How To Drive Success In A Digital 3.0 World

In 1946, the then-61 members of the World Health Organization (WHO) saw the need for a consistent yet comprehensive definition of “health.” They felt strongly that any definition had to acknowledge that a person’s good health was more than not being sick or disabled, but instead should reflect “a state of complete physical, mental and social well-being.” Two years later, that definition of health became the cornerstone of WHO’s mission, and it remains so now, more than 72 years later.

In 1979, psychologists Daniel Kahneman and Amos Tversky developed the Prospect Theory, one of the foundations of behavioral economics for which they would win the Nobel Prize in 2002. The premise of the prospect theory is that humans are hard-wired to avoid the loss of what they know they have, and therefore make tradeoffs to protect themselves from that risk. This theory posits that people, generally, are willing to accept a more modest upside gain to avoid what they perceive to be a significant downside loss. The greater the potential for loss, the more likely people are to also accept a less-than-optimal experience or outcome.

The pandemic is putting that decision framework — in the context of the WHO’s definition of health – to the test.

Today, consumers are making decisions about every aspect of their lives — how they live, work, shop, buy food, do their banking, eat, travel, work out, socialize (or not), spend their leisure time and just about everything else — with an eye on protecting their downside risk of loss from contracting the coronavirus, dying from it and/or spreading it to others.

But unlike the risk/outcome tradeoffs those consumers might have had to accept a decade ago (or maybe even five years ago), we’re also seeing a consumer with the opportunity to both manage her downside health risk without necessarily having to accept a subpar experience.

Why?

Because avoiding the health risk was motivation enough to get her over the inertia of trying something new — which could ultimately be as good as, if not better than, her physical world alternatives.

In July of 2020, we see a U.S. consumer who had to make an abrupt shift to digital when states locked down the physical economy in March. We also see a consumer who, today, seems more than willing to stick with at least some of those “Digital 3.0” options nearly four months later, even as the stores, shops and restaurants in the physical world have, to varying degrees, reopened.

Back in March, the consumers who were already living their lives in a digital-mostly world simply shifted more of their activities online. The consumers who divided their time between the digital and physical worlds shifted more of their activities that way, too, even though they could still shop at some physical stores. Consumers who may have been digital-on-occasion shifted out of necessity, and have now embraced a Digital 3.0 world with both hands and thumbs.

The digital platforms and enabling technologies created a decade or more ago made these pandemic-fueled shifts an easy transition, breaking whatever inertia might have prevented them in years past. With that inertia finally overcome, the consumer’s decisions to stick with a digital-first experience are now a safe and attractive alternative that saves them time and eliminates the friction of being exposed to the virus.

How long those digital shifts will stick is the subject of intense debate.

What isn’t up for debate is what will define success in a Digital 3.0 world.

The success stories will be those businesses — both physical and digital — that recognize that their biggest downside risk is a consumer who is willingly, and even comfortably, making digital/physical tradeoffs to minimize her own risk.

It won’t be hard to spot the winners.

Who Is Digital 3.0-FIT??

I’ve had the chance to take a sneak peek at the latest PYMNTS data on consumer commerce digital shifts over the course of the pandemic. Since March 6, PYMNTS has published eight consumer studies, now covering a national sample of more than 18,000 U.S. consumers. The results, which we will report soon, point to a consumer whose decisions are still shaped by her interest in reducing the risk of contracting the virus, even as state and local governments have decided that it’s safe enough to reopen, in some ways, the physical world.

We see a consumer whose biggest personal fear remains dying from the virus — and whose second-biggest concern is spreading it.

We also see a consumer for whom a vaccine is still the only thing that will give her confidence that her downside risk of putting herself and her loved ones in harm’s way is not only reduced, but eliminated entirely.

We also see a consumer who, just a month ago, said that it wouldn’t be until January 2021 until she would be comfortable reengaging in her pre-COVID physical-world activities — but who today has expanded her own personal timetable much longer. (I think you will be surprised by what that timeline now looks like.)

But we also find a consumer who has overcome the inertia of getting (or shifting) once-physical world activities online — and has gotten comfortable living in the Digital 3.0 world.

Not surprisingly, we also find businesses large and small stepping up their Digital 3.0 games.

As a result, consumers now find their digital-first experiences to be an efficient way to manage their time, stay safe and get what they need. These experiences are so good that many consumers who have made these digital shifts report even more of a willingness to stick with all or many of them, even after the pandemic is a distant memory.

That’s telling, since economies have reopened and consumers have now had the chance to reengage. For many, the risks are still too great, and their experiences in the physical world are filled with more friction than those same experiences online — even if they aren’t entirely identical to what they once enjoyed in the physical world.

Making Consumers And Businesses Digital 3.0-FIT?

The success or failure of any digital platform is its ability to remove friction — to make it easier for people and businesses to interact at scale and to turn a profit. Getting to scale, profitably, is always make-or-break.

Going forward, success will be defined by how businesses manage what I call the Digital 3.0 FIT? Framework: their ability to eliminate Friction for the consumer, and in doing so, giving consumers the incentive to move past the Inertia that once kept them from trying something new. That leads to preserving their second-most valuable asset, next to their health: their Time.

That means platforms must, first and foremost, find a big enough problem that enough people also consider a big enough problem, and then get them on board. A big part of romancing those stakeholders is the promise that once onboard, the platform will make interactions so efficient that time once spent doing things the old way can be freed up and reallocated to other things.

As good as that sounds, it’s still a slog to convince enough stakeholders to shift from the inefficient-but-still-workable (and familiar) option to something that has a lot of potential but requires work — and is not guaranteed to live up to its promise.

