Business Models and Pandemic
Updated: Sep 8, 2021
The article deals with the strategic response of businesses to COVID 19 in terms of strategy, marketing, management, continuous operation of businesses and pivoting business models to adapt to the new reality. Further elucidates on how your business can identify and sustain business with interesting examples.
Opportunities are veiled under crisis. COVID-19 is one such crisis. So, what did the companies do?
Let’s take an example from the airline industry; an industry which faced the brunt of COVID induced lockdowns the most. A week after the United States locked down, Delta started calling huge corporate clients & surveying leisure travellers. What can we, the business enterprise, do to make you extra secure with air travel? Customers continuously said they simply didn’t feel comfortable being seated subsequent to strangers, in spite of mask necessities, improved air-stream generation, and heightened cleansing. Although it might be steeply-priced, the exceptional reaction, Delta executives determined, might be to block the sale of middle seats. The aim was to help clients loosen up about travelling—in that difficult moment and over the long time. Indeed, Delta kept its block in place for twelve months, until May 1, 2021, by which time, management argued, vaccines and a decline in usual cases had customers feeling much more comfortable about flying in full cabins once more. Delta made the selection to block the sale of middle seats surprisingly quickly. But implementing it wasn’t smooth. As a legacy airline made from multiple mergers over the years, Delta has many specific technology systems. Executives knew, instituting a change of this significance throughout all the systems could be complicated. They drew up a list of 25 to 30 things they could need to do to be triumphant, from changes to the virtual website online to inner and external communications about the new policy. As they worked via that list, it grew to loads of items. To help ensure that no one was placed in a blocked seat, for instance, the company laminated playing cards detailing the new coverage and distributed them to gate sellers and flight attendants—an easy restoration, however it labored. Over time, Delta shifted from emergency fixes to systemic changes. Many agencies observed Delta’s suite because it seemed to be triumphant.
Marketing companies during the pandemic?
The Walmart advertising team adapted quickly to generate and air new advertising and marketing creative that dabbled into the rapidly changing zeitgeist. The outcome - the Retail Heroes marketing campaign featured CEO McMillon Zooming remotely from home to show gratitude to the one million Walmart front-line employees for their dedication to work. He called them " heroes", not just to the organization, but to humans around the globe as well.
At the same time, managers at other worldwide manufacturers were further considering their brands’ response to the COVID-19 disaster. Nike selected to curve its consumers’ athletic aspirations right into a life-saving name with new advert reproduction that admonished, “in case you ever dreamed of gambling for tens of millions round the world, now is your danger: play internal, play for the sector,” to enhance the want for human beings to live home; even as McDonald’s group in Brazil was determined to redraw the enduring arches that made up the brand’s brand, drawing the two facets of the logo brand’s “M” aside to signal social distancing.
Immediate response to COVID:
1) Ramping up investment in human capital (know-how, competencies, and health) and lifetime gaining knowledge of, if employees are to adapt to destiny labor markets;
2) Strengthening social protections, expanding safety internet coverage, and reforming financing preparations and labor market norms to facilitate work transitions and to reduce disincentives to the creation of formal jobs;
3) Ensuring inexpensive access to the internet even as adapting guidelines to confront the demanding situations posed through virtual systems (which include information privacy and safety and opposition policies); and
4) Upgrading taxation systems to address tax avoidance and to create economic space for universal social protection and human capital improvement.
How does your business strategize to sustain?
Firms seeking to emerge from the crisis in a stronger position must develop a systematic understanding of changing habits. This will require a new procedure for detecting and evaluating shifts before they become evident to all. The initial step is to map the potential ramifications of behavioral trends to identify particular products or business opportunities that will most likely grow or contract as a result. Consider how the pandemic has induced people to stay at home more. Implications include a boost in home office refurbishment, driving greater demand for products ranging from paint to printers. Unless we sensitize ourselves to new habits and their cascading indirect effects, we will fail to identify weak signals and miss opportunities to shape markets.
The next step is to categorize demand, whether they are likely to be short-term or long-term, and whether they were existing trends before the crisis or have ensued since it began. The four quadrants are: boosts (temporary departures from prevailing trends), displacements (temporary new trends), catalysts (accelerations of prevailing trends), and innovations (new lasting trends). Consider again the behavioral shift of “stay at home more,” which has had a severe impact on retail shopping. The question is, Will the shift from retail stores to online be temporary, or will it be a structural change with permanent knock-on effects in other fields, such as commercial real estate?
