Marketing Shifted to "Pure Digital" During Pandemic: How Permanent a Change?

 “Customer journey disruptions brought about by the pandemic have prompted CMOs across industries to question long-held beliefs on the relative value of their channel investments,” say Gartner analysts. The biggest trend has been that--unable to rely on in-person channels--spending shifted to digital channels. 

Some 72 percent of the marketing budget of surveyed enterprises is “pure digital,” says Gartner. 

source: Gartner 

What remains unclear is whether marketing tactics and practices will remain permanently shifted in that way.

Some may well conclude that their sales  results have not suffered. Simply put, most enterprises have somehow managed to keep sales and marketing going, if in different ways, and some have even reported revenue gains, even when unable to visit customers directly, or have customers visit them. 

So the big question is whether there have been changes in belief and practices that are permanent, and not simply transitory. 

At a high level, the issue can be neatly summarized: enterprises have had to find some way to keep revenues flowing despite the substantial inability to have in-person contact with business partners or customers. 

The longer term issue is whether executives will conclude they do not need to spend money, time and effort in the old ways, at the same levels. That, in turn, will have repercussions for many in marketing and sales ecosystems.  

source: Gartner 

“CFOs have become comfortable with the lower cost base that spending cuts  in marketing, alongside savings on real estate and travel costs, have yielded,” Gartner says in a new report. “CMOs proved that they could do more with less, curbing spending on events, agencies and ad budgets in the face of a crisis.”

Among the areas most affected are items such as business “travel and hospitality,” which fell nearly 50 percent from 2020 to 2021. Investments in digital processes to support business operations are taking priority over marketing, Gartner says. 

“CEOs state the top focus points for their Chief Digital Officers (CDOs) in 2021 include customer experience and e-commerce.” Marketing execs have reprioritized the spending commitments across their channels and programs to favor pure-play digital channels, accounting for 72.2 percent of the total marketing budget.

source: Gartner

Typically, budget priorities reflect business priorities. So less spending is typically interpreted as “lower value” or priority. That might not necessarily be true for marketing budgets. 

Marketing budgets have always been the first of the enterprise budgets to be cut in any recession and the last to be restored once growth returns, Gartner notes, and rightly so. 

And marketing budgets are falling to their lowest levels in recent history, say analysts at Gartner. 

source: Gartner

So one might conclude that marketing--perhaps always to some extent a “more is better” category--is less important at the moment. That is almost certainly untrue. Unable to conduct face-to-face operations, marketing arguably has been more important. 

But perhaps higher value is perceived even when spending levels are lower. In other words, the ability to “do more with less” might be the conclusion many have reached after their experience with virtual sales and marketing imposed on them. 

“Social distancing rules transformed buying journeys for B2B and B2C customers alike throughout 2020,” Gartner notes. Also, “the majority of customers who used a digital channel for the first time in the first wave of the COVID-19 crisis state that they will continue to use them when the crisis passes.”

That suggests an “inevitable shift to online channels.”

The still-unknown issue is how much permanent change could occur in enterprise marketing practices. As always, there will be repercussions in the rest of the business ecosystem.

Rational Supply Chain Behavior at the Firm Level Leads to Irrational Systemwide Impact

The supply chain distortions exacerbated by the Covid pandemic were not unprecedented. The same sorts of things happened during the Great Recession of 2008, when demand changes arguably were the big impetus. 

“Output in the steel industry dropped by an unprecedented 30 percent and prices by about 50 percent from June 2008 to December 2008,” McKinsey notes. Demand side behavior concatenates through the value chain. 

 source: McKinsey

But supply side behavior also matters, and could be a key issue as the recovery from Covid continues. As we have seen with shortages of all sorts of things--computer chips, lumber, toilet paper, boats, container ship capacity, port unloading--supplier effort to compensate for shortages can overshoot, leading to supply excesses. 

Chip shortages have lead to shortages of new vehicles, as new cars and trucks cannot be built without ample chipset supply. That, in turn, has lead to shortages of used vehicles. The logical course of action, when possible, is to stockpile inputs. We might be seeing that in the retail grocery area, for example. 

But stockpiling can be inefficient, can exacerbate supply shortages, might contribute to inflation, and also eventually leads to oversupply, as manufacturers step up production to meet demand which is inflated by stockpiling behavior. It corrects, but not without damage. 

Grocery retailers are stockpiling goods in an effort to avoid shortages and keep retail prices lower, but in doing so will inevitably increase inflation rates, as the stockpiling will increase shortages, which increases scarcity, which leads to higher prices. Rational behavior at the firm level still leads to irrational results for the market. 

source: McKinsey 

The point is that both shortages and excess inventory are problems that firm behavior tends to exacerbate. 

