e., maximize conditional spending) and promotions Apply B2B order backlog triage to prioritize and renegotiate long-term contracts Sales Defend customer Protect the top line by focusing on customers with high churn risk base Adapt sales force incentivization to steer toward changing goals (volume vs. margin; pricing) Protect and stabilize Selectively price-up to improve margin realization (e.g., set price premiums) Pricing margins Renegotiate contracts to protect against volatility and inflation (e.g., indexed pricing) Customer Focus on effective Prioritize retention programs to improve satisfaction and lifetime value experience channels Shift to less labor-intensive sales channels, leveraging automation Organization Set up lean Build lean and efficient organization while retaining experts and talent organization

DEFENSE | Recent study of a global chemical player’s battle-tested approach to counter inflation Playbook from a global chemical player Faced with unprecedented inflation and product scarcity, leadership embarked on a Pricing Acceleration Program to capture immediate value and drive long-term change Hygiene “must-do” actions Significant impact Customer Predicted category demand via unified data sources to enable steering of pricing demand and promotions Impact delivered in less than •Built AI-enabled pricing engine to generate target price recommendations €100M & innovation •Improved data quality of yield, material costs, and demand sensitivity 12 months in a €2.5B BU +5-10% Margin uplift resulting from contract renegotiations Protected top line by focusing on customers with high churn risk Sales •Targeted pass-through of cost inflation based on price sensitivity, considering share of product in customer's product structure and ability to pass through Average price uplift via +5% AI-enabled pricing engine Selectively priced-up to improve margins and supported contract (re)negotiation Increase in contribution Pricing to protect against volatility +1% margin from yield •Introduced tactical surcharges for specialty products and revision clauses management •Built digital contracting foundations to identify (re)negotiation opportunities Source: BCG case example

OFFENSE | Targeted investments to seize opportunity and win OFFENSE market share Investment “growth driver” actions from the integrated playbook Customer Embed customer Develop singular, customer-centric view on demand fundamentals to guide comm. strategy (e.g., sustainable products) demand demand into strategy & innovation and culture Stay grounded in customers’ needs through robust Voice of the Customer program Seek smart, fast- Exploit opportunities to reframe category, establish new brand associations by demand space (e.g., sustainability brands) Marketing forward looking opportunities Drive personalized communication with AI (e.g., "green" consumers) Expand customer Install demand center to drive demand and demand response capabilities Sales base with high efficiency Use AI-driven “next best action” for effective and efficient sales Adopt differentiated Invest in pricing, analytics, and sales capabilities to adopt new pricing models & enable sales to take active negotiation role Pricing responses Fund and accelerate adoption of sustainable offering through "green premium pricing" Customer Expand channels Invest in new channels: launch D2C channel (e.g., excl. sustainability channel) or partner with channels experience and platforms Push customer lifetime value (CLV) through engagement and retention via omnichannel loyalty program Organization Strengthen talent Seize opportunity regarding high-potential candidates to complement and strengthen talent pool pool Opportunities for push in climate and sustainability offerings

OFFENSE | Case study of Beiersdorf’s precision-marketing transformation to become best-in-class Playbook from a global personal-care company Beiersdorf's Emerging Markets division for Nivea launched a holistic precision-marketing transformation to better navigate coming uncertainty and become best-in-class Investment "growth-driver" actions Significant impact Built marketing capabilities with precision marketing •Drove personalized communication via new audience strategy & 1pd activation Marketing •Improved marketing planning, budgeting & execution capabilities 7pts Additional sales growth, •Unified marketing measurement to invest in highest ROI activities & channels outperforming market •Enhanced sourcing models including onboarding & training of 3p partners -37% Media budget efficiency1 Invested in targeted consumer journey vs. typical efficiency gains -25-30% Consumer •Shifted budgets from traditional media to targeted digital channels with experience personalized and best-in-class CX •Implemented full-funnel approach to address consumers along e2e journey •Partnered with new 3p eCom channels for quality traffic to boost market share +124% Business effectiveness1 vs. typical effectiveness gains +50% Strengthened talent with extensive capability building & established new WoW •Devised multi-formatted upskilling program, ensuring full-in market autonomy +300 People upskilled Organization •Overhauled agency model with FTE-based model from fixed to variable •In-housed key capabilities, designed & recruited new Center of Excellence (CoE) •Significantly adjusted ways of working of marketing teams 1. Based on the results of 50 campaigns for efficiency and 20 campaigns for effectiveness conducted in 11 emerging markets Source: BCG case example

Proven experience supporting clients on the topic OFFENSE | Technology as key lever for unlocking further top-line expansion: Case study on enhancing sales with AI-enabled lead management Playbook from a medtech animal health company Management adopted new digitally enabled sales and marketing engine to engage customers in a more targeted, personalized, and data-driven way to increase overall selling ROI Technology-driven actions Significant impact Personalized Drove personalized communication with AI based on engagement and sales data Incremental annual sales marketing •Designed marketing-engine tool for automated lead qualification $120M impact in primary market •Measured prior engagement to optimize approach continuously 40% Increased annual sales rep Expanded customer base with high efficiency productivity Sales.AI •Built predictive call-planning tools with data-driven recommendations •Employed "next best action" tool to route qualified leads to reps •Developed data and digital platform to accelerate future builds 2X Sales conversion rate Bionic Strengthened talent pool to support digitization efforts Lower time to market for pilot •Devised multiformatted upskilling program, ensuring full-in market autonomy 4X (6 months to 6 weeks) organization •Overhauled agency model with FTE-based model from fixed to variable; based on KPI improvement and golden-rules compliance Source: BCG case example

Key questions all CEOs should be asking themselves now Has my market intelligence team invested in its ability to track consumer and competitor moves in real time? Do I have a good view of the return on my investments in offense levers and the benefits they will provide? Have I called a meeting in recent weeks with my core team to ensure that the required defense measures have been taken? Did I ensure the robustness of my organization for upcoming downturns? Did I use the crisis as an opportunity to augment my technology stack to deepen my capabilities?

Connect with our Marketing, Sales & Pricing and Resilience leadership teams with any questions Marketing, Sales & Pricing Central Resilience Team Andreas Liedtke Leader Central Europe – Marketing, Sales & Pricing [email protected] Ryoji Kimura Zurich Global Leader – Corporate Finance & Strategy [email protected] Karin von Funck Tokyo Consumer Node–Central Europe [email protected] Munich Alexander Roos Global Co-Leader – Center for CFO Excellence Christina Mühlenbein [email protected] Managing Director & Partner Berlin [email protected] Hamburg Daniel Feldkamp Mark Abraham Managing Director & Partner Global Leader – Personalization & Digital Marketing [email protected] [email protected] Munich Seattle Click here for our latest publications in the CEO's Dilemma Executive Perspective series and additional resilience insights

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