I realize it may be a bit early for some to look beyond the current Coronavirus pandemic but this crisis will pass too. Let’s just hope hurricane season will not live up to predictions and add oil to the fire. Judging by the initial impact of social distancing guidelines and city edicts, experts are predicting the collapse of pretty much anything on main street requiring you to physically swing by to browse and pick up merchandise. On a smaller scale, my kids are now realizing that school and after-school athletics is actually something they cannot do without as it means not socializing with their friends. As I am writing this post, they have only been out of school for a couple of weeks. I cannot imagine what it will be like in a couple of weeks or months from now if they predictions of some experts hold water.
SANTIAGO, CHILE – MARCH 16: People rush to a supermarket to stock up on supplies following the … [+]
Anadolu Agency via Getty Images
What does life post-Coronavirus look like? How will our behavior change, given the high degree of uncertainty right now? How will this translate into a post-crisis consumption-based economy and corporate business models?
I am not a futurist but thinking through some of the immediate behavioral changes I already notice a few changes.
· We are extremely irrational beings illustrated by the stockpiling of water as if the water supply was contaminated post-“Hurricane Covid”. Similarly, many are buying toilet paper in bulk to the point of having stores restrict purchases per person showcasing recency bias and a need to assert control over their lives.
· Many of us are more rationally worried and start to cut back on non-essential expenses like vacations (as if that was in the cards right now anyway), lawn services, gym memberships, spa visits, theater dates, etc. Some of us may even cut back on services, which are actually mitigating risks associated with human contact, such as premium cable channels.
· Many leaders are doing a good or even excellent job in realistically and clearly communicating to their stakeholders how they are taking action to protect their workforce and consumers. Within the last few days I received such emails from my employer, who created a slack channel to keep us posted; my HOA; our school district, retailers and restaurants we shop at; utility companies; airlines, car rental firms and hotels we frequented; doctors and dentists; hair dressers; and grocery stores (but surprisingly only the ones which we previously used for delivery). The local response has been surprisingly concise, useful and consistent.
· Some of us keep each other up to date on the latest news, talk each other down from the ledge (so to speak) and even swing by a neighbor to offer assistance.
· A few of us are also very opportunistic as documented by stories about nifty individuals who bought up warehouse quantities of hand sanitizer and face masks to sell them for a multiple of their cost online. Similar schemes have already been shut down on Amazon.
Earth 2.0 or just 1.1
What will human existence look like once the kids are back in school, we chat at the office coffee maker, we meet up for dinner at a local restaurant and sit in cattle-class on a domestic flight without eyeing each other when blowing our noses. Will we fall back into our pre-crisis lifestyle, make minor adjustments around how we should interact and conduct economic activity or implement rather drastic changes? Whatever path we take, what are the implications for businesses and customer relations?
After we bring down the number of new infections and mortalities, priority number two would be to resuscitate our economy by calming the markets. Without some investment stability and stable US consumption, the world economy will have a hard time jump-starting itself. In an extremely low-interest rate (possibly negative interest rate) environment, something we have not seen before, we are looking at massive stimulus packages for infrastructure and small-business investments; possibly also a wave of business deregulation. A period of post-crisis uncertainty will likely linger for years until financial statements normalize for businesses globally.
Despite some resurgence in isolationist tendencies, we live in an integrated world in terms of movement of people, services and goods. Most of us have accepted this as fact and realized that really big challenges require the world to collaborate to overcome them. Nevertheless, some regions in the US and whole countries will likely take much longer to swing back to normal given the limitations in their healthcare, education and telecommunication infrastructure.
· Will Japanification of Western economies result in meager GDP growth for years to come despite even more aggressive market intervention by governments and central banks?
· Will businesses be able to innovate at a pre-crisis rate if resulting consumer confidence is low, financing and global supply chains are uncertain?
· Will large numbers of your consumers permanently settle for in-home delivery and other web-based services instead of frequenting brick & mortar locations?
· Will your operational cost shoot up permanently as your location hygiene, employee testing and crisis-response requirements (think retooling production lines from cars to ventilators) will become permanent, comprehensive and regulated?
· Will governments choose to cut red tape and lower environmental regulatory cost as their oversight shifts towards human safety?
· Will governments require heightened transparencies (aka regulation) around your capabilities and risk exposure if you are now deemed systemically critical infrastructure in case of a pandemic? Aside from the almighty Amazon; Uber Eats, Grubhub, Doordash, Instacart, and even big box and grocery chain delivery in large cities may now qualify. Ontario’s list of critical businesses goes even further.
I believe that if the crisis remains significant in impact in terms of altering our daily routines, there will be a permanent change to the way organizations use their budgets to conduct business with customers. As the nature of work changes beyond the gig economy and telework, here are some ideas of what may happen to consumption and investment patterns if you consult studies on prior pandemics and pre- and post-war patterns.