Black Swans in Action

The Covid pandemic was a vivid reminder to all of us who create models, build scenarios or make predictions that we are unable to accurately account for all possible influences and outcomes. By definition, we are unable to account for highly-improbable, very rare events that have high effect on whatever it is that we are modeling. 

The pandemic also was a reminder of how difficult it is to create organizations that respond better to unexpected stresses. One tactic for reducing fragility is to possess more cash. That is akin to reducing reliance on "just in time" supply chains, which, as the pandemic showed, increases risk and fragility.

Many businesses and non-profits assume there will be times when revenues slow or increase. Cash reserves or contingency funds are one way to create "antifragile" capabilities. But I know of no organization that prepared for a sudden and complete shutdown of all operations--and a virtual ban on customers buying--extending for months to nearly a year.

Though for many of us the Covid pandemic is the biggest black swan event we have ever seen. A black swan event is unpredictable and unprecedented in scale and retroactively explainable, according to Nassim Taleb. 

Nassim actually states the case more dramatically: "nothing in the past can convincingly point to its possibility.” By that standard, some argue Covid is not a black swan; perhaps neither is the Great Recession of 2008; nor the emergence of the internet. We have seen major pandemics in human history. We have experienced severe global recessions and seen the impact of computer technology on human life. 

Perhaps the definition does not matter much. After all, Talib’s whole point is resilience; the ability to create organizational ability to adapt to low-probability and high-consequence events. Whether one believes Covid, for example, is a black swan or not, what might we have done to prepare for it. More to the point, what should we be doing to prepare for some unknown future black swan?

Retroactively, we can put into place mechanisms to deal with pandemics. But we cannot spend unlimited amounts of resources doing so. Nor, as a practical matter, can we easily design better systems to account for threats we cannot presently imagine. Yet that is what Taleb counsels. He calls such resilience “antifragile.”

Exercise is one antifragile practice, he argues. Perhaps cash in the bank also is an antifragility measure. Some might say this is  “resilience.” Taleb rejects that notion. Antifragility as Taleb views it is a property of systems that get stronger in the face of stressors, shocks, volatility, noise, mistakes, faults, attacks, or failures. 

“Antifragility is beyond resilience or robustness,” he argues. “The resilient resists shocks and stays the same; the antifragile gets better.” Antifragility is the ability to demonstrate a non-linear response to events. 

“You have to avoid debt because debt makes the system more fragile,” he says. “You have to increase redundancies in some spaces. You have to avoid optimization.” In a real sense, Taleb says antifragility is enhanced by being deliberately less specialized and less structured. 

The concept was developed by Nassim Nicholas Taleb in his book, Antifragile, and in technical papers.[1][2] As Taleb explains in his book, antifragility is fundamentally different from the concepts of resiliency (i.e. the ability to recover from failure) and robustness (that is, the ability to resist failure).  

Others might say it is disaster preparedness.   

One might well argue that there is a normal human resistance to spending too much time, effort or money on preparing for unpredictable; low-probability events with massive impact. By definition, we cannot foresee the sort of event we are preparing for. 

No forecaster, therefore, can predict or model the impact of a black swan event: it is, by definition, unpredictable. 

 We simply assume that present trends will continue, within some zone of variation. 

A positive black swan might be the internet; a prior negative black swan was the global Great Recession of 2008. We can all agree that one essential element of a black swan event is that it has a sudden and unexpected magnitude outside our models. 

source: Alex Danco 

The main idea is that black swan events are extremely unpredictable and have massive impacts on society. 

A corollary might be that black swan events are “preemptively ruled out” in human mental models or forecaster predictions.

“For an event to really be a Black Swan event, it has to play out in a domain that we thought we understood fluently, and thought we knew the edge cases and boundary conditions for possible realm,” argues Alex Danco. 

Immediate "economic curtailment worse than the Great Recession of 2008" was outside the thinking of anybody I have encountered.

Maybe Covid Will Not Have Lasting Significant Impact on Connectivity

One hears much casual talk about permanent changes caused by Covid-19 lockdowns or work from home policies. Where it comes to use of communications capabilities, however, there is some evidence that the impact was quite transitory. 

Data gathered by Ofcom shows that use of the internet climbed in February 2020, but by October 2020 was down to pre-pandemic levels. Most casual statements note the sudden surge in demand as the lockdowns began. Few seem to note that demand has returned to pre-pandemic patterns. 

source: Ofcom 

Some argue that mobility usage climbed during the pandemic. Ofcom data suggests quite the opposite. As you might expect, people confined largely to their homes spent less time connected to the mobile network. 

