Consumer Behaviour and Supply Chains Beyond 2020: Are You Prepared?
Retail history and social psychology offer a glimpse into how the pandemic could change consumers' attitudes, behaviors and spending habits, which will impact on your supply chain and distribution in interesting ways.
Naturally, these changes will have a disproportionate impact on young people who are experiencing the pandemic unfold during their formative years.
2020's events and disruptions will have an enduring impact on society long after lock-down ends. Despite the disruption of major global events in the 21st century - 9/11, the Iraq invasion, the financial crisis of 2008 and the Arab spring afterwards - the difference is that those all had regional epicenters.
The current pandemic is a truly collective experience, felt in equal measure all around the world, from Dubai to Cape Town.
New social conditions often give birth to new human behaviours. Since the start of the current pandemic, there have been numerous reports on how Covid-19 has accelerated existing trends, but far less attention on the underlying cause of change: mass adoption.
New ideas, behaviours and technology ordinarily take years (if not decades) to reach critical mass. But during Covid-chaos we are experiencing years of change, packed into a few short months. Early adopters of supply chain technology are delighted, but reluctant retailers, big and small, are scrambling to catch up with radical changes in consumer behaviour.
The revival of community
From a cultural perspective, our values vary according to two contrasting dimensions: Individualism (focuses on personal freedom and individual achievement) vs. Collectivism (emphasising group goals and the importance of the community).
Generally speaking, people in the West (Western Europe and North America) tend to be more individualistic, and people in the East (Asia and Africa) tend to be more collectivist.
However, moments of crisis often pave the way for social solidarity. The pandemic has afforded western societies a chance to unite, collaborate, and serve. Witnessing the power of collective action can change the way individuals relate to others, resulting in an increased sense of community - and new pressures on your supply chain, warehouse deliverables, and product popularity.
This cultural shift from “I” to “we” could have a permanent effect on consumer behaviour, with research indicating people from individualist cultures prefer buying products and services associated with being successful and autonomous, whereas a community-focused society will shift our shopping habits.
Buyer motivation will shift from personal gain towards products, services and experiences that can be shared and enjoyed with others. The very act of consumption will no longer be synonymous with social status, but rather social harmony, with consumers becoming more receptive to brands that demonstrate prosocial behaviour.
WHAT THIS LOOKS LIKE: There will be more community-centric buying, such as bulk and wholesale products, combined shipping, and group deals.
Your supply chain and warehouse must work together with a future-forward plan to accommodate this new-found buying behaviour.
New customer personas
For individuals the pandemic is likely to cause two opposing social behaviours.
For a large section of the population, COVID-19 provides an ideal opportunity to re-evaluate their current lifestyle choices, make adjustments and reset their lives. This is evident in the number of people who have used their newfound time to exercise, start a new skill, or make a career transition: sales of Peloton bikes jumped nearly 66% and LinkedIn reported a threefold increase in time spent learning programmes.
But despite new-found enthusiasm, people always default to what is familiar, easy, convenient. We know that human beings are not very good at sticking to new habits, with many adults making New Year’s resolutions (the most popular is going to the gym). but 80% reverting and quitting within five months. So even if there won’t be a “normal” to return to post-lock-down, levels of adaptability and will vary among different groups.
WHAT THIS LOOKS LIKE: The pandemic is likely to produce two distinctive behavioral archetypes: people who have embraced a new lifestyle and those who have largely remained unchanged. The emergence of the new behavioural group will have a transformative impact on the future of retailers and brands and, inevitably, there will be winners and losers.
Some retailers will need to figure out how to win back old customers with new mindsets, whereas other brands will use the opportunity to steal market share by appealing to consumers new lifestyle changes. Regardless, supply chains should have these two distinct archetypes in mind when updating their customer segments and priorities.
The closure of physical stores has forced consumers to question their deep-seated shopping habits. People who were previously reluctant to shop online are the most motivated to avoid busy shops, creating online accounts and experiencing an entirely new customer journey. Once they get a taste for online convenience, they may never go back to their old ways!
For a long time, e-commerce has been chasing the tail of offline retail, but the global lock-down has accelerated an existing trend that has been an inevitability for decades. Worldwide e-commerce sales hit $3.5 trillion in 2019, an increase of 18% from the year before.
