Shift in Consumer Behavior and its Impact on Business Models

Shift in Consumer behavior can make or mar a business model. There is no better proof of this than what the COVID-19 pandemic has done to companies which were the poster boys of the Sharing Economy.

Reflecting back on the rapid growth of Sharing-economy

Ride-sharing companies, Co-working Office Space companies all leveraged a mix of Digital Platforms, superior user experience and big-data analytics to scale rapidly and disrupt the mobility and office-rental industry without having to own any asset. Consumers too loved using the Sharing-economy services as they were able to get premium services at affordable cost with great user experience. The dependency on multiple consumers sharing the same asset with minimal or zero capital investment and connecting a multitude of consumers with a multitude of service providers or sellers enabled these companies to offer premium services at affordable prices.

.. and now the rapid fall of Sharing-economy companies

In the last 2 months, we have seen the fall of all the poster boys of Sharing-economy with bad news about them never subsiding. Thousands of jobs have been axed by these companies and the rapidly rising losses threaten their very existence. Even during the pre-COVID era, these companies hardly focused on turning a profit and the focus was only on growing their consumer-base.

Why have these Sharing-economy companies suffered the most from the COVID-19 pandemic despite an out sized investment on Technology?

The rapid spread of the corona virus, coupled with the globalized nature of the pandemic, was something their business models failed to factor in and these companies were unprepared for. COVID-19 is off-course a once-in-a-century event. What these companies failed to gauge is the impact of a black swan event on behavior of their consumers. Data about the behavior of the consumers was collected solely to understand how to Personalize services and offers to their consumers so that they get a larger share of their consumer-wallet. The business model assumed that consumers would adopt any service as long as it was affordable for them and the user experience was great. The assumption that this behavior will be consistent, and constant proved to be the undoing.

Empathy with consumers health and safety will decide the longevity of a business

COVID-19 has led to consumers feeling safe only when the service is exclusive to them. Safety and health will be bigger factors in a consumer’s choice for a service than only price and experience. Corporate Strategy now needs to factor in the probability of different events inducing a change in the motivation of their consumers in buying a service. We will see more investment on Consumer Behavioral analytics and studies on predictability of consumer behavior. Analytics will be leveraged to identify the shift in consumer behavior and predict its impact on business models.

Business Resiliency and continuous Risk assessments are going to play a major role in the success of business models in the Post-Covid era, especially when companies aim to scale rapidly. Focus on Consumer Safety and consumer health will decide the longevity of businesses. Personalizing and Recommendation of products and services keeping in mind the health and safety of the consumer is going to play a major role in winning consumers.

Balaji RaghunathanAssociate Partner, DX


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