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As the COVID-19 pandemic continues to take its course around the world, navigating the ups and downs of consumer demand for goods and services can be a difficult task for any organisation. For some sectors of the economy the taps shut-off almost overnight (e.g. international travel/hospitality) for others there have been newly found shoots have emerged (e.g. home entertainment devices and subscriptions) and for other sectors demand could be described as ‘sporadic’, ‘peaky’ or ‘trickle’ based on consumer behaviour, sector specific issues or jurisdiction regulations related to the pandemic.
Businesses are grappling with what their demand profile will look like in the medium-long term in a way they haven’t had to in the last decade, with all asking the question – how might we best navigate the inertia of our current outlook and best plan for the road ahead?
For many organisations, the COVID-19 health crisis has been an event that has disrupted business planning and production cycles, driving a re-evaluation of demand planning functions. Demand functions typically rely on comparable data sets to drive forecasting and subsequent planning, however the peaks and troughs in demand triggered by this external event could not be predicted through existing processes. With businesses experiencing a step-change in demand rather than incremental, traditional forecasting functions begin to shift toward scenarios to facilitate better planning.
A framework for navigating inertia: Demand Types
As businesses are experiencing a spike or collapse in their demand, they are also evaluating whether this change will be sustained or temporary. Observing these movements, organisations can approach demand in four major categories depending if its demand loss or gain and if it’s permanent or temporary.
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
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:
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.
Peter is the National Telecommunications leader and the Sydney leader of Monitor Deloitte in Deloitte’s Consulting practice. Peter has over 10 years’ experience in the development and execution of corporate/business unit strategy, digital strategy and transformation, channel strategy, strategic due diligence, customer experience/service design and operating model design for leading multinationals. Peter works at the links between strategy, operations, technology, creative design and innovation. His career experiences include successfully implementing complex transformations following a new strategy, as well as developing new businesses that disrupt traditional industries through business model innovation. He has delivered this type of work in US/Canada, Europe, Asia and Australia/New Zealand.
Alex is a Director in Deloitte Consulting’s Strategy practice - Monitor Deloitte. He has helped clients solve strategic issues at the Board and CXO levels over the past ten plus years, with a market focus on shaping the most pressing market issues in Telco, Media and Entertainment and Consumer. He specialises in formulating corporate and business unit strategies and designing enterprise wide business and operating models, helping organisations address their most complex problems and make better-informed choices. As the world becomes more volatile, open and networked, he believes that the role of strategy has moved from defining and defending a long-term position into a constantly evolving dialogue. Collaborating with designers and tinkering with emerging technologies, he infuses analytical approaches with creative mindsets to ultimately create and design businesses, organisations, and societies of the future.
Anita is a consultant in Monitor Deloitte's Corporate Strategy and M&A practice where she is passionate about helping clients solve strategic issues across consumer products, retail, health and transport industries. She helps her clients sustainably grow their business and make a positive impact on their customers, employees and community.