Customer buying patterns change with insecurity
Many of us will continue to pay a premium for the high-frequency (not necessarily human) touch model as we have now learned what it means for our mental and physical wellbeing. Most consumers will value single, large assortment vendors (one-stop shop) over smaller, niche platforms out of convenience. On the flip side, increasingly smaller businesses will diversify procurement further, on-shoring capabilities for mission-critical equipment and materials. They will also start monitoring health and supply risk more comprehensively in real-time. It has come to my attention that some firms may want to deploy self-diagnostic AI tools for their customers and employees in terms of understanding if they are sick, financially or operationally prepared going forward.
Consumers will also increase buying in bulk and keep reserves of non-perishables, especially if they were more exposed to or traumatized by negative effects of the crisis. I saw this in my grandmother’s post-WWII generation, which kept a supply of multiple weeks of flour and powdered milk on hand even during good economic times. Today, we call them “preppers” or “survivalists”. Their world view’s validation and habits could translate into a surge in subscription services for consumer staples geared towards the elderly. Metropolitan infection hotspots may also drive more families to move back to the countryside requiring firms to rethink their packaging and logistics chain.
As financial volatility continues, people will keep a higher percentage of their wealth in lower-risk, lower-return financial instruments, such as whole life policies, which saw a surge post-2008. This could even mean cash in the mattress or gold bullions in the safe. Consumers will heighten spend on insurance products such as job loss, temporary loss-of-income, natural disaster, travel disruption and long-term care coverage. Uncertainty breeds insecurity so home or business security services and equipment will take off to protect physical wealth.
Decision makers also need to rethink pricing with well-organized and fine-tuned discount models beyond across-the-board, first-time-buyer discounts. Beyond hyper-personalization anchored in product or life-style preferences, companies should consider rewards for customer (online) order predictability to limit uncertainty.
Virtualizing delivery for many advisory-type services, such as education, medicine, financial and counseling may raise also questions about their current cost structure. Why does a school need buildings and a large administrative staff if there is a WeWork, Regus, Google Doc and Zoom? Will this make advice and learning a two-class experience in which only the well-to-do will invest in a physical “club” experience and the rest of us will make do with the web channel?
Firms also need to think about their future customer volume and their marketing spend. Will households grow in size or increase in number based on geographical area and demographic? Young adults in may countries, especially women, already stay single longer to work on their careers and gain financial independence. Will they stay with their parents way beyond college in multi-generational households for a financial safety and delay capital purchases?
Adam Taggart, a “prepper”, sits in front of boxes of canned food that can be stored for up to thirty … [+]
AFP via Getty Images
On the merchandising front, manufacturers should evaluate what products and services did not fly off-the-shelf in higher numbers even during this hoarding mania. In a recent trip to my local grocery store, I saw empty shelves of pasta but a few types seemed untouched at all, even during a stockpiling frenzy. Research may also identify which products were used in novel ways marketers and engineers did not even think of during the design phase. A good example is the repurposing of diving masks for respirators. Similarly, marketeers will enrich consumer profiles with insight into which individuals or households reacted to uncertainty by deviating significantly from historical buying or service patterns. These insights may be good indicators of where to stock, how to discount and promote products and supporting services during financially volatile times.
Investment in automation and resilience accelerates
Tremendous investment to scale federal and state emergency, healthcare and drug development infrastructures will create an outcry for a disease moon-shot many supporting entities (universities, independent labs, CROs, consulting firms) will want to participate in. This means added investment and hiring.
Businesses, which invested in field-testing Ai-based automation prior to the crisis, will accelerate their efforts to insulate themselves from the impact of the next disaster.
Companies caught flat-footed will increase pre-emptive health services (vaccinations, remote monitoring of vitals, incentive programs) for their employees and create business continuity plans to maintain production levels to serve customers and take orders. Organizations may even revise plans to locate some portions of their workforce in metropolitan areas.
M&A will accelerate post-crisis as many already highly-leveraged companies are unable to make debt payments driving the economy to quasi-monopolistic structures in some sectors.
Unlike in the Spanish flu pandemic, where a large number of mortalities reduced the available workforce and increased wages post-crisis, the market consolidation mentioned above may equalize any wage gains.
Not quite the Zombie Apocalypse but a Spanish Flu-Great Recession combo?
Where does this leave us when we imagine us looking back a few months at the Thanksgiving table in 2020? Honestly, we just don’t know. We are learning new things about the virus and how it changes behavior every day. While past pandemics and disasters are must-read case studies to consult, we are in uncharted territory. Some economists suggest that this sudden degradation of consumption will bounce back quickly but if this lasts for a few months the impact may be severe for lower to middle class households and small-to-medium-size businesses whose credit rating does not allow them to qualify for an additional debt load. The only certainty is that we will get through this, maybe with a limp or just a black eye, depending on who you believe. What is clear is that the way we operate as an economy this year will be exactly the same as last year, is just as unlikely as post-Great Recession, WW II or the Bubonic Plague in the 14th century. Just as most of us didn’t grasp the financial risk of CDOs pre-2008, we don’t really understand the long-term health risk of a new global pandemic a la 1918 but a more severe outcome and economic fundamentals of 2001. Let’s chat with 20/20 hindsight later this year over a turkey dinner or teleconference – deal?