We would position shopping in the catalyst quadrant. The pandemic has magnified & accelerated an existing trend instead of creating a new one. People were shifting to shopping even before the lockdown. But the shift is structural rather than temporary, because the scale and period of the enforced switch, coupled with the generally positive performance of the channel, indicates that in many shopping categories customers will see no need to revert back. So, retailers must mold their strategies to the new normal. Indeed, before the lockdown, several retailers were responding to the digital challenge by redefining the objective of the physical store, often by reimagining shopping as not a chore but a desirable social experience.
This framework can thus be used to highlight which trends to follow and which to shape more aggressively. Firms cannot pursue all prospects and should not try to. To get an idea of which ones to back, ask yourself whether any shift in demand is going to last for long or not. Many of the immediately observed shifts in response to Covid-19 were ridden by fear of infection or obedience with official directives, and therefore were most likely temporary. But others were supported by greater convenience/better economics, therefore, they were more likely to stay.
Analysis of growth opportunities must go beyond a surface level categorization of what you already know. You need to question your ideas about what’s happening in your conventional business domains by taking a fresh, thorough look at the data. This requires that you actively look for anomalies and surprises.
Dive deep into the data.
Anomalies usually ensue from data that is both granular (showing patterns concealed by top-line averages) and high-frequency (enabling emerging patterns to be identified quickly). Behavior changed with the outbreak of Covid-19, for instance, rich sources included data on foot traffic and credit card spending. An analysis showed that the recent drop-off in cinema attendance arose before theatres were shut down in the United States. This alongside an existing trend of declining attendance, implied that the shift was consumer-driven and therefore, likely to remain in the absence of innovation. Live sports attendance, in contrast, decreased only when events were officially cancelled, indicating a stronger likelihood of a behavioral rebound.
Keep an eye on the competitors and leading firms in your sector to match the best moves.
Can you take the value you offer online?
The value proposition that several retailers give to customers traditionally has come from the quality of their in-store service. Consider the Chinese cosmetics company Lin Qingxuan. It suffered a 90% fall in store sales after the outbreak, when several locations were force d to close and others saw foot traffic plummet. The firm dealt with it strategically by promoting digital engagement with customers that would replace the store experience: It converted the company’s in-store beauty advisers into digital influencers. The success of this move has provoked more investment in digital channels. Lin Qingxuan’s boosted online sales have more than made up for the fall in store sales during the crisis, notably in hard-hit Wuhan.
The pandemic-induced shift to digital shopping has made customers and firms more dependent on giant digital platforms, including Google, Amazon, and Apple in the West and Alibaba and Tencent in Asia, along with a newer group of competitive rivals such as Russia's Yandex, China’s Meituan and Singapore’s Grab. The choice of platform to partner with should be ridden by its ability to help you develop the strategic digital capabilities and resources you require to provide value online. Your new business model will be molded by the demand and supply shifts relevant to your industry. Several manufacturing companies, for example, will be greatly affected by the structural and likely lasting shocks to globalization brought on by the pandemic. With huge markets such as the United States raising trade barriers, for example, several firms will need to reshore important components in their supply chains—from R&D down to assembly.
To understand what business model the new normal requires, you need to ask basic questions about how you create and deliver value, who you’ll partner with, and who your customers will be.
Can you broaden your customer niche?
Digitization gives scope for niche businesses to broaden their markets, perhaps across borders or into adjacencies not currently well served.
The distribution platform Bookshop.org, for instance, links up independent bookstores that are afraid of being exploited or ignored by Amazon. Ventures like Bookshop, whose value proposition is based in rivalry to the network-maximizing ethos of Big Tech companies, are characterized as Alt-Tech. IT investments should concentrate on specific business-model innovations to address new opportunities instead of increasing the use of digital technologies in general.
In the current environment, huge corporations that are willing to take some risks are inclined to benefit the most. Financial markets and institutions will be less able to provide capital to smaller firms and start-ups right now. This implies that large, established firms with relatively robust cash flows, and more access to capita will be well-placed to take opportunities afforded by shifts in demand.
