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CONSUMPTION | 05.26.2020

The digitization of SMEs and self-employed workers as a way to address new consumption habits

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The health crisis caused by the COVID-19 pandemic is leading to a complicated economic situation at all levels. It has created a scenario of unbridled uncertainty, as no one knows exactly how the next few months are going to unfold or how consumers are going to react. And as expected, small and medium-sized enterprises, as well as self-employed workers, find it more difficult to cope with this new reality. This is due to the fact that, on the one hand, they have less financial muscle and, on the other, they are more dependent on day-to-day activity. In other words, they are starting to seek new revenue streams.

Specialists in the field predict that the best way to achieve this is through technological development and an appropriate digitization strategy, both of which are essential in increasing sales channels to reach a market as unstable as that of today.

Consumer trends are changing

One of the consequences of social isolation and the risk of infection has been changing consumer habits, which paves the way for an increasingly necessary digital transformation. The following changes in consumer habits are the most significant.
  • Increased interest in health and well-being, which has translated into the rise of products focused on a healthy lifestyle (sports equipment, healthy eating, etc.). A Whole Foods study previously indicated a 2020 trend whereby the food industry would continue to shift toward healthier recipes for the body. This trend has become even more pronounced following the coronavirus pandemic, during which there has been greater interest in local commodities and trade. This is linked to the fact that “thousands of consumers have decided to eliminate or reduce their consumption of animal food products and move to a plant-based diet (vegetables, leafy greens, cereals, fruits, and legumes). This is due to the environmental impact that livestock have on greenhouse gas emissions. But it is also stems from thousands of people being opposed to the rearing conditions of some farms and the cruelty with which some animals are treated,” as nutrition specialist Judith Torrell explains in an article published in MAPFRE Salud.
  • Online shopping is skyrocketing. There was no doubt that social isolation and store closures would lead to an increase in online purchases. However, this is much more extensive in reality, so much so that this modality has not only increased, but has reached population niches that were completely unfamiliar with it. Moreover, forecasts predict that online sales will remain more significant than pre-isolation times, either due to restrictions in physical stores or the fear of possible infection by entering said physical stores. As stated in an investment strategy article, Critical to Consumer expert Aaron Orendorff revealed data from 20 online accounts with an annual expense ratio of around $50 million, showing that in the United States, “between March 12 and March 15, e-commerce payments grew 36 percent year-on-year,” while on April 3, “online business posted a 33.8 percent revenue hike, with a 7.64 percent consumer spending spike and a 21.06 percent profitability ratio.”

These significant figures align with those offered by Spain’s Logistics and Transportation Business Organization, which saw an increase of 12.5 percent in online sales in the first days of quarantine, even when some deliveries were prohibited. This organization also states that there has been a 50 percent increase in e-commerce shipments.

Digital transformation

The fact that people were unable to go out onto the street and numerous establishments had to stay closed clearly opened the door to e-commerce and using social networks as a sales channel. As such, people who were not accustomed to using these channels decided to take the plunge, realizing both their effectiveness and the safety they provided in terms of health (lower risk of infection).

This trend has exposed digital strategy shortcomings for many companies (if they have a digital strategy at all), who have faced the sudden need to implement an accelerated digital transformation within their businesses and thus scrambling to innovate.

Obviously, this process cannot happen overnight and must be precisely orchestrated in order to be effective. So, for many businesses, it’s time to continue to evolve while adapting to the times ahead.

Benefits of digitization

A challenge in digitizing business models is the fact that investment is often required. This could slow down the process, but needs are pressing. According to a study by PwC Advisory on company executives in 24 countries, only 18 percent of executives thought it necessary to eliminate or defer investment in digital transformation, which is a good indication of how important it is.

The situation for SMEs and self-employed workers is somewhat different compared to large companies, but the health crisis has made it clear that they must diversify their sales channels and that this is only possible through digitization.

In fact, among the advantages that digital transformation can provide, the most important is having an omnichannel strategy, i.e. being able to reach all potential clients in a unified way in both physical and virtual spaces, or through social networks, call centers or any other method that will overcome current challenges. This not only brings greater customer loyalty, but also opens up to a range of new users and consumers. There are other advantages to be noted as well.

Adjustments to company size and management

Digitization will also bring savings, as it provides the information needed to avoid oversizing both company structures and facilities (unnecessarily large stores and offices) and production (greater knowledge of products and services that are most in demand).

Remote working

Many companies have discovered the merits of remote working and how beneficial it can be both for employees and for the business itself. In this case, there is still a long way to go in order to adapt the business culture of numerous companies, as flexible working will only be efficient through proper digitization. Spain is a good example of this, where only 7.6 percent of workers work from home when, according to a study by the Bank of Spain, up to 30.6 percent could do so.

Greater knowledge of clients and their new demands

Technology provides all kinds of parameters to better understand clients, allowing companies to anticipate their needs and therefore keep them happy. While this is always important, it is especially important in an uncertain situation like today, as better data analytics will make it easier to make the right decisions for business survival.

Efficiency and effectiveness

Digital transformation also aims to improve business productivity. Effectiveness can be increased by perfectly detailing work processes and boasting the most agile methodologies to carry them out. In turn, this will lead to considerably increased efficiency.

After all, it’s all about being more efficient in adapting to a market that has suffered a considerable setback, which can only be overcome through innovation.

 

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The immediate future for hotels and restaurants: A stark choice between adapting or going under