Going Digital in a Post Covid World: As customers change the way they buy, businesses should change the way they do business

Carola Valente, UEA alumna (BSc Business Management, 2016) and Strategic Consultant at Simon-Kucher & Partners

Dr Graham Manville, Associate Professor, Zayed University, UAE & Visiting Scholar at University of East Anglia

The ongoing COVID-19 pandemic, the subsequent lockdowns and the compulsory use of protective masks, have significantly impacted the way in which customers conduct their daily lives, including the way they shop, which consequently, brought about seismic changes to the retail and hospitality sectors. As an immediate response, we have seen businesses increasingly investing their resources in online channels rather than the physical channels, with the overall objective of offering a blend between the physical and digital customer retail experience, which is increasingly being referred to as a “phygital” presence.

More importantly, in order to attain the ideal end-to-end customer journey, in these uncertain times where periodic lockdowns are becoming the norm, it is clear that businesses must increase their digital presence but then again, the next step would be for them to start mastering the omnichannel marketing strategy.

In practice, the omnichannel retailing is where customers visit the website of a brand and decide to buy a certain item at a later time. Then, while browsing their homepage on Facebook, the ad of the same brand appears offering a coupon code that can be applied on the items within the shopping cart on the brand’s website while making the purchase. Once the purchase is completed, the customer decides to pick up the newly purchased items directly at the brick-and-mortar shop nearby. This process referred to as “click and collect” is becoming more prevalent with government forced lockdowns which are deployed to constrain the spread of virulent strains of Corona Virus which have spiked in the last couple of months despite earlier lockdowns.

As opposed to multi-channel retail, that is when customers engage with the brand and purchase through the diverse sales channels that are treated by the business as independent silos (for example, physical stores, websites, social media), omnichannel retail puts the customer at the heart of its retail strategy. This enables customers to interact with the brand by using a wide range of channels simultaneously, and for businesses this is translated into the creation of a seamless purchase experience for customers based on their different needs and preferences.

Where deliberate macro-economic constraints to curtail consumer behaviour to combat the socio-environmental factors that have led to the spread of Covid-19, consumers are changing the way they shop and for companies there are opportunities for those willing to invest in digital transformation processes for the development of bionic capabilities. By doing so, companies would be able to harness the potential of avant-garde technologies to digitalize the ever so important sales funnels and the related marketing, sales and pricing activities that have been heavily impacted by the global pandemic with the objective of optimising them and outcompete the competition.

The following are the three major building blocks that can be considered in order to conduct a thorough digital transformation of the top line of companies, that is focusing on the growth levers such as pricing, sales and marketing, which directly affect the revenues and profits of businesses. Such activity would help to answer the following questions: how can we acquire more customers, increase the average share of wallet of the customers and, ultimately, boost revenues and profits?

Reinventing Business Models

Redesigning Customer Experience

Utilizing Data-Driven Pricing

Source: Simon-Kucher

Reinventing business models

Digital transformation is much more than just the implementation of industry 4.0 technologies within a companies’ processes and activities. The real concern is, how to exploit these solutions to increase revenues and profits? The answer is straightforward, companies should think about transforming their revenue model. Such transformation can be expressed by analysing two dimensions: product and pricing.

Firstly, the idea here is to shift traditional one-off product sales into recurring sales of a total solution, which combines a range of services with the product. This is referred as “servitisation” and is becoming increasingly popular in multiple industries for them to create longer-term revenue streams. For example, Caterpillar, a part from selling their construction products, it offers a remote tracking service that provides clients with maintenance information to extend the life time of the machinery.

Secondly, companies should improve traditional hardware products by adding software components to add more value to customers, hence moving towards product digitalisation.

Thirdly, the final step for digitalising the revenue model is to provide software-based solutions, such as cloud technology for subscription-based offerings, which deliver an added-value to customers as opposed to simple traditional product solutions while providing companies with recurring revenues, thanks to the new pricing model. The full revenue transformation model can be seen below.