But huge corporations need to be prepared to take on those risks. Rather than accumulating cash and agonizing about what might befall a specific sector or geographic area, CEOs should engage in more dynamic, aggressive capital investment. Evaluate your capital investment projects along two dimensions: their estimated value tomorrow after accounting the effect of demand shifts, and the amount of money needed to keep them running today in the light of constrained operational cash flows. Intensified uncertainty means that organizations cannot exactly predict which businesses will be most successful tomorrow, so they have to take an experimental approach and take steps to diversify their portfolios to include a range of potential bets. The rapid pace of change means that they should continually update their portfolios, reallocating funding as needed while making sure that they are balanced over time and fit the companies’ long-term strategic priorities.
Investment in risk-mitigating technology
A rise in risk perception makes consumers more willing to pay for safety features, which, in turn, gives producers greater incentives to develop and commercialize technologies that address customers' demands for safety.
In this process, companies have an opportunity to reassess their options. They can invest in new as well as shelved technologies and product designs that are specifically effective in mitigating risk and improving safety—even when they are initially inferior in terms of costs, or other quality dimensions.
During the pandemic, corporations have been creative in identifying "low-hanging fruit" that could be shortly implemented in their operations. Grocery stores inducted plexiglass shields at their checkouts; restaurants and groceries expanded to takeout and deliveries. In-person meetings have been replaced by video conferences across various sectors of the economy.
In China, which is ahead of the curve both in terms of the outbreak and the triumphant restart of its economy, various essential and nonessential on-premises businesses have implemented pre-booking to control customer flow. They use wearables, temperature-detection technology, and apps to identify customers in near real-time who are at a higher risk of carrying the virus.
Is the surge in pandemic-era online shopping a blip or a huge and permanent shift?
With customers housed in their homes during the pandemic, more economic activity shifted online. “In many markets, the surge in e-commerce has compressed the equivalent of several years of growth into just a few months,” McKinsey report noted in August 2020.
Currently, there is a shift to omnichannel buying, and that has implications as managers allocate resources to attain profitable growth.
Online and offline are often complements, not substitutes, as customers tap several sources of knowledge across distribution channels for goods and services.
While adjusting to the future, you must be aware of channel inertia. As the pandemic eases and customers face fewer constraints, it is a good time to evaluate your options in disseminating resources.
Tools and Training.
Most firms’ market planning and sales training stress products or platforms and ignore the ecosystem in their business. One estimate, for instance, is that for every dollar a company spends on its SaaS platform, it pays four times that amount with systems integrators & other channel partners. As technologies are ingrained inside other products, solutions, and services, effective selling needs more partners. Salesforce, for example, is employing thousands of new partners, while Microsoft is adding over 7,000 partners per month.
Meanwhile, new software tools can facilitate you and your partners to leverage messaging, content and demand-generation information. Multi-channel selling is complicated but necessary. Trying to do it without the smart use of these tools makes it unnecessarily burdensome.
Especially in B2B markets, it’s typically salespeople who are important in ongoing interactions with channel partners and users. However, when reps work with partners, the duties change. For one thing, individual contributors now have managerial as well as selling duties. Channel management suffers unless you are proactive in your recruitment and training initiatives.
The future is not the past. It now involves competition between channel systems, and not only between individual firms. Competing with Amazon means contending with their supply and distribution chain, not just price and product on a website. Across sectors, sales effectiveness is not only about listening to customers and providing value. It requires the confluence of firm and channel abilities with consumers throughout their purchasing journeys.
How should firms adjust?
The pandemic has shown that the alteration in customer behavior is pushing firms into a new “directional reality.” Companies need to adapt to shifting customer wants by inculcating a more customer-centric philosophy. Rather than expecting customers to come to them, they have to go to their customers.
Which directional reality should your firm pursue?
To adapt to a new customer-centric directional reality (see table below). The proposed 2 x 2 matrix is classified by whether the firm is contending with existing versus new or modified products and services, and whether it is contending in current or new markets (i.e., new customers or new geographies).
What principles should your firm employ?
First Quadrant: Firms remain in the status quo or pre-COVID situation. As times have changed, firms must go to their consumers instead of just relying on their customers coming to them. Maintaining the status quo behaviour is not advised. We have to go beyond the status quo in the new abnormal.
