Management Perspectives

Indian economy’s graph started moving southward in 2019, as indicated by the fall in GDP growth, consumer confidence index, employment rates, and the Index of Industrial Production (IIP). This trend was reflected in the business environment too.

As per Reserve Bank of India’s Industrial Outlook Survey of the Manufacturing Sector, Business Assessment Index (BAI) recorded its steepest fall since the 2008 financial crisis. Sluggishness in key industry segments is an indicator of the economy being caught in a vicious cycle. Uncertainty triggered by the coronavirus has added to the economic woes.

People are unsure about the economic situation, employment scenario, and earnings. As per RBI’s Consumer Confidence Survey (CCS), consumer confidence collapsed in May 2020 with the index touching a historic low. There has been a sudden fall in income for many, leading to a sharp cut in discretionary spending as well as a major drop in demand; however, consumption of ‘essential commodities’ like masks, sanitisers, personal computers, and data cards is picking up. The overall situation has brought about a radical change in consumer behaviour too—there is an increased demand for health and hygiene products, and online delivery is being preferred to store visits.

Figure 1

It can be inferred from Figure 1 that consumer confidence has dropped since the spread of COVID-19.

Figure 2

Most households are resetting their budgets with the intention to save for the future. In a recent survey by Bank Bazaar, 52 per cent of the respondents said that savings and debt repayment were their top priority.

Consumption trends
When the lockdown was announced, there was a spurt in the purchase of essential commodities. Two to three weeks into it, there was increased demand for frozen foods, ready-to-cook meals, and confectionaries too. When the government allowed the sale of non-essential goods, there was a jump in demand for kitchen equipment and health essentials. Presently, there is predominant demand for immunityboosting products as well as essential commodities.

Austere behaviour
‘Optimal use of available resources’ seems to be the motto that is gaining ground. Frugal behaviour is visible everywhere, across all strata of society. And people are becoming more and more conscious about conserving their resources.

Aggregate deposits, comprising savings, current and term deposits, increased significantly during Lockdown 1. During Lockdown 2, there was a decline in current and savings deposits, as people started using the initial build-up for meeting expenses but term deposit accrual was healthy. The decline in aggregate deposits was around 10 to 12% during phases 2 and 3, indicating that there was still risk aversion when it came to consumer spending. There was again a surge in deposits during the fourth phase of lockdown, indicating that consumers have been more frugal considering the prolonged uncertainty.

Figure 3

Also, consumers are preferring to take informed decisions, ensuring a fair balance between demand fulfilment and personal safety. The transaction pattern, as depicted in Figure 3, is a reflection of their apprehensions.

There was a decline in credit card usage as well. People are wary about their future cash flow hence they do not want to increase their debts.

Road ahead
As we all know, the impact of COVID-19 is unlikely to be short-lived. The ongoing lockdown and disruption across sectors, along with layoffs, pay cuts, and weak consumer sentiment, will invariably have an impact on demand. And recovery may take quite a long time.

In these challenging times, business entities must explore probable ways to rebuild consumer confidence and frame strategies to sail through adversity.

Some of the key strategies that must be adopted are:

Value offerings: As consumers are going to prefer more value-based products, companies should realign their product mix accordingly. For instance, Myntra and other leading e-commerce players have realised the need for more lounge wear and work-from-home accessories to stay relevant in the changed work paradigm.

Customer engagement: Companies must try to keep customers engaged by pushing content online on popular topics like health and hygiene, and also launch interactive initiatives like online contests. Apple closed its stores much before the Government order, and reached out to customers to encourage online shopping, assuring them that their return policies and call services will ensure a seamless experience.

Re-plan revenue targets: Businesses should re-plan their revenue targets and do granular assessment, prioritising the revised customer groups, market segmentations, and product basket. They must be agile in adopting to the ‘new normal’. Mahindra Logistics is trying to bring back the business on track through a humane approach. They are making concerted efforts to bring back the drivers who had gone back home—they started providing food and lodging facilities to drivers across 40 states, and also initiated relief measures for their families. ‘Secure assets, secure partnership’ is the new mantra.

Strengthening e-commerce channel: Optimising the e-commerce channel is utmost essential to withstand the COVID storm. Companies can also enter into collaborations with online retailers to serve their customers. Hindustan Unilever has shut its direct-tohome model, Hindustan Unilever Network, and instead relaunched its Ayush remedies and Aviance beauty products on portals such as Amazon.

Building patronage: Customer patronage can help businesses survive in tough times. Eshakti, a garment retailer, has set a good example. Immediately after WHO’s announcements regarding the pandemic, its founder sent an e-mail to all customers on how the company intends to keep its employees safe in the wake of the virus, adding that “this is a humanitarian challenge that we can meet together.”

Resilient supply chain systems: The pandemic has exposed the vulnerability of poor supply chain systems of even corporate bigwigs. Businesses must not only develop lean supply chain designs but also stress-test them on performance measures such as resilience and responsiveness. ITC is leveraging the e-choupal model to tackle supply hurdles. Leveraging the power of technology, field officers are helping farmers sell their produce at remunerative prices.

Unfolding the new normal
The crisis has led to a new normal and this is set to stay for quite some time. Revival does not seem to be easy; fear of catching an infection will persist, and people will continue to be cautious in their buying decisions. And consequently, business dynamics is going to change forever. Long-term planning has become a thing of the past. Companies must frame monthly and quarterly plans and re-assess the scenario at frequent intervals. They should demonstrate an ‘above and beyond’ approach, sending the message that they would be able to weather the storm. Temporary changes made to meet customer aspirations could bring about permanent improvement in the business models, in future.

“In the midst of chaos, there is always an opportunity.” - Sun Tzu