By: Ari Blumenfeld
In a virtual class given a few days ago on the possible evolution of business models, precisely as a result of the pandemic, a professor of Strategy at the International MBA at Columbia University made some interesting statements about the effects of COVID-19 on the consumer. In the aforementioned conference, the speaker referred to the following three elements:
a) “Taking into account the effects of the pandemic, not only on health, but also on employment and income, the consumer is going to behave more ” This is obvious, but its implications for business are various.
b) “Even after the lifting of the confinement measures, fears of possible risks of contagion by the virus will continue to be present in people, and this will have a strong effect on their consumption habits and ” This rethinks habits and behaviors And there are several possibilities here.
c) “Forced by the need derived from the imposed isolation, individuals and families on the one hand, and companies and institutions on the other, have found in the digital environment, a space for buying and selling, interaction, communication and entertainment, with a dimension and capacity unsuspected until just a few weeks ago.” This is true but I am convinced that human interaction is not going to decrease significantly; physical and digital environments will coexist.
The situation described above has indisputable consequences for companies, which implies that they must carefully examine the future behavior of consumption in the different spheres. Let’s see one by one.
In the first place, the paralysis generated in a large part of the economic sectors as a result of the decreed isolation is causing the loss of jobs. Despite government efforts to protect payrolls, havoc is unfortunately taking place in MSMEs, in independent workers and in businesses such as hotels, restaurants, bars, cinemas, airlines, ground transportation companies and construction companies, to mention the more beaten. According to the International Labor Organization (1), 25 million people could become unemployed, with a loss of income of the order of $3.4 trillion (millions of millions of dollars). The consequence is that many households, in general, are going to see their monetary income decrease and, consequently, companies will have to be very ingenious to attract that scarce income. Promotions, discounts and rebates, coupled with marketing campaigns that generate closeness with the customer, will probably be the norm of business behavior. Undoubtedly, the consumer is going to demand an optimal value proposition that incorporates an attractive price.
Second, even when greater mobility and opening of certain activities are authorized, the risk of contagion will continue to be present. The authorities have warned that coexistence with COVID-19 will not end until the life-saving vaccine appears. The plausible horizon is between 6 and 12 months, according to different sources. A recent analysis by the firm Morgan Stanley, on what may happen after the peak of the pandemic in the United States, suggests that there will be a second wave of infections in that country, between the end of December 2020 and the beginning of January 2021, with a gradual decrease until March of the same year (2). The horizon would clear assuming that the vaccine is widely available by then. Derived from the above, the consumer will rarely go shopping, will avoid crowded places such as shopping centers or large establishments, and will look for nearby places such as warehouses or neighborhood stores, which are more accessible and with fewer crowds. The invitation that this suggests to companies is to try to place their products closer to the customer. In this scenario, home deliveries of all types of products will play a fundamental role, as they are already doing, however, the service must improve. It is not possible that to receive a market you have to wait several days, or that to place the order you only have a telephone line that always rings busy. It must be remembered that in the new context, there will be few dollars compared to a wide range of goods and services, and that the customer will assert his purchasing power.
The third and perhaps most important component of this new situation is the renewed importance that the digital environment has gained for the different actors in the economy and society. Both people and organizations have discovered the immense variety of opportunities that digital tools offer them to carry out their activities. Purchases and sales have largely moved online, as have education, group communications, culture and entertainment, and even business consulting (my case in particular). Religion has even found an effective way to reach its regular audience, as Pope Francis demonstrated during the recent Holy Week. COVID-19 achieved de facto, in a forced way and in a few weeks, what business schools had been proposing to companies for some time: digital transformation. Contrary to what some sociologists express, in the sense that human beings do not learn from their experiences and always return to their comfort, it is clear that the way of doing business has changed and will never be the same… at least not for now. The consumer has found a new channel of economic expression, digital media, and companies must pay full attention to it. The time has come to consolidate this transformation in companies, many of which had already begun, or to dedicate resources and efforts to develop it, in the case of the most backward. For Forbes magazine, companies must now incorporate “operational resilience” to survive the new reality (3), which is directly related to information technology and digital transformation. But I insist: digitization will not completely replace human physical contact; both channels will coexist. Companies that know how to implement this well will do better.
The current coronavirus has become a historical milestone due to its enormous impact (note, not necessarily negative) on society. And its effects on consumers, whether they are individuals or companies, are beginning to teach us all valuable lessons. Learned well, these lessons have immense potential to transform the great challenge into new opportunities.
Sources:
1. ILO, COVID-19: Pandemic in the World of Work, 2020
2. Morgan Stanley, After the Coronavirus Peak, What’s Next?, Abril 2020
3. Covid-19: A Call for Digital Transformation, Abril 2020