Second Quadrant: Companies create new products or services. Firms may evaluate adding new services or tiers of products that meet customers’ basic needs. Walgreens allowed consumers to purchase a number of products at their drive-through because of their fundamental, utilitarian-based health and safety needs. TechSee is providing European organizations free access to their artificial reality (AR) annotation products on phones. AT&T, Cisco, and Zoom have strengthened their network capabilities for increased demand in bandwidth. In addition, several small businesses like restaurants and home-goods retailers try to match boosted demand by allowing customers to purchase by email, messaging services, or phone orders. While the first quadrant is dead, the new normal is the second quadrant.
Third Quadrant: Firms broaden into new customer markets with their existing products or services. For many companies, demand in the first quadrant has dropped significantly—they must find new markets to thrive. Hence, American, Delta, and United Airlines are now employing airplanes previously targeted for passengers to fulfil cargo deliveries. For some companies, their products or services are now useful and in demand by new customer bases. Cintas is broadening its business-cleaning offerings to new markets to fit new and unmet needs. Zoom eliminated time limits from basic accounts for primary school educators who now need to use its teleconferencing software for teaching.
Fourth Quadrant: Companies diversify simultaneously into both new markets and new products and services. Companies whose customer demand for their core products and services has reduced need to find new customers for new products and services in segments experiencing steep increases in demand. Thus, Dyson, Ford, Volkswagen and Tesla attempted to produce ventilators for hospitals, British Honey Company is creating hand sanitizers, and Louis Vuitton, Nivea, and Zara are creating surgical masks, disinfectants, and other medical-related devices
We now provide customer-centric principles for firms to deploy.
Expand your digital footprint. Dunkin’ gives extra loyalty points to customers who pre-order on mobile apps. HBO made several shows available for free on its app to drive subscriptions for its services in the near future. Opportunities also exist for B2B tech firms. Suppliers can provide customers with enhanced ecommerce services that are in tremendous demand. Shopify provides numerous services to small businesses to enable greater digital footprints. Hootsuite provides their professional service platform for free to small businesses for a good reason; business growth by these firms is expected to rise soon. Similarly, Alibaba, Baidu, and Tencent have made cloud services in China free to small companies.
Reward your loyals. Companies can initiate special offerings to customers requiring special considerations because of their risk level, building more loyal customers for the longer term . The Knot Worldwide is giving financial assistance to its vendors (like caterers, flower companies, and apparel brands) to assist them get through hard times. Netflix set up a $100 million fund to assist creatives like actors, producers, and writers whose jobs are affected by COVID—making Netflix the likely preferred destination for future jobs by creatives. Walmart is paying suppliers more quickly. Whole Foods, Costco and Dollar General introduced shopping hours for senior citizens whereas Woolworths Supermarket in Australia closed a number of stores with less traffic to enhance the ability of deliveries to seniors, people with disabilities, and those quarantined.
Connect emotionally. To meet such demands, firms such as UPS, Deliveroo, Uber Eats and FedEx are providing touchless end-point delivery. Maersk, a leader in shipping services, kept its sailors on ships to assure their safety and continued cross-national shipping. Alibaba and JD.com employed compulsory health checks and use of safety equipment in its factories and delivery trucks so suppliers could get their products to their end-customers. Finally, Dettol created the #HandWashChallenge to encourage proper washing techniques while using its product, gaining over 20 billion views on TikTok. Companies that connect emotionally with their external and internal customers and emotionally and physically with employees are predicted to perform better than firms who just connect with their customers physically.
Recognize financial constraints. Many customers are confronting financial hardship caused by layoffs, furloughs, and a reduction in their employment hours due to the COVID-19. Companies should initiate crediting and financing, deferral of payments, new payment terms, and renegotiation of rates to those in need. Such efforts will encourage longer-term relationships and loyalty, which will boost revenue and reduce transaction costs. DoorDash is temporarily waiving commission fees to restaurants for its services in many countries with expectations that the restaurants will likely employ DoorDash in the future. Numerous insurance companies are offering deferred payments, no charges and refunds to small businesses encountering financial hardship, realizing these firms are likely to persist as long-term clients.
The COVID crisis has fundamentally shifted customer behavior and the business environment one operates in. Firms must be quick to adapt with the changes the current environment poses. The pace companies should use to adapt to directional reality will be based on their level of demand. Those with decreasing demand are required to urgently adjust, while those with rising demand should adapt at an unhurried pace or with more limited offerings.