Covid19 Crisis: Business Strategy Framework (Part 2)
Dr. Ajay Sethi
Business Strategy Framework
A crisis that profoundly impacts the prevalent outlook brings short-term and long-term user behavior changes along with it. We have found two parameters to be useful to understand and classify the behavior changes:
- Importance of an activity
- Frequency of an activity
Let’s consider the first parameter: importance of an activity. As an example, consider grooming services offered by UC (for example, waxing, threading, pedicure, manicure, spa, etc.). The importance of these activities has gone down after the lockdown not only because of fewer occasions to venture out of one’s house. On the other hand, consider the grocery or medicine delivery services – clearly, the importance of these activities have gone up after the lockdown.
The second parameter, frequency of an activity, refers to higher (or lower) frequency of an activity as a result of physical distancing and preference for lower human touch. For example: most tech companies use variants of daily standups and periodic meetings to ensure that everyone is one the same page and the blocking dependencies can be resolved. During the pandemic (with everyone working remotely), it has become more difficult to have impromptu and in-the-hallway mini discussions. As a result, the frequency of meetings about task progress and status updates has increased. On the other hand, customers are holding back on engaging in activities involved with buying a home or renting a new house because these are discretionary activities and users prefer to have a more stable future outlook before committing to these spends.
Visually, these changes can be represented as a 3x3 matrix shown below:
It is worth highlighting that, over time, importance of an activity gets translated into the demand for a solution for the activity. (In reality, frequency of an activity is also positively correlated with the demand; however, for the sake of simplicity, we will ignore this correlation. Of course, it should be taken this into account when you apply it to your own specific set of use-cases.) Therefore, concrete manifestation of increase (or decrease) of importance of an activity can be observed from the increase (or decrease) of online demand (and corresponding search traffic) for solutions corresponding to the activity.
Of course, there are activities that can have both higher demand (importance) and higher frequency. The most obvious example would be the increase in importance and frequency of PPE equipment and related health supply procurement. Likewise, demand (importance) for activities that keep young kids engaged and teach them something useful has skyrocketed in the last few months. Moreover, its usage amongst the people who were already using it has increased as well.
Given the changing personal goals and nature of daily routine of an individual (and companies), there are activities whose importance as well as demand has decreased. For example, group fitness classes (at a fitness club) as well as in-person yoga or fitness classes (at home) have gone down in importance as well as frequency.
Research had shown that it takes a minimum of 21 days for a new habit to take root. Moreover, when we look across a large category of habits, its takes approximately 66 days to build a new habit. When done repeatedly, an activity gets ingrained in the brain (and new neural pathways to get formed) in approximately two months. [link] Covid19, by either confining people to their homes or by severely restricting their movements for an extended period of time will give rise to new behaviors that will change the normal response patterns of the people across the world.
Based on these two parameters, a company (or, for multi-product companies, a specific activity/task supported by the company) would encounter one of the seven distinct scenarios shown earlier.
We refer to the above as the “Impact matrix”. Impact matrix highlights that companies that find themselves in different quadrants face different challenges. Based on this, companies (or products / features) can be classified into Green, Yellow, or Red zone, as shown below:
The companies in the Green zone are facing an overall positive impact and, therefore, have an opportunity to grow faster in the post-Covid world. The companies in the Red zone are facing an overall negative impact and, therefore, have the challenge to find avenues for continued growth (or, minimally, to avoid contraction). Finally, the companies in the Yellow zone are not heavily impacted by Covid19 crisis. However, even these companies have to constantly track the evolving user needs and goals to ensure that they can continue to serve their customers.
So, how should companies respond to the changes in Importance and Frequency? Once a company identifies the increase or decrease in Importance and/or Frequency (for each activity and, therefore, for various products/features) for each distinct persona, the responses are fairly intuitive. This is because company’s goal would be to counter the changes in customer’s requirements and expectations. The proposed responses are shown below:
We had provided seven concrete examples of business strategies in the Part 1 of the article [see here]. Those seven strategies correspond to seven different quadrants of the Response Matrix. Here’s a outline of how each of them corresponds to a thoughtful response to different types of impact of the Covid19 crisis:
- Decrease in Importance & Decrease in Frequency: if a company finds itself (or some of its products) in this tough situation, it is important to explore if there are alternative ways by which the company can serve its customers. CultFit’s focus on online video classes is a wonderful example of this strategy.
- Decrease in Importance: if an activity’s importance has reduced, it is important for the company to change its products, processes, positioning, etc. to reflect changed customer requirements and expectations. UC’s focus on process and product changes (to reduce human touch and to emphasize safety) is a great example of this strategy.
- Decrease in Frequency: introduce new products / features that help to drive engagement with users. Housing’s “Pay Rent” is a good example of this strategy.
- Increase in Frequency: if changed circumstances increase the frequency of usage, it is important to modify the product not only to support the higher usage imperative. It is also useful to explore how company can drive repeats further so that the company’s product gets close to the natural frequency of the usage. AgroStar’s focus on community-driven engagement is a beautiful example of this strategy.
- Increase in Importance: increase in importance is a great opportunity for a company to acquire new customers. Moreover, higher importance can help to improve the quality of customer acquisition: it should be possible to acquire large and higher LTV customers due to higher demand for company’s products. Blackbuck’s open marketplace experiment is an impressive example of this strategy.
- Increase in Importance & Increase in Frequency: when increase in importance (and, therefore, demand) is coupled with increase in frequency, it is important to seize the opportunity! Moglix’s international expansion to serve the needs to UK and European customers (starting with PPE, masks, and other health-related requirements) is a noteworthy example of this strategy.
- No changes: even if the company wasn’t positively or negatively impacted by Covid19 crisis, it is important to keep a close watch on user requirements (needs) and expectations (goals) and respond quickly to the evolving needs and goals. Rapid-fire product launches and enhancements done by Swiggy over the last two months are an excellent example of this strategy.
Why does the Response Matrix only include Scale, Habit (which we use loosely to refer to repeat usage as well as continued engagement), and Brand? What about other strategies to respond to the crisis? We have written about this earlier [here] but it is worth reiterating that there are only four mechanisms by which companies can create value. These four mechanisms are:
- Scale (to refer to both supply-side and demand-side scale),
- Habit (includes stickiness and retention for categories such as health & finance),
- Brand (includes intangible assets such as patents, regulatory approvals, etc. — esp. for pharmaceuticals, finance, etc. categories), and
- Network effects.
We have also discussed how Network effects can be unlocked via direct user involvement: if company can design their product / service such that it gets users directly involved in the Scale, Habit, or Brand related activities, it super-charges these three and provides ongoing compounding benefits. [here]
Given this, all business strategies will eventually boil down to one of these four value creation drivers. (If you have don’t agree with this and have examples that prove otherwise, please let us know in the comments section below!) The Response Matrix covers all the three primary value creation engines and, therefore, provides comprehensive business strategy guidance.
The Crisis Framework presented here are useful for companies to respond in most appropriate manner to the changes in the market dynamics due to Covid19 crisis. Impact Matrix is a good way to analyze the impact of the crisis is a granular manner. By analyzing the impact of Covid19 on each persona and for each user activity, the Impact Matrix can be used to evaluate and understand the impact in a granular manner. Subsequently, the Response Matrix can be used to respond to the changes in a thoughtful manner.