Inertia was always the biggest impediment to overcoming stakeholders’ resistance to change.

Pandemics have a funny way of making inertia look like a couch potato running for the exit when the fire starts.

In fact, this pandemic gave both consumers and businesses a new — and very personal — incentive to leave inertia behind. Consumers, largely, had no choice, even though essential businesses like grocery stores remained open. And the physical businesses that wanted to save themselves didn’t have a choice either.

Take shopping for groceries.

In January, going to the grocery store was part of the weekly routine. Sure, supermarkets had invested in online ordering and delivery, but that was a friction-filled experience for most consumers. Why bother investing the hour (or more) to get that first online grocery list assembled when it was just as easy to spend that time at the store getting exactly what was needed?

At the start of the year, the consumer’s use of online channels to order groceries was nascent. In May of 2020, our PYMNTS research found that four times as many consumers ordered groceries online than on March 6 — a massive shift to digital on the part of tens of millions of consumers in just three months — even though grocery stores, as essential businesses, remained open.

Take shopping for things other than groceries in retail shops.

Although digital has been making a steady dent in how (and how often) consumers shop in physical stores, going to the store and the mall was still something they did. For many consumers, seeing, touching and feeling a product was preferable to ordering online — and preferable to the time and friction associated with sending back something that didn’t work.

As stores locked down, consumers shifted those purchases — at least the ones they continued to make — online. Between March and the end of May, PYMNTS research also found that four times as many consumers shifted their purchases of retail products online — and this is the digital shift that most consumers say they are willing to stick with.

Take going out to eat at a restaurant.

Going out to eat is something that nearly all consumers say they miss the most about being on lockdown. Without any access to physical restaurants, consumers who wanted a restaurant meal had no choice but to order from an aggregator, or from the establishment itself, for delivery or takeout. It wasn’t like being at the restaurant, but it was close — consumers got a break from the kitchen while helping to support a local restaurant that they enjoyed visiting.

Now that restaurants have reopened, consumers have reemerged to an understandably different dining experience. Social distancing, masks, Plexiglass and other CDC guidelines and restrictions have changed not only the experience, but also the vibe. Some consumers have been eager to reengage, but many have decided to sit it out a little longer. The digital alternatives are working for them, and so is the nice weather and the chance to fire up the barbie and have a meal with a small circle of trusted family and friends.

Take going to the gym.

In many states, gyms are among the last businesses to reopen, and among the hardest-hit. Consumers were forced to shift to digital methods, causing a spike in sales of Peloton bikes, treadmills and gym equipment, as well as downloads of livestreamed and video workouts. As gyms reopen with social distancing requirements in place, most consumers remain cautious — particularly given the investments they have made and new workout routines created around the safe, digital alternatives that are available to them, on demand.

In each of these cases — and in many, many more — the activities that once delivered the best experiences are now the ones that produce the most friction, so long as the virus is still around. Going forward, success will be defined by how businesses manage the Digital 3.0 FIT? Framework I mentioned earlier.

For consumers, the FIT? Framework will drive their decision of who gets their business, and who can make it easy, safe and efficient to get the products and services they need.

For businesses, it will determine how well consumers think they FIT? into their lives.

How To Start And Stay FIT?

What we are seeing play out in real time is that those experiences that once delivered the highest possible outcome for consumers now present the highest potential risk to their health.

They also happen to be the ones for which efficient, scalable, digital-first alternatives exist.

The great irony, perhaps, about the FIT? Framework is that in January of 2020, before the pandemic’s restrictions, the activities that consumers felt had the lowest risk but also the lowest reward — like ordering takeout from their favorite restaurant when they could still go inside to eat there — has now totally flipped. The risk of going inside a restaurant to eat carries a far greater risk for many consumers than popping open an app or going on a website and ordering a meal. The reward for going into the restaurant to eat is also lower, given the social distancing and CDC requirements. The FIT? Framework provides insights into a digital transformation accelerated by the global pandemic, and by a consumer whose decisions about their upside gain and downside risk are being made through a “my health-first” lens.

It also tells the story of a consumer for whom inertia is in the rear-view mirror.

I’ve told this story often, but it bears repeating.

My 85-year-old father now orders his groceries online using Instacart. The funny thing is that I didn’t even suggest it — he discovered it all on his own. This is a guy who once considered going to the grocery store a social outing, but now won’t go inside his favorite supermarkets. This is also a guy who has a lot of time on his hands, but says he just isn’t comfortable — and he also says it would take him too much time now, with all of the restrictions. He likes the predictability, efficiency and personal safety of ordering groceries online, and says he’ll stick with it.

Aside from the fact that he is 85 and my dad, he’s no different than every other consumer who is making decisions right now about how physical and digital will co-exist in their worlds — at least for the foreseeable future.

At some point, my dad and every other U.S. consumer will want to get back to dining inside a restaurant and recapturing that cool vibe; getting on planes to visit family and friends or to take vacations; going to the gym and the nail salon; enjoying a live concert, the theater or a sporting event; and even going to the grocery store to buy food.

But maybe not as much as they did before. And in some cases, like grocery shopping, maybe even a whole lot less.

As many people have said, and I agree, the pandemic has shown us the resiliency of businesses, but also the fragility of old models that are too steeped in the physical world. It has inspired innovation and the sheer grit of entrepreneurs, giving them more than a fighting digital-first chance.

And it has taught entrepreneurs who are seeking the power of digital to innovate physical models, and has shown them the importance of overcoming inertia — provided they have a solution that solves a big physical friction, and probably saves people a lot of time.

And helps both consumers and businesses stay FIT.?