People were not traveling outside their home areas so much. That is why roaming revenues dropped for virtually all mobile operators. 

source: Ofcom 

In other ways, mobile phone behavior was, in fact, not changed by the pandemic. Many casually make the argument that the pandemic “proves” the value of connectivity. It was important; it is important. But it might not be significantly more important, post-Covid. 

Demand in urban office areas is likely to drop, as more people spend more time working from home, on a permanent basis. There will be some upgrading of connections in suburban or rural areas. But internet access was vital before the pandemic. It did not suddenly become more important because of the pandemic, though the places people used the internet did shift (from office to home; from school to home).

There was less use of mobile phones on the mobile network between March and October of 2020, as more people were confined largely to home, and used Wi-Fi connectivity. 

Nor did calling behavior change. “Our crowdsourced data showed that 75 percent of panellists made a call in the first 11 weeks of the year, and 78 percent of panellists made or received a call,” Ofcom says. “There was no significant change in these proportions between pre- and post-lockdown.”

The impressionistic sense that “communications must be more important” is not necessarily borne out by the facts. It is similar to the anecdotal comments all of us have heard about “communications proving its value,” along with a belief that “communications firms must be making more money because of that.” In fact, most service providers saw revenue dip during the March to December 2020 period, for obvious reasons.

Economic activity was suppressed by government orders. And less economic activity, as in any recession, stifles communications revenues. 

There are likely to be permanent changes because of the pandemic. But a dramatic and permanent leap in communications industry revenues or growth rates is unlikely. 

In fact, there will be some downward pressure on demand, as urban office space begins to go unused. Fewer people working “downtown” means less bandwidth demand. Fewer people at work also means less demand for all surrounding merchants. Those merchants are also likely to require less bandwidth or connectivity demand. 

Bandwidth demand overall will likely keep growing, at past rates. But the pressure is not all “up.” There will be some redistribution of “work” demand to residential areas. But the key driver of residential broadband demand is entertainment video, not use of work apps. 

That will ripple through network planning assumptions, at the very least, even if revenue impact is relatively neutral. What seems to be developing is a rather temporary Covid impact on capacity demand and user behavior. In other words, Covid might, in the end, not have very much impact on connectivity revenue or demand. 

Usage grows every year, irrespective of temporary events. More people watching more video streaming is going to affect usage more than did Covid.

Implications of GDP Damage Worse than Great Depression, Far Worse than Internet Bubble or Great Recession

For those of you who lived through the internet bubble burst in 2001 and the Great Recession of 2008, the Covid-19 pandemic exceeds the economic damage by quite some scale, surpassing the carnage of the 1929 Great Depression. 

We all seem to sense that many changes in business and personal life will be permanent, post-Covid. Enterprise executives indicate big changes are coming. 

source: McKinsey 

Remote work environments seem to have encouraged “output oriented” work flows and may have enabled faster decision making, McKinsey reports. Hybrid work situations are expected to become permanent, while “site agnostic” employee sourcing will increase, along with possibly 35 percent to half of all existing office space to be shed over the next two years. 

source: McKinsey 

McKinsey argues that geographically “distributed work” produces more value than “remote work.” And those are not even the most important implications enterprises must consider. The “recovery” from the crisis will not follow patterns we have seen in prior economic downturns. 

So a new operating model will be necessary. The need for agility no longer will be a nice to have organizational capability, but might be a requirement. Business will run about four times faster than in the past, making “three months the new year.”

source: McKinsey 

New threats and opportunities might well be the new reality as well. That might well include a change of revenue sources and business models.

Lots of people talk about disruption. Not so many have actually had to face it. Many more might get their first chance to do so.

Telecom Revenue Recovery in Asia Pacific: How Soon?

Retail connectivity service provider revenues tend to track gross domestic product growth or contraction, so it would not be surprising to learn that the economic recession caused by Covid-19 public health measures have caused retail service provider revenue to contract, in Asia and the Pacific region. 

Always, telecom service spending tracks household income. So when income falls, telecom services spending tends to dip as well. During the Covid-19 economic lockdowns, when people were working from home, lower travel also meant lower roaming revenues, for example, though counterbalanced to some extent by higher spending on broadband access services.  

Virtually everyone expects a rebound as economic activity accelerates. So how fast will the Asia-Pacific recovery occur? It depends. Global tourism is expected to remain below pre-pandemic levels till 2023 and delay economic recovery in tourism-dependent economies, so that also is an issue. 

 source: World Bank

Among major economies of the Asia region, only China and Vietnam have followed a V-shape recovery path with output surpassing pre-COVID-19 levels in 2020, a World Bank report says.

