An analysis of the impacts by sector and possible responses based on branding.
Part 1 of 3
We are all creating new paths.
A series of 3 blog posts to analyze and learn from the different economic impacts of the crisis by sector.
Right now, we are united, above all, as humanity. It is everyone's responsibility to act in the collective good, especially in the critical scenario we are experiencing. This context has also brought an opportunity for reflection, reprioritization, and acceleration of what we consider essential for our businesses.
We understand that it's time to examine the available information and examples to try and clarify perspectives, even if without the precision we would like. In this series of 3 blog posts, we will evaluate scenarios that are quite diverse from each other, but which motivated creative business responses that inspire us to forge new paths for the challenges we face.
The three perspectives of approach
To delve deeper into the discussion, let's start with three perspectives:
- The sectors most impacted
Innovation as a response to crisis and the centrality of purpose. - Challenged sectors
Digital transformation and the reinvention of our business models. - Outliers: benefiting from the current situation.
The challenges of customer loyalty and coordinated growth.
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The sectors most impacted
If the resumption of growth depends on a combination of public health policies and economic stimulus, and the scenarios for these two fronts change daily, the impact on businesses cannot yet be precisely measured. However, preliminary data indicate sectors that, at least in the short term, are leading the losses.
Based on the 3,000 most valuable companies in the world, McKinsey points to a drop in market value exceeding 40% in the Commercial Aviation, Tourism, and Oil/Gas sectors. Losses exceeding 25% are seen in the Banking, Automotive, Fashion, and Chemical sectors, among others.
In Brazil, figures from Cielo show a sharp impact on sales in various segments. The Durable Goods sector saw a drop of 45% in revenue since March, while the services sector fell by 60%. Some lines are even more affected, such as Clothing, whose revenue shrank by 66%, and Tourism and Transportation, with a loss of 75%. The situation is reflected in the confidence indices of business owners and consumers, which reached their historical low in the FGV measurement.
The difficulties of managing such a sudden setback are enormous, and sectors like tourism and civil aviation are hoping for government aid plans to avoid drastic measures – or even bankruptcy, as happened with the airlines Flybe and Avianca and the American restaurant chain FoodFirst.
Innovation as a response
What to do in this scenario? In addition to coordinated action with other spheres of responsibility, we note that some reactions to the current situation stem directly from innovation processes, responding to real problems people are facing right now.
Even with increased delivery services, data indicates a 60% drop in revenue for bars and restaurants. A solution to alleviate cash flow was led by Ambev – through its Bohemia and Stella Artois brands – facilitating the sale of vouchers for post-quarantine consumption. L'Oréal followed the same path to support beauty salons.
This type of innovation doesn't require high investments or the presence of large brands and has also been adopted by small entrepreneurs: tattoo artists, studio owners, and beach stall owners. Voucher systems have been part of the operations of companies like Peixe Urbano and Groupon for years: why not think about innovative ways to incorporate existing technologies into our businesses, even in normal times?
The quarantine led to an increase in demand for e-commerce throughout the entire consumer journey – from searching for the product to receiving it. Cielo, which handles the payment stage, and Loggi, which takes care of delivery, simplified the process: the seller generates a payment link and sends it to the customer with the delivery service already contracted. A simple measure that generates business value for both companies, makes life easier for small merchants, and speeds up delivery for the consumer.
It's clear that necessity fuels our inventive spirit – we even have a world map of pandemic-related innovations – but we don't need to wait until we reach that point to innovate. Innovation can and should be part of our routines, arising from internal processes and a culture that facilitates experimentation, collaboration, and autonomy, as we explain in more depth in the paper "Innovation is Necessary," from the TIP Insights initiative.
The centrality of purpose
Even the delicate financial situation cannot give rise to opportunism or attempts to charge exorbitant prices to recoup losses. The current moment makes society demand more from companies, not the other way around. Denying this new correlation is to risk damaging the company's image and ruining any accounting.
Furthermore, the demand for socially responsible corporate behavior did not originate with the pandemic. Prior to Covid-19, for example, there was a letter from the CEO of the world's largest asset manager, BlackRock, drawing the attention of business leaders to the paradigm shift in the relationship between the population and companies, and the position taken by the Business Roundtable, an association of large American corporations, publishing its definition of the importance of a business's purpose.
This movement is reflected in the growing relevance of ESG (environmental, social, and governance) indices, which establish criteria and measure companies' performance in social, environmental, and governance causes in a measurable and assertive way, but for this to happen, the mindset also needs to change.
The pandemic accelerated all of this. Hence the various initiatives from companies reinforcing their purpose: reconciling what they do best with what the world needs, within what is economically viable. It's a relationship that's here to stay and from which we cannot detach ourselves.
As a good example, Latam, Gol, and Azul, although immensely affected, understood that air travel is not a priority in this exceptional situation and offered free transportation to healthcare professionals, who will receive bonuses in their frequent flyer programs. That is: given what the context demands, the "hard sell" approach is temporarily set aside to focus on purpose and building a valuable ecosystem.
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Sources and references:
MCKINSEY & COMPANY. Covid-19: Briefing Materials. Global Health and Crisis Response. Based on the 3,000 most valuable companies in the world in 2019. Available at:http://clck.ru/NdxZ5Accessed on 12/05/20.
CIELO. Cielo Bulletin: Impact of Covid-19 on Brazilian retail. ICVA – Cielo Expanded Retail Index, March 1, 2020 to May 9, 2020, compared to equivalent days in February 2020, with calendar adjustment (e.g., Carnival, Easter, holidays, Mother's Day week). Available at:http://www.cielo.com.br/boletim-cielo-varejo/Accessed on 12/05/20.