Source: Simon-Kucher

Redesigning customer experience

Now more than ever, in order to keep active, the existent customer-base and attract new customers, companies should redesign their customer experience to ensure to be creating a seamless customer journey by embracing the customer-centric approach. Especially in such a disruptive context brought by Covid-19, where consumers are less prone to go shopping, for customers to successfully complete a sales activity should fall in the following categories:

  • If the product or service is compulsory or optional
  • If the consumer has the means to purchase it (if it is accessible or not)
  • If the act of purchase is enjoyable or not

Of course, the optimal situation for a product or service would be to fit in in all three situations. Companies should redesign their customer experience according to the three points described below to be able to shift their products or services from a non-optimal quadrant to the optimal one (in the matrix below, the quadrant 2 is the optimal one).

Source: Simon-Kucher

  • Make the products accessible (from quadrant 1 to 2)

By simply offering different price alternatives of products to consumers, such as Netflix that offers multiple subscriptions plans (basic, standard and premium), companies are able to capture different customers’ willingness and ability to pay.

  • Make necessary products exciting (from quadrant 4 to 2)

When the products or services offered by a company are necessary and their purchase is not considered to be an “enjoyable activity”, such product, in order to be transformed to the optimal quadrant, the company must make the customer interaction with them as positive as possible, by offering rewards and gamification features.

  • Communicate superfluous products effectively (from quadrant 3 to 2)

For products that can be described as “superfluous” that are not necessary nor exciting, companies must communicate the need effectively by convincing them on the value that they would gain by using such products.

Utilizing data driven pricing

The final building block necessary for the digital transformation of companies is related to pricing. Since one of the main objectives in this period for businesses should be to ensure a continuity in revenues and profits, and pricing, being a crucial variable of revenue, is the perfect element to focus on. The following are two pricing strategies that companies throughout the years have increasingly invested in and that are extremely useful to respond to such a discontinuous context.

Price differentiation

By employing this pricing strategy, companies are able to develop a wide range of offerings that are charged differently with the overall objective of reaching different types of customers, hence increasing the opportunity to increase sales. Price differentiation can be implemented to:

  • Target the different ability to pay of consumers for a specific offering
  • Target the different willingness to pay of consumers depending on the characteristics and complexity of the product or service (for example, on- and off-peak purchase)

Dynamic pricing

Dynamic pricing has received so much hype in the past years, however airlines have enjoyed the benefits and have succeeded with it from the 1980s. Since the offering of airlines is perishable (i.e. when the plane departs, the tickets cannot be sold), they started using this technique to make prices respond to variations in volumes, or demand, to monetise value. Dynamic pricing applies to bookings made in different seasons (high season vs low seasons), depending on the hour of the day of the booking (peak times) or, simply, if the customer is an early or late booker.

More specifically, when businesses combine their pricing expertise with artificial intelligence and machine learning, those are able to:

  • Incentivise earlier purchases as early-bookings are cheaper
  • Reach the different willingness to pay of consumers – generally early bookers are more price sensitive, hence with dynamic pricing businesses reach both the more and less price sensitive consumers
  • Monetise surges in demand – as the demand for a product or service increase, the related price increase, reaching only consumers that are willing to spend an additional price
  • Manage the sales of perishable offerings – as the due date approaches, the goods cost less

Conclusion

Given the severity of the pandemic and the related economic impact, it is apparent that such discontinuity will continue throughout 2021, hence, as a response, businesses should prioritise the consideration and subsequent implementation of a digital transformation of the top line. Specifically, we have covered in detail the three main building blocks necessary for such a digitalisation: namely, reinventing business models, redesigning customer experience and utilising data-driven pricing, which in practical terms can lead to enhance revenues and profits by acquiring more customers and increasing the average share of wallet of the customers.

For further information on this topic please read their article that was published in the Institute of Consulting Management Consulting Journal in January 2021 (click here).

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