The first corona lockdown has already brought some businesses to their knees. Now the second wave of infections is predicted to be even more violent than the first. If you operate in the critical industries and want to be one of the corona winners, or at least one of the corona survivors, it is high time to incorporate a well-considered “corona response” into your corporate strategy.
Corona has hit the retail sector particularly hard and has catapulted it from the branch and face-to-face paradigm into the online e-commerce world faster than expected. The already ailing perfumery group Douglas, for example, had to live through the closing of almost all its 2,400 branches across Europe. Nevertheless, the highly indebted company remains confident. In an interview with the Handelsblatt in the middle of the first lockdown, Douglas CEO Tina Müller had this to say: “With regard to e-commerce in our industry, we were number one in Europe even before the crisis. We are now benefitting from the expertise we gained, as we have become an exclusively online retailer practically overnight.” That is why Ms Müller is confident about soon returning to profitability with the online business and the help of e-commerce expert Vanessa Stützle. “We will come out of this crisis stronger,” she claims confidently. Since Ms Müller’s forced sabbatical due to illness, the 42-year-old Stützle has even been promoted to the management of the perfume giant.
The figures just published for the second quarter of Deutsche Post DHL prove that Douglas is not an isolated case. The turnover in the parcel business in Germany increased by 28% compared to the previous year (source www.DPDHL.com Semi-annual Report 2020). After a small decline in March, Hermes even reports a 40% increase in shipment volume from April. Of course, the online shopping euphoria of many consumers may be dampened as soon as job losses start visibly curbing purchasing power.
Online retail booms – large consumer goods in decline
However, Cloudflight sees the fact that in the lockdown many people “had to” buy online for the first time, even though they had so far avoided e-commerce, as having a lasting effect. These first users are found predominantly in the age group 50 and above, which is distinguished by high purchasing power. After the first positive experience, only a part of them will return to retail and will remain online for many product segments. Food delivery services and online food retailing show similar effects.
In contrast to the online ordering rage for small items many citizens displayed during the lockdown, economic uncertainty has largely blocked large purchases of consumer goods. It hit the German automotive industry, already critically questioned by consumers because of the diesel scandal, particularly hard. While the consumer logistics sector is booming, logistics around the manufacturing industry has suffered a massive collapse in some cases. These include the Kion Group, which serves this segment as well with its forklift trucks under the Linde Material-Handling and Still brands.
Significant declines in orders have unexpectedly dragged the otherwise extremely solid company, with a Q2 turnover of 2.3 billion euro, just into the red with a loss of 17 million euro. Another contributing factor was that the lockdown restricted the presence of service technicians at customers’ sites, which also put a strain on earnings.
Investing in digital customer relations
Similar to the example of Douglas, the Kion Group’s corona response does not constitute a complete halt of investment in digital vehicles and digitalised service processes. In an interview with Cloudflight, digital head at Linde Material Handling Jens Kocab had this to say: “Of course we’ve had to cut costs throughout the company, and we’ve had to postpone some things. Fortunately, we didn’t have to stop digital innovation. On the contrary, we believe in using digital customer relationships to compensate for corona-related declines in sales. This includes digitalised service processes that allow diagnosis and vehicle configuration even “over the air”, without a service technician having to be on site. At the same time, we are offering a new fleet management system from the cloud that also speaks to the digital vehicle via its digital twin. Apart from that, we are massively expanding our e-commerce solution in order to make sales and rentals with our partner network much more attractive for our customers.”
If your company is negatively impacted by the pandemic, it is not a question of whether you should invest in digital customer relationships, but rather how it should be done in order to be successful.
The “Winner-Takes-All” principle
After 20 years of e-commerce in Europe, many companies had to learn the difference to floor trading the hard way. While retail branches have the chance of making certain sales simply by being close to the customer, the Internet is equally close to all customers and almost equally fast in at least one country. Using independent search engines or looking at competing online sellers on Amazon.com makes price comparison so easy that only the cheapest source is chosen. Differentiation through ever faster delivery times is also slowly being exhausted. For non-food products, delivery times of less than 24 hours tend to be perceived as absurd by many consumers. Of course, a nice design and a variety of payment options on B2C websites do help. But they no longer offer real differentiation either.