In contrast, traditional retail has been struggling with closures, job losses and single-digit annual growth rates even before the pandemic - the overheads, staff complexities, and social distancing cemented it.
WHAT THIS LOOKS LIKE: With the closure of physical stores, brands are increasingly pivoting to a direct-to-consumer (D2C) business model. D2C brands have a simplified proposition that cuts out retailers – selling directly to consumers through mobile and digital channels. Since the pandemic, a host of traditional retailers have sprinted towards a D2C proposition, but digital infrastructure is only half the equation.
Historically, traditional brands have relied on their retail partners to promote their products through physical availability and mass distribution. Now the same retailers will have to build a direct relationship with their consumers, giving challenger brands and agile startups at a competitive advantage if they have a) a deeper understanding of their customer experience, and b) a better handle on managing their omnichannel supply chain.
This means that your distribution model, your warehouse capabilities, and your omnichannel strategy must catch up with the new trends to avoid being left out in the cold.
The global health crisis has placed the economy into a self-induced coma, with the International Monetary Fund (IMF) predicting the global economy to contract by 3% this year. This would make the global decline the worst since the Great Depression of the 1930s, with massive unemployment across the globe. As with previous economic recessions, young people are going to be the hardest hit, burdened with debt, high unemployment and stagnant wages (globally young adults earn 20% less than their average compatriot 30 years ago).
Today, Gen-Z is the largest generation, making up 32% of the global population, but this demographic cohort is by no means homogenous. There is much diversity within generations, as there is between them. But many so-called Gen-Z’rs are yet to enter the world of work. Clearly, the impending economic recession is going to radically change their outlook and life chances. Even before the pandemic, young people had limited disposable income, but the current economic climate could give rise to a new era of frugality.
WHAT IT LOOKS LIKE: Post-pandemic society could end up being less materialistic, with young people prioritising meaningful customer experiences and brand relatability over material products.
The pandemic could also enable a new generation of enlightened consumers who will spend their money on products and services that provide a return on investment (ROI), with consumers becoming "investors" and spelling the end of conspicuous consumption.
In the future, young people — similar to corporations — will expect an ROI on their purchases. The return could be social, financial, educational, or gross happiness. Can your business, supply chain, and distribution strategy create that?
Consumer trust and brand loyalty
On average, it takes 66 days for a person to form a new habit. Perhaps, the most fascinating consequence of the global pandemic has been the way billions of people all around the world have changed the way they think, behave and consume, creating entirely new habits.
According to a recent report by McKinsey, 75% of consumers have tried new shopping behaviours, and the majority intend to keep these in their routine. The prevalence of brand-switching points to the demise of an already declining level of brand loyalty among modern consumers.
WHAT THIS LOOKS LIKE: Generally speaking, the best way to build brand loyalty is through trust - trust is a reflection of the consumer’s belief that a brand will deliver on its promise. Consumer trust was already at an all-time low even before the current health crisis so cultivating trust should be a top priority for all retail professionals.
Building trust within your customer base begins where your interactions do, and ends on successful delivery and product satisfaction. These live almost entirely in the real of supply chain operations, distribution, and warehousing competencies.
This is a unique moment in history when brands - and their relevant supply chains - can play a constructive role in society. In a time of economic hardship, consumers will either choose companies based on price point and utility, or shared values and beliefs. Against this backdrop, brands can no longer buy attention like they used to in the old advertising model: they must earn it. This can be done by being honest, transparent and reliable, first as a company and also in their messaging, but primarily in giving consumers the right product, at the right time, efficiently and in high-quality presentation. This rests on the shoulders of your supply chain, with sourcing, shipping, safety, efficiency, quality and in some cases, freshness.
An order management system may assist you in this regard, and should be considered as one of the critical pillars of supply chain excellence:
The current pandemic has no real comparison point in modern history, so much of our historical data is at best incomplete, at worse irrelevant.
What we do know is that moments of crisis often reshape our cultural values and individual psyche: from a retail perspective, most brands will need to rip up their old playbook and radically update their omnichannel supply systems, embracing smart and efficient warehouses to gravitate towards new customer personas and their expectations.