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April 29

How Coronavirus HAS Hit Your Business Model & What To Do About It

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Awad Makkawi

It is what it is.


Coronavirus aka Covid-19 grabbed business models by the neck, cold bloodedly cut the air supply and demanded that all businesses ask: 


What next?

Maslows hierarchy of needs

Maslows hierarchy of needs presents a pyramid where the foundation is the base from which all other needs grow.


Food, shelter, clothing.


Once those are covered, it moves up to the next level of needs


Love, career, esteem etc


Makes sense right?


If you don’t have food and water, career is not your top priority.


It's the same for business.


First resolve cashflow because that is a matter of survival.


Stabilize the ship.

In response to the virus, we essentially changed from a growth approach to a survival approach. It's a very big shift.

Jad Halaoui Co-founder at Washmen

Jad Halaoui

Co-Founder Washmen

But once thats cleared: 


Existing businesses will turn their focus to something equally important.


And that is:


To plan and prepare for the upcoming and certain changes in your business environment. 


So that once the storm subsides.


You come out on top.


For that reason, in this article we’ll cover 5 key effects on business models, future changes to expect and how they can be addressed.


Let’s dive in.

1. Demand Generation And Customer Acquisition Decline Due To Coronavirus

Business is about providing solutions that customers are seeking.


And there are numerous methods through which demand is generated for these solutions such as events, tradeshows, inbound marketing, outbound marketing, direct response and others.


Demand generation is defined as a comprehensive marketing strategy that starts with identifying the ideal customer audience. Then channeling the audience through a process that touches every stage of the conversion process.

​​

In fact: 


Businesses that employ a documented demand generation plan are 538% more likely to report success than those who don’t. 


As a result negative changes to demand channels can have catastrophic effects to the business.

Demand generation by Drift

For example:


Businesses that run awareness campaigns (i.e. primary conversion touchpoint) through events, conferences or outbound direct business development, have seen a marked drop in customer acquisition in the past few months due to the lockdown, curfews and social distancing efforts to prevent the spread of the virus.


A recent study by Topo found that the demand generation pipeline for 87% of respondents has been negatively impacted.


Moving forward:


We can anticipate a shift in demand generation strategies to begin focusing on more efficient use of outbound marketing and increased digital marketing.


This is so that businesses position themselves to be better prepared for similar circumstances in the future.


Here's how.

5 Suggestions To Prepare For Changes In Demand Generation

  • Lead nurturing: One study by MarketingSherpa found that 79% of leads don’t convert into sales. The primary reason is due to a lack of lead nurturing.
  • Customer empathy and unlocking deeper customer insights from your Analytics and marketing automation platform.
  • Identify core customers to focus on. Profile repeat customers and those with the highest lifetime value.
  • Stress test demand generation plans for multiple scenarios and how they fit in with the companies financial plans to understand the potential impact.
  • Diversify demand generation strategies and channels.

2. How The Coronavirus Impacts Customer Retention In Your Business Model

Covid-19 caused a panic.


Let's consider for a moment that majority of people unfortunately do not have adequate savings or financial planning in place to sustain their livelihood without a salary.


What does this mean?


This means that B2C businesses are faced with consumers in fear of not knowing whether they'll get their next paycheck.


So they hold on to their money for dear life and decide not to spend outside of the essentials which is why food and grocery delivery businesses saw a huge spike in sign ups and order activity.

Jump in UAE food delivery searches due to coronavirus

As for B2B businesses:


There is no shortage of companies that have put projects on hold, slashed commissions, reduced salaries, reduced marketing spend and more.


So whether B2B or B2C, customers are re-assessing priorities and if a product or service does not classify as a “need” they are quickly dropping out.


Now add the finding that 65% of a company’s revenue comes from previous/repeat customers and that a 5% increase in customer retention can lead to a profit increase of 25 - 95%


And the importance of customer retention during Covid-19 becomes even more enlarged.


Looking to the future, one can anticipate that the sting customers felt from this current experience may extend beyond the lifetime of the coronavirus.


This means that customers will scrutinize solutions a lot more and extend decision making time before making purchases.


For example:


Consider table service restaurants. 


