How customer behaviour change drives digital
The pandemic has accelerated behaviour shifts towards digital. For change to succeed, superior customer experience is key.
It’s earnings season, and some of the figures are eye-opening. The Q1 FY21 results of Google, Amazon, Facebook and Apple (GAFA) once again prove how strongly growth has shifted towards digital:
These (in some ways monstrous) figures illustrate the tectonic shifts in people’s behaviour caused by the pandemic and the potential consequences for companies—primarily in the field of what we call the Business of Experience.
Why is it a big time for change?
Covid-19 has fused together many developing trends from the last few years in a matter of months. New behaviours matched up with drifts in the digital space that have been evolving for a long time.
We all witnessed how the pandemic radically accelerated customer behaviour change during lockdown. Adoption rates for digital services like e-commerce have gone through the roof, and the KPIs we see today are in line with what we expected for 2027. So, we’ve all jumped seven years into the future. We call this the “Remote Control” imperative: anything that can be done remotely will be done remotely. That’s the case both today, and also into the future.
It is important to highlight that this is not a linear progression. In absolute terms, the change in customer behaviour over the last year is equivalent to the shift in the two decades from 1995 to 2015. Over this period, a nerdy niche medium called the “Internet” has become an essential part of our everyday life. In this respect, last year was a tsunami.
Customer access becomes the main challenge
Another earthquake happened last week. Apple released iOS 14.5 to more than 1 billion active devices. This update takes the industry in some ways back to the pre-Internet days of AOL and Compuserve. They were the walled gardens of the time, which only the Netscape browser bedded down with the Open Web paradigm. Under the barely attackable argument of privacy, access to people’s profiles remains within the Apple garden. With the end of the third-party cookie, all those publishers and marketers outside the Apple camp have a problem. Customer access becomes the main challenge for every brand.
Acceleration is mathematically an exponential function. We are all familiar with terms like R-value through the pandemic and know that a value >1 reflects exponential growth. Amazon, if you will, has an R-value of around 1.3, driven by the underlying network effects that create a constant force. In about 18 months, Amazon will overtake Walmart, currently the world’s largest retailer, in revenue, operating in a linear CAGR world.
How can change succeed?
The most important attribute for successful change is attitude. In 2006, the GAFAs were typical peers in the ranks of companies listed by market capitalization. If we extend the analysis time, we can see—impressively—how the pure digital players have moved to the top of the chart and then went through the roof in 2020. Today, the pure digital players are the incumbents. Everyone else is an attacker brand now. This change in attitude is fundamental. But it can also be highly motivating—it’s more fun to attack than to defend.
If we look at brand values rather than market caps, a more nuanced picture emerges. In 2020, 8 of the top 10 companies that gained the most brand value were experience-led brands. Superior customer experience has become the key to changing people’s behaviour at scale and thus the most crucial driver to value creation.
Customer behaviour change is faster than management
You may have read Thinking, Fast & Slow by Daniel Kahneman a few years ago. Kahneman explains that we have two ways of thinking:
- “System I” is our fast, automated thinking,
- “System II” our slow and logical system.
As humans, we need both. This is also true for the management brain. Our observation is that, contrary to intuition, digital players have found a better balance. They execute quickly and have a data-driven trial-and-error culture that combines perfectly with a customer obsession. However, strategic decisions are made very slowly and with high continuity in leadership.
On the other hand, many management and non-founder-led companies find it challenging to proceed with long-term strategic initiatives. In the past, most management capacities were often invested in risk avoidance and processes. As a result, execution became slow. In exponential circumstances, short-term management is not effective. From Walmart’s perspective, Amazon didn’t even matter for a decade. And by the time Amazon seemingly appeared out of nowhere, it may have been too late.
Today, we’re noticing many companies starting to speed up execution and adopting agile practices. This does not solve the problem. In contrast, it often only leads to the company zigzagging faster and not getting on the exponential growth curve.
So what should you change?
You need to overcome the dominant practice of incremental optimization and technology-centricity. Start with the experience and then work backwards to technology and processes. Never the other way around. A 10% better product does the job inside the corporate firewall and satisfies procurement. But humans don’t change their habits for something that is 10% better. Customers need an experience that is 10 times better to change their behaviour.
To build an experience-driven and customer-obsessed company, use data as the benevolent dictator. We have not seen a better tool to align and de-politicize the different departments and stakeholders in the field.
Customer attention is the new battleground. Without customer access, there is no success. In a world of renewed walled gardens, brands must build their ecosystems by, for example, establishing marketplaces or new value chains by integrating partners.
Matthias Schrader is the founder of NEXT Conference. Since 2018, he has led Accenture Interactive in Germany, Austria, Switzerland, and Russia.