Most of the other countries have not seen a full-fledged recovery in terms of either output or growth momentum, the World Bank says. 

By the end of 2020, output in the four other major economies had rebounded but remained on average around five percent below pre-pandemic levels, with the smallest gap in Indonesia (2.2 percent) and the largest gap in the Philippines (8.4 percent). 

 source: World Bank

As you might expect, economic contraction has been particularly severe and persistent in some of the small island economies with output in 2020, remaining more than 10 percent below pre-pandemic levels in Fiji, Palau, and Vanuatu. 

Longer term, it is possible that growth over the next decade could be as much as 1.8 percentage points lower than pre-Covid-19 projections for the region excluding China. 

Still, China and Vietnam already are on pre-Covid growth paths. Indonesia and Malaysia will be back to 2019 later levels this year. Thailand and the Philippines will do so by late 2022, the World Bank estimates. 

Connectivity service provider revenues should track those developments quite closely, with the caveat that tourism-heavy economies will take longer to recover than export-oriented economies.

When Will Travel Approach Pre-Covid Levels, and What Does it Mean for Telecom Revenue?

Travel behavior has had a significant impact on mobile revenues globally, primarily in the form of reduced roaming revenues, though some reduced upgrade or new account activity might also be an issue. By definition, a return to pre-pandemic travel is key to restoring roaming revenue volume. 

Some believe recovery will take a few years. 

Global spending on business travel is expected to show a 52 percent decrease for all of 2020 (to $694 billion), down from $1.4 trillion in 2019, according to the Global Business Travel Association, an “unprecedented” decline. 

“The magnitude of these losses and their impact on travel suppliers is unprecedented: the 2020 business travel spending losses are expected to be 10 times larger than the impact of either 9/11 or the Great Recession of 2008,” says GBTA. 

More significantly, GBTA expects a 21-percent increase in business travel spending is projected in 2021, mostly at the end of 2021. A full recovery to pre-pandemic levels is not expected until 2025.

Consumer travel demand also matters. In that regard, one analysis suggests travel tops the list of things U.S. residents want to do after they get vaccinated, a survey by Ipsos finds. And there appears to be significant pent-up demand. 

About 40 percent of respondents say they’re saving more now than they were before the pandemic, and most people who have plans for the money say they’re saving it for travel.

About 19 percent of survey respondents say they’re saving for a domestic trip by plane, while 16 percent say they’re saving for a domestic road trip. About 15 percent say they’re saving for an international trip.

 

source: Ipsos 

So 2021 might still be a challenging year for mobile operators, in terms of revenue growth.

Is Covid a White, Grey or Black Swan? It Matters

Is the Covid-19 a white swan, a grey swan or a black swan? The answer portends the amount of disruption we could see, post-Covid. 

A “white swan” event that is one that could have rationally been expected to happen at some time, and has major effects. If Covid-19 was a white swan, the world will not be disrupted as much as many expect. Essentially, change will happen without expected and “normal” statistical ranges. In other words, Covid will have about as much impact as a normal recession. 

White swans are said to have relatively few negative implications, impacting the life of one or a group of people rather than the entire globe. 

Grey swans--neither a completely unexpected black swan nor a predictable white swan--can be devastating for many, and can have radically unsettling implications. To be sure, black swan or grey swan events can be positive, not just negative, though the most common outcome is a negative impact. 

The main difference between a grey swan and a black swan event is that one is known about beforehand, while the other takes us completely by surprise. But the bottom line is that a grey swan event can still be disruptive and devastating. 

If Covid-19 was a grey swan, we might see unexpectedly large outcomes, in terms of change. 

A true black swan event is typically expected to have disruptive implications. Black swans are outliers, events that are outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. 

Climate change, population growth or rising debt levels could be grey swans. Long-term water shortages could be a grey swan. 

Black swans typically have “extreme” or “massive” impact, exposing fragility in ideas or practices that had underpinned “normalcy.” Many would consider the personal computer and the internet as examples of black swans. 

Keep in mind that highly-disruptive events can still be white swans. Some consider the internet bubble burst of 2001 and the Great Recession of 2008 to be white swans. If that is the test, a grey swan or black swan would have unimaginable consequences. 

Others might consider the 2001 internet bubble burst a white swan, but the Great Recession of 2008 a black swan. World War I, World War II, the fall of the Soviet Union, the rise of Islamic fundamentalists, 9/11 and the internet might be called by some black swan events.

Others might consider the Great Depression and World War II as a single black swan event. Some consider the sinking of the Titanic a black swan event. Others might consider larger events, such as the Spanish defeat of the Aztecs, to be black swan events. 