It would not be far fetched to assume that even post-covid 19, customers might not enter if tables are too close to one another. Or if tables don’t have sanitizers on them or if people are allowed to serve themselves at a buffet rather than by a waiter with gloves on.

4 Ways to Address Customer Retention

  • Delight and surprise customers. This refers to improving your customer experience and engagement to let them know that you cherish them and are there to help them through the tough times. For example: I recently placed an order from a restaurant and they very thoughtfully added a few extra goodies. This surprise and and improved customer experience will keep people coming back.
  • If customers are dropping out at the moment create exit funnels with valuable offerings to encourage them to remain with you. But again empathise with customers and their situation, if it's not possible for them right now then encourage them to return with offers they can obtain post-covid 19.
  • Create sequences in your CRM where you actively reach out and communicate with customers to build rapport with them. Customer retention is an integral part of value creation in your business model and engaging regularly to see where you can add value will boost retention numbers and referrals.
  • Offer monthly payments rather than one of project payments for customers. This is a win-win scenario as it provides relief to customers and also provides your business with recurring income helping with cashflow.
Customer retention in business model and coronavirus

3. Changes In Cost structure of your Business Model Due To The Coronavirus

Refers to how the company spends and invests it’s income in order to maintain its competitive advantage, generate revenue and achieve it’s value proposition.


Generally, this can be divided into:


  • COGS
  • Overheads
  • Marketing spend
  • Investments

With the forced lockdown, many companies that previously believed they could not function digitally have been given a totally new viewpoint.


For example:


In a conversation I had with a Senior Partner at a leading international law firm, she explained that they had never considered remote work.


But since they have been forced into it, they have been surprised to find that it is possible for them to function remotely.


She said "this has been a huge wake up call and we have serious decisions to make regarding our structure".


Which makes sense.


Because they can now consider downsizing office real estate in a prime location to be used for in-person meetings and still save on overheads.


Furthermore, they would reduce utility bills, telecom bills, transport bills and more whilst staff continue remote work.


All of which means increased net margins or further availability of funds that can be re-directed towards marketing for brand awareness and lead generation.


Such shifts in cost structure are difficult to ignore and may result in permanent adoption of these changes for some industries such as the legal industry in this case.


To drive the nail home on the point of optimizing cost structures, management consultancy firm Oliver Wyman has shown that almost 70% of manufacturing companies will experience a negative earnings before tax in 2020.

Oliver Wyman cost structure changes due to Coronavirus

Here's a page from one of the worlds fashion leaders on how they're optimizing cost structures.

10 Measures That Estee Lauder Implemented In Response To The Coronavirus Outbreak

  • Temporarily close all non-core businesses (retail stores) amid the social distancing protocols
  • Divert those funds towards online sale delivery
  • Top level salary reductions (100% reduction for Chairman, 50% reduction for Executive Chairman and CEO, 30 -10% for Leadership and management team)
  • Forgo retainers for Board of Directors
  • Optimizing advertising and marketing spend
  • Delaying capital investments
  • Freeze non-essential hires and services
  • Issuance of Unsecured notes for revolving credit facility
  • Suspended share repurchase of Class A Common Stock
  • Suspended next quarter dividend on Class A and Class B Common Stock

4. How Distribution Channels Have Shifted Due to covid-19

By distribution channels we're referring to how to optimally place your product for brand awareness, authority positioning, price structure and sales.


The type of distribution channel selected depends on many factors such as:


  • Type of product
  • Do consumers want to interact with a salesperson
  • Would consumers need to see and and hold the product before making a purchase decision
  • How quickly products need to reach consumers i.e. what is the risk of holding inventory?

For example:


Square’s distribution strategy involved partnerships with Apple Store, Walmart, Wal-greens, Best Buy, Radioshack, FedEx Offices and many more resulting in being available in 20,000 stores around the US in 2012.

Today, with the closing of malls, retail outlets, factories running at reduced capacity and employees staying at home, distribution channels have taken a big hit.


Disruptions in the chain of how goods or services arrive in the hands of end consumers are unwanted.


For downstream distribution channels:


This means monitoring the impact of the current situation on direct sales, wholesalers, distributors, retailers, agents, brokers and other possible service providers in the chain.


