You are now leaving this site and you'll be redirected to the Interbrand Global website.

Views

Demand Shock: Some companies are set up to manage disruption much better than others

Brands across the world are bracing for a “demand shock”. What does this mean for businesses’ strategy, now and in the future? We’ve surfaced some valuable human truths about disruption, demand and desire in a time of crisis.

What exactly is a “demand shock”? Demand, in the simplest terms, is what people will buy at a given price; a shock is an unexpected fluctuation in that pattern.

What’s causing the current shock is, of course, the COVID-19 crisis, which is having a huge impact on lives across the world, changing how people behave and consume, creating ‘shocks’ of increased or decreased demand.

For business, this is hard to manage and bad for sales – as the photos of empty shelves in supermarkets and online recipes for DIY hand sanitizer are starting to show. But a bigger risk is that the customers you lose may never return, limiting your future growth potential.

However, we know that some companies are set up to navigate such disruptions better than others.

Companies who deeply understand their core customer and have an open line of communication with them can respond to market changes in ways that are relevant to their customers. They can more accurately predict their behavior – and they can do it quicker.

Ongoing customer research enabled Instacart to be a first mover in launching “Leave at My Door Delivery” option, for example, giving customers the choice to have a real-time photo of their groceries on their doorstep, rather than a knock at the door.

One sector that could weather this disruption is digital subscriptions; Zuora CEO Tien Tzuo had some relevant thoughts about this: “if you’re running a subscription business that hasn’t been immediately affected, you are probably grateful for the power of recurring revenue to help you weather this storm. Unlike one-off sales, you can count on recurring revenue as a stable base of future income, and you are not looking at a precipitous drop in revenue and the need to slash expenses to match. That’s great, but please don’t take it for granted…”

There’s a lot to talk about in the subscription area, so we’ve run a fuller version of his statement below this piece.

In aviation, meanwhile, the demand shocks are severe. With global flight sales predicted to be down $63bn, one unexpected effect has been to ignite public debate around so called “ghost flights” and climate change.

Industry experts are now starting to ask whether the clashing of two global crises – climate change and coronavirus – will prompt people to reconsider travel once the immediate crisis has passed.

Though it’s hard to imagine that the demand for travel to visit family and friends or for tourism will disappear, the switch to remote work and teleconferences during the coronavirus outbreak has shown that in-person meetings aren’t essential and could dramatically affect business travel.

The longer the crisis persists, the more likely it is that new habits will become ingrained; customers’ changing preferences aren’t likely to go back to pre-outbreak norms.

This is where understanding what really matters to customers and delivering it, can create positive, sustainable value which transcends transactional engagement and lowest price.

Of course, price plays a role in constructing value but there are deeper, emotional drivers that motivate customers to buy and, more importantly, build loyalty.

Our research shows that there are five key behaviors that have a positive effect on customer engagement and loyalty, for example making a customer feel smart and proud for choosing your brand. When it comes to demand, opportunity exists in change, which can surface emerging and latent desires – ones so new that consumers have yet to express them. Is your brand strategy up to that challenge?

 

Zuora CEO Tien Tzuo on Subscriptions & Disruption

In today’s globally connected world, one can’t predict a sudden change in the economic climate — it can happen anywhere, to any business, at any time. In this day and age, customers are your number one asset. They judge your credibility and value every day — and scrutinize even more so in times of crisis. So it’s critical for business leaders to take a step back and assess their business structure: “Am I running a truly customer-centric organization?”

While being “customer-centric” seems like a simple concept, in reality, it’s difficult to fully realize. It requires shifting from a product mindset to a customer solution mindset. The focus is not the number of units sold but the ongoing value you provide to your customers. It’s a shift from products to services, from assets to outcomes.

So what steps can business leaders take to ensure their organizations can endure the unexpected, with a primary focus on building and maintaining customer relationships and ultimately driving higher brand value?

Given how the health crisis is spilling over into the broader economy, I’ve been getting a lot of questions about how to think about this from a subscription business perspective. Here’s my short take: it’s time to double down on relationships.

If the Subscription Economy is about anything, it’s about a fundamental return to relationships, as opposed to transactions. A long time ago, we used to know all the people who made the things we bought and sold. Many of those relationships got lost over the last 100 years, but today they’re back (just in a digital format), and more important than ever. At its core, the Subscription Economy is about designing your organization and business model around those relationships.

Outside of the immediate health concerns, I’m also mindful of the fact that jobs and businesses have already been disrupted, which is very painful. Hopefully I’m offering a constructive assessment of the situation based on the interests of the readers of this newsletter. So let’s take a look at the current crisis from the perspective of existing subscription providers.

First, if you’re running a subscription business that hasn’t been immediately affected, you are probably grateful for the power of recurring revenue to help you weather this storm. Unlike one-off sales, you can count on recurring revenue as a stable base of future income, and you are not looking at a precipitous drop in revenue and the need to slash expenses to match. That’s great, but please don’t take it for granted.

Now is the time to double down on the customers that have gotten you here. Reach out to them. Continue to provide value and innovate. Consider doing something special, like Zoom’s free K-12 School Program. Also realize that many of your peer businesses are suffering, whether they manage subscriptions or not.

You are part of a community, so take care of that community. Build those relationships.

Contributors

President, C Space Americas
Founder and CEO at Zuora
Get in touch