The point of black or grey swan events is not “how to prevent them.” By definition, they cannot be predicted or prevented. But organizations can try and create robustness for their occurrence. 

Small businesses, sadly, almost by definition cannot create much robustness. 

Many businesses--large and small--will survive or die based on when economic activity can be resumed on a “normal” basis. A survey of U.S. respondents taken mostly in January 2021 suggests most believe it will be six months until they feel comfortable attending large public events. 

A plurality say it will be six months until they are comfortable taking a vacation. Other life sustaining activities--such as going to work--are largely believed safe now. A majority of respondents feel safe shopping in retail stores now. Less than half are comfortable eating at a restaurant. 

If these attitudes do not change, many restaurants and travel-related businesses will not be in business by the end of 2021. Failures in many OECD countries will eliminate more than three percent of jobs. 

source: Civic Science 

The number of active business owners in the United States plummeted by 3.3 million or 22 percent in just two months from February to April 2020. The drop in active business owners was the largest on record, according to the National Institutes of Health. 

By December 2020, 42 percent of small businesses surveyed on Alignable said they were in danger of going out of business. By the fall of 2020, at least 49 percent of businesses reported they were unprofitable. Some 18 percent were operating at about breakeven levels. 

It almost does not matter whether economic shutdowns and travel bans are classified as white, grey or black swans. For small businesses, they have the impact of a black swan, even if other segments of the economy will not be so affected. 

It remains unclear whether Covid will prove a black swan for cruise lines, retailing, the travel industry, airlines, entertainment or real estate. As with small businesses, Covid might well turn out to have black swan impact on some industries. 

Some Covid-19 Winners Boosted AI Spending Because Financial Advantage was Seen

In virtually every recession or economic panic, some firms, in some industries, are able to boost sales, take market share and maintain or even boost profit margins. Often known as high-performing firms, there might not be a single clear reason for success.

The firms could be in growing young markets, have leadership or capital access advantages, have made astute technology investments, or simply be in industries that benefit from the particular crises or recessions.

Likewise, some firms, across industries, seem to have continued to invest in artificial intelligence during the Covid-19 pandemic, and those firms seem to have done so because they saw clear advantages to use of AI in ways that helped their business models.

If the Covid-19 pandemic affected enterprise information technology investments, it arguably has slowed such investments at some firms, which have had to shift support to remote workers. On the other hand, some firms who already have found use cases, and invested more heavily prior to the pandemic, seem to have increased their investment level, a  McKinsey survey found.

Respondents from 61 percent of firms who report success with AI also say their firms increased investment in 2020. Patterns across industries show big variations.

 source: McKinsey

Firms in healthcare, pharma, medical products; as well as companies in the automotive industry were most likely to have increased AI investments in 2020. 

 source: McKinsey

Most enterprises likely have not yet found clear financial benefits from AI deployment, though. A survey of more than 3,000 company managers about their AI spend found just 10 percent had gotten significant financial benefits from their investment so far, a report from MIT Sloan Management Review and Boston Consulting Group found. 

A separate survey of U.K. firms found that 40 percent of 750 surveyed U.K. executives plan to invest in artificial intelligence in 2021, a survey by Fountech Solutions finds. 

  

Some 30 percent of respondents say their firms piloted an AI solution for the first time since the onset of the Covid-19 pandemic. New AI specialists will be hired by 41 percent of respondent firms. Also, 48 percent of respondents say their companies will seek AI training for existing staff.

As a rule, some firms managed to grow revenue and profit during recessions and crises, Boston Consulting Group data suggests. While 44 percent of firms might experience shrinking profit margins and sales growth in a recession or crisis, 14 percent have shown growth in both sales and profits. 

Some 28 percent of firms see lower sales but manage to increase profit margins. About 14 percent of firms see higher sales and lower profit margins. 

Firms in health and consumer staples are most likely to see winners in recessions. Companies in energy, information and communications technology and financial industries are least likely to emerge with higher sales and profits in a recession.

source: Boston Consulting Group 

It is possible--even likely--that firms continuing to invest in AI during the Covid-19 pandemic were already finding themselves gaining market share, increasing sales volume and maintaining or increasing profits. 

The McKinsey survey found, for example, that a small number of respondents at some firms attributed 20 percent or more of their firm earnings before interest and taxes (EBIT) to AI. Those companies planned to invest even more in AI during the COVID-19 pandemic. 

That is in keeping with the BCG data suggesting some firms gain market share and boost sales during recessions and crises. If such gains are attributed to AI, it makes sense that firms would maintain or boost such investments.