However, upstream channels may also be impacted i.e. 


Who are your suppliers and how have they been impacted?


Answering these questions is critical to maneuvering the current crisis.


As research from McKinsey & Company have shown that immediate action across the supply chain can help meet consumer demand during the coronavirus pandemic.

Impact of Distribution channels on business model due to coronavirus

That being said here are a few points to consider around distribution.

6 Suggestions To Monitor And Prepare Your Distribution Channels

  • Ecommerce business can take advantage of predictive analysis of data (AI) to make inventory and shipment management decisions during these times. This would then also shed light on whether a shift in the distribution channel (whether temporary or permanent) would make sense for the business. For example: a shift to a distributor that has storage and transportation capabilities rather than handling those on in-house.
  • Stress test your tier 1 and tier 2 suppliers
  • Design and have alternative supply chain alternatives. For example: apparel companies can have alternative production facilities that they can seamlessly transition production between or setup arrangements with agile manufacturing facilities. This would also help prepare for anticipated jumps in post-covid production.
  • Build omni-channel distribution strategies
  • Design an e-commerce approach to distribution with the help of technology  if and where possible for your business. This would increase efficiency with inventory, storage and logistic management. Plus, it would allow effective customer data collection and easier collection of user generated feedback. For example: if your product requires customers to see and feel the goods then consider using technologies such as Augmented Reality where possible.
  • Identify uncertainties within the distribution channel for a post-crisis environment. What has changed for your suppliers and distributors? How does their world look like now? Meet and discuss with suppliers to assess the impact on your business in terms of: impact timeframe, duration of impact, impact categories and recovery timeframe. Then design changes to proactively address each scenario.

5. Revenue Stream Risk to Your Business model Due to coronavirus

Your revenue streams are linked to your sales process.


It represents all the different ways your business can generate cash by creating value for customers.


If you have several ways of selling your goods or services, then you have an increased probability for sales conversions.


As the old saying goes “Don’t put all your eggs in one basket”


If 100% of your revenue is generated from a single stream, then creating a fallback option is a priority in case that stream is one day no longer viable.


And this applies to all industries.


Advertising giant Publicis' revenue streams took a dive due to major customers like the FMCG companies and Automotive companies scaling back on their advertising spend.


Not to mention, cancellation of huge sporting events like the Champions League, NBA and NFL games.


Resulting in their recent announcement to slash costs by $545 million


Looking to the future:


E-commerce businesses are expected to recover faster post covid-19. 


However, “in-person” businesses will likely take a lot longer to get back to profitability

Impact on Revenue streams in business models and coronavirus

As a result, generating alternative revenue streams and getting those creative juices flowing is needed more than ever.


One such example is the story of the company Dynamic Events.


Which is a team building and corporate events company that was poised to have a fantastic revenue generating year.


But they felt the first blow once the travel bans were announced. This meant that all the business meetings, hotel bookings, activities from international companies dried up instantly.


Soon after, the social distancing and lockdowns were implemented which meant they lost all their local business too.


They went from a full schedule to absolutely zero event bookings for the next 6 weeks and the foreseeable future.


Their business would not survive such a loss.


Something had to be done. And they did.


They looked at "Remote Team Events" and found that more than ever, employees at home were isolated and disengaged.


So they quickly developed a series of virtual team activities that they can deliver through their award winning event technology. 


They now offer virtual team experiences that encourage employees to shoot motivational videos, run virtual pub quizzes and work on team challenges.


Corporations were massively responsive to this as it aligns with the WHO concerns over employee wellness and mental health. 


They created a new revenue stream.


In fact,


It is a fundamental shift in their business model whereby the value proposition, delivery, promotion and revenue generation of their product has pivoted.


And the quick response is paying off.

Conclusion

Sooner or later the virus will be controlled. And businesses will continue with what is now being called the "new norm".


And at that moment it will be clear who are the ones that planned ahead.


The ones that anticipated and prepared for the certain changes to their business models.


The ones that pushed through the agony.


Pushed through the negative comments.


It will be clear.


Because they will be standing head and shoulders


Above the competition


And the view will be sensational.


Let it be you.


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