Contingency planning requires managers to establish strategic actions that a business can execute when sales results substantially deviate from company forecasts. This sort of planning comes down to common sense. Companies, to paraphrase Woody Allen, are like sharks. If they don't move forward, they die. Your contingency plan recognizes that your company must advance through an environment that continually changes.
Effective contingency plans allow companies to react quickly to environmental changes and retain market share despite a competitors' actions. A savvy management team can use it to address shortfalls in revenue or unexpected cost increases in time to minimize the impact on the company’s profitability. These plans also provide a blueprint the business can use to extract maximum benefit from unexpectedly good market conditions. For example, a mortgage company that sees loan demand rise to unusually high levels in one region of the country will have a contingency plan to quickly open additional sales offices and hire more loan officers.
A company must develop a system for collecting information about its competitors for contingency planning to be effective. Part of the process is deciding what actions competitors are most likely to take, but the company must also keep track of changes going on internally with competitors. Finding out a competitor has received an infusion of venture capital, for example, would be important information to have. The company predicts how the competitor will use the capital to improve its competitive position, such as stepping up its advertising campaign. The company will develop a contingency plan to counter or dilute the effect of this advertising. The company also must consider possible changes in the economic environment and prepare contingency plans. There are times when both consumers and businesses pull back on their spending, and companies who serve these markets must know how to react to a downturn.
Contingency planning requires the ability to think creatively and strategically, anticipating what can occur that will affect the company’s sales performance. One way companies approach the process is termed “what if" scenarios. An example would be: What will your response be if your chief competitor cuts his prices by 20 percent? The marketing team will have strategic brainstorming sessions, writing down as many of these scenarios as possible, making plans to address those and judging which scenarios have the greatest chance of occurring.
Types of Contingency Plans
Tactical contingency planning means having plans in place to deal with the unexpected, such as a new competitor entering the market. The company must also make plans to address sales shortfalls, the first step to isolate the specific causes of the unsatisfactory results and determine how to allocate marketing resources to rebuild sales momentum. Companies may also prepare plans to cope with disasters that can happen, such as power outages or bad weather delaying shipments.