Demand Orientation

1. Driven by events, products and services can experience declining or foregone demand which is often sustained until circumstances change. A COVID-19 pandemic is an event that restricts individuals from travelling, directly causing the decline in demand for products and services in the travel industry. Specifically, airline companies and travel agencies are strongly affected by the travel restrictions, leading to a permanent loss of demand during the period until circumstances change.
2. Circumstances can also cause demand to be delayed or deferred until a later date, as individuals or businesses may deprioritise it in comparison to other expenditures. This does not mean that demand is foregone, but rather the spend in categories will occur later with less urgency. For example, budgetary constraints may drive the delay of purchases such as smartphones, gym memberships or even car servicing.
3. Demand discovered can stem from the demand that was previously latent but has taken on new growth due to new consumer behaviours and needs. For example, the COVID-19 lockdown restrictions have driven consumers to change their lifestyle and behaviours in order to adjust to longer periods of homestay and work from home. Subsequently, home-related industries such as home furnishing, appliances and office set-ups have spiked in demand as consumers are being required to spend more time at home. Moreover, e-commerce industries and delivery services have also increased in demand as consumers have less propensity to shop and eat out.
4. Some products have experienced pre-paid demand which is temporary and not sustained, driven purely by irregular consumer purchasing for the circumstance. During COVID-19, product categories such as toilet paper and non-perishable groceries all experienced heightened demand driven by irregular stockpiling and overconsumption purchasing habits driven by the fear of scarcity.

When thinking about the types of demand and observing how it can impact your organisation, there are several questions that can be explored to better understand your business and its proposition to consumers.

Demand orientation: Questions to explore

1. How have you observed the demand profile for your products and services?
2. What are your mechanisms for sensing and observing ongoing shifts in demand? Are you proactively targeting new sources of demand?
3. What lessons has the shifting nature of demand taught you about your value proposition (short term and long term) in the markets in which you play?
4. What adjustments do you need to make to win given your changing demand profile?

Further considerations

Demand Substitution

When further considering demand, intricacies arise from the interrelationships that occur during demand substitution. On a surface level, demand substitution appears to be a temporary shift in demand, however upon deeper inspection there are fundamental shifts in consumer behaviours that businesses must try to understand. For example, a recent study by Deloitte Australia identified that 37% of Australian’s have moved to working from home due to the pandemic which is nearly 5x the normal amount with 90% saying that the reduced commute time has benefitted them leaving more time for work and other activities (Digital Consumer Trends, 2020). An example like this demonstrates that organisations must try to understand the rationale behind consumer shifts and which categories it is impacting. In particular, examining deeper into whether these changes could potentially be briefly lived or long-term shifts. 

Demand substitution can occur between categories and within categories. Substitution between categories refers to the shift in demand from one category to another to fulfil a specific customer need, however the type of product/service that is typically purchased to satisfy this need has shifted due to the change in circumstance. For example, while consumer travel spend has reduced, it has also been displaced by spend increasing in other categories to fulfil the ‘leisure/entertainment’ need. Such categories could include increased expenditure in luxury goods, gourmet food and home furnishing indicating a change in consumer behaviour and spend category but for the fulfilment of a core need. Substitution within the category refers to the shift in consumer behaviour driven by the change in income and often finding cheaper goods of a similar type. For example, consumers who may typically purchase artisan brands for food may shift towards private label purchasing in line with their reduced propensity to spend.

Consumer vs. Enterprise

While demand changes for B2C businesses are incremental and occur in a faster time-horizon, B2B businesses often face a step-change in demand which happens gradually over a longer time period. B2B businesses tend to experience a ripple effect, stemming from the shifts in consumer behaviour and the changing environment but the effects are often more significant in magnitude. For example, in the housing market consumers experienced an instant reduction in housing rent, whereas commercial property owners experienced a delay due to the time required for renegotiations with a bigger impact. In the professional services industry, it is also evident that the impact of demand change was not experienced immediately but rather faced a few months of delay, as businesses often reacted to the ripple effect that consumers faced first before businesses.

Insights and actions

The pandemic can be used as an experiment in demand planning and modelling. The sustainability or lack of product and service demand can reveal to organisations the intrinsic value of their goods / services. This can present opportunities to renew efforts or focus resources on shoring up longer term sustainable demand around intrinsic value. There are several actions organisations can consider taking in preparation for the shifts in demand:

• Organisations can be better prepared for a decline in demand by rapidly reviewing cost structures, assessing business continuity plans and developing recovery plans
• To address delayed demand, organisations can assess the likely timeframes of delays, shore up supply options and explore substitutes that consumers may be seeking for value creation
• In order to capitalise on demand spikes, organisations can assess and understand new consumer habits and develop features/propositions accordingly to support ongoing demand
• To address pre-paid demand, organisations can reposition its capacity to meet demand spikes and develop trailing propositions / offers to re-engage customers

Conclusion

While the pandemic can drive organisations to revaluate their response to demand changes, ultimately, they must understand the resilience of their portfolio and their choices. Organisations can reframe their business focusing on the customer and their needs rather than their product/service to better understand and answer the question – what business are you really in?  This can help organisations understand shifts in demand and what to do in order to keep fulfilling and serving their customers in a different way if required. In order to survive and flourish, businesses must ask themselves how they can gain a bigger share of their customers wallet by understanding the need they’re fulfilling and subsequently what business they are truly in.