Me, my (new reality) life, my wallet: Suddenly, then gradually
Colleen Drummond
Strategic Innovation Executive | Mentor | Advisor | Retired KPMG Partner
Across every dimension—at home, at work, at play—COVID-19 has created uncertainty so profound that even our most established institutions are being tested seemingly daily. The impact has been broad and deep, disrupting our activities across social, economic, and geopolitical lines, in the process prompting dramatic changes in human behavior.
Today, understanding people and how we are changing has become increasingly vital. With 70% of GDP driven by consumer spending (1), our behavioral shifts and the resulting impact on how, when, and where we open our wallets affects virtually every industry, as well as the overarching economy. Given the duration of the pandemic to date and the extent to which people have been knocked out of autopilot, we believe that waves of change have already been put into motion and will shape shift the economy into a new reality.
Over the past half-decade, we have performed deep analysis across the increasingly complex and multi-dimensional forces that influence our changing behaviors and expectations, culminating in the first two editions of Me, my life, my wallet. Developed using our proprietary design-thinking methodology, alongside our multifaceted research process, we have deepened our understanding of the complex drivers of human behavior and what’s really behind the choices that customers will make both today and tomorrow.
Building upon the research from our previous editions of Me, my life, my wallet, we are exploring the new and broad reaching impacts from the pandemic, along with concurrent economic and sociopolitical factors, using applied design thinking and related pulse surveys. Identifying and understanding these longer-term signals of change, along with business and operating model impacts will be vital to business leaders to understand as we continue to navigate uncertainty and adjust to the new reality.
Suddenly, then gradually
Historically, disruption has played out gradually, then suddenly. Over the past two decades, tech giants grew massively on the backs of gradual consumer adoption. Technology-driven change is deceptive – it looks linear until it isn’t, so the exponential change can feel like it comes on out of nowhere, when it actually happens after years of slow and steady changes. Even the internet, which began transforming the world only about 25 years ago, was the ultimate result of innovations that started back in 1959 (2) and slowly built on each other before creating something that dramatically changed nearly every aspect of life.
However, the first three quarters of 2020 have flipped the script. The suddenness of COVID-19 and the resulting black swan event—a near-total global lockdown —sent shock waves through the world. In a matter of weeks, we went from an epidemic in China to a pandemic playing out across the globe. Quickly, COVID-19 has become one of the mostly deadly worldwide epidemic events in history.
When thinking through the events of the last 6 months, it’s easy to see why “unprecedented” has become such an overused term. In the U.S. “The Great Lockdown” resulted in 94% of the population under some sort of stay at home guidance at some point in 2020, with between 32 and 42% spending 100% of time less than 0.1 miles from home (3). Today, we’re continuing to live in various phases of restrictions, and the impact on businesses is extreme. The stay-at-home orders helped rapidly redefine what is essential vs. non-essential, businesses not in the “essential” bucket have lost some or all their revenue. In an attempt to remain afloat, many laid off a large chunk of their workforce, leading 45.7 million Americans to file for unemployment at some point in 2020 (4). The government passed a historically sized stimulus plan to keep the economy going – and it is likely there’s more money on the way. Important to also note is a historic social movement across both the U.S. and the world, with large protests spreading across 4000+ locations in all 50 states and in 60+ countries (5).
COVID-19 driven health crisis, the Great Lockdown, the economic crisis, social movements – any one of these would be historic in magnitude individually. But they have all happened suddenly and simultaneously. Yet the true impacts will play out gradually, and they are interlinked.
In the interim we have major trade-offs – with a wide range of potential outcomes. Top of mind for many is the inherent tension between lives vs livelihood, between resolving the health crisis versus getting people back to work. Combine these trade-offs with the magnitude of other forces, and it becomes harder to predict the future. Looking ahead a one year from now, we could fall into a range of possible futures - based on whether we have both the virus and the economy under control, or not, by that time.
Despite the range of outcomes, a certain amount of change has already been set in motion – behavior change has accelerated. We love this recent quote from Erik Brynjolfsson, MIT Initiative on the Digital Economy: “It’s amazing how slowly habits change, where people get stuck in the rut of doing things, and then you have a shock like this that can change everything. It forces people to overcome the switching costs, figure out something new and say, ‘Hey, this is way better.’”
Behavioral changes can have unpredictable structural effects to the landscape of industries. It’s important to understand second and third order effects driven by behavior changes. What could be the ripple effects around major shifts like this and that create cross-industry impacts?
Consider the acceleration in eCommerce - for the past 10 years, online shopping’s share of total US retail spending has been slowly ticking up by 1% year-over-year. With the Great Lockdown, that share suddenly surged from 18% to 28% (6). While this change is obviously connected to the stay-at-home mandates, we can’t discount the fact that a decade’s worth of acceleration happened in 8 weeks. And it’s not just Millennials and Gen Xers. Baby Boomers and Seniors are buying things like groceries online now, and that trend could continue since they now have accounts set up and payment details stored. We (probably) shouldn’t expect this shift to fully stick in the short term, but the mass accelerated adoption did likely pull an inevitable future state forward by years. And the ripple effects of the 10% rise in eCommerce include more retailer bankruptcies and shifts to click and collect models. At the same time, there is increased demand for logistics across the value chain, including distribution warehouse space, delivery services like DoorDash and UberEats. Cloud kitchens are beginning to scale. Malls are being considered for conversion to distribution centers.
Consider cars – vehicle purchases fell 60.7% between February and April this year 7, but they then rebounded as consumers’ circumstances and needs shifted. In July, sales were already 54.2% up from April (7). The automobile is the ultimate personal safety vehicle. It’s also a freedom vehicle, which you can use it to get out of the city. If you are moving to the suburbs, you are going to need to buy a car. Consequently, the burning need to buy a car triggers insurable events, and in many instances, the first insurance company you get with your first car, is the company that you stay with for 25, 30 years or more. All of this to say, there are opportunities for an influx of near lifetime new customers, if they look in the right places.
So, various questions beg to be asked. How has the pandemic impacted us? How are we adapting? What does it mean for businesses who are trying to make sense of the changes?
What’s next? We are staying on the pulse of change through surveys, research and applied design thinking. Stay tuned for our Me, my (new reality) life, my wallet article series, where we will continue explore changing behaviors and expectations, along with key implications for business.
Sources:
1. https://www.marketplace.org/2020/04/06/whats-gonna-happen-to-the-consumer-economy/
2. htts://history.computer.org/pioneers/strachey.html
3. https://www.businessinsider.com/us-map-stay-at-home-orders-lockdowns-2020-3
5. https://www.creosotemaps.com/blm2020/
6. Data Bank of America. U.S. Department of Commerce. ShawSpring Research.
Senior Manager @ Reed Smith Innovation Lab
4 年Excited to read these insights!
Business Attorney for M&A, Capital Raising, Growth and Exit Strategy and Execution
4 年Really good read Colleen. Thanks!
Good piece - especially liked the quote from Erik Brynjolfsson: "It’s amazing how slowly habits change...and then you have a shock like this that can change everything."