This brutal market situation affects B2B business as well. In the example of the forklifts, the end-user experience and the digital interaction with the service partners are what counts. Whereas previously a service technician had to go to a vehicle every time a change had to be made, he can now buy replacements digitally. At the end of the year, this function will even be available for certain vehicle properties to end users such as fleet managers, for
example. This is a strong differentiator that nobody else in the B2B market has – it is only known to exist in Tesla’s consumer segment.
Success factors in corona response
How can a company differentiate itself online in the new corona e-commerce boom without falling into this commodity trap? Cloudflight sees the following factors as differentiating and thus success factors for an online corona response:
- Real chatbots in B2C. Many websites now offer chatbots, and thus ostensibly the availability of a contact person. In the best cases, this is backed by a machine-learning algorithm that can actually provide answers to the most frequently asked questions automatically, and even enter into a context-based conversation. If the “intelligence” of the ro-bot is no longer sufficient for the desired effect, customers expect a seamless transition to a real person. In reality, most chatbots today are pretty dumb. Very few understand the context of a “longer” conversation of more than two lines. Chatbots that are really indistinguishable from humans are still the big exception. Some companies that have not dared to use the necessary machine- learning technologies yet use real call centres for the customer chat. In view of the massive increase in customer visits, this is a rather risky act of desperation.
Voice commerce not only for B2C. Amazon’s Alexa embodies how the barrier to online purchasing is continuously lowered and ultimately reduced to voice communication. Natural Language Processing is another step more complex than a real chatbot (see https://www.crisp-research.com/iot-sprachsteuerung-das-geht-auch-offline-und-sehr-privat/) Nevertheless, merging voicification with the other channels of an omnichannel strategy is crucial for success. Depending on the industry and product, the smartphone has become the dominant end device and many websites are primarily designed for “mobile commerce”. The transformation of e-commerce from online to mobile business is already complete in some cases. In the same way, for some types of transactions we see the next evolution, from mobile commerce to voice commerce, happening in the next 5 years.
Industry-specific processes are essential if the competition has them. It is well known that B2B business is based on specific processes or highly configured products. A simple consumer shop often doesn’t fit the bill at all. But if the direct competition doesn’t even have that, it’s a head start. If the competition is already offering complex processes for buying, renting, or services in direct B2B online, you just have to be smarter and more cunning in the way you engage the dealer network and sales partners. The B2B2B commerce solutions as pushed by Linde Material Handling could then represent a long-term competitive advantage.
Even before the corona pandemic, innovative companies brought chief digital officers or e-commerce experts on board, planning a continuous expansion of online activities. The pandemic unexpectedly turned some of them into exclusively online retailers, so that the original situation was completely reversed. The IT requirements of traditional companies in particular are a huge challenge.
The infrastructure expenses that companies in Germany incur at cloud providers and outsourcers for their e-commerce and e-marketing alone are expected to double from half a billion euros to one billion euros from mid-2019 to mid-2021. Although such a mature market segment is actually becoming progressively weaker, the corona e-commerce boom and the new machine learning requirements are returning growth briefly to 44%. With this growth rate, CIOs should plan only the operation of their digital corona response. The development services of the differentiated solutions should not yet be planned into this. For good cost management in a crisis situation, particular attention should be paid to the fact that infrastructure costs can be scaled very dynamically according to the actual load that ensues. Ideally, the online trading and marketing platform should even scale linearly with online sales.
The best way to achieve this is with cloud native architectures. In our recently published Cloud Native study, we asked CIOs and IT decision-makers in German-speaking countries for which business applications they are and will be using the cloud native technology approach (see www.cncf.io), now and in the future.
Modern e-commerce, online marketing, and social media applications are leading the way. Unfortunately, not all e-commerce platforms are ready for this fine-grained infrastructure concept and scaling in containers. This is why the cloud native share initially declines slightly after the first deployment (from 17% to 14%). However, as soon as more software manufacturers or cloud operations providers officially support this scale, we expect online sales and marketing systems to be among the leading cloud native solutions in the long term.
Our recommendations for IT decision-makers
In summary, we would like to encourage CDOs and e-commerce managers to plan a digital corona response for their company. Based on current experience and market data, this can be successful if one addresses the following challenges:
- Analyse your e-commerce processes. What do your customers really need? Pursue dialogue with B2B customers or involve customers and partners in a co-innovation process.
- Do more than the competition. German engineering is biased towards perfectionism. Your competition could be on the market faster, and customers go directly to the better solution. You therefore need to be agile and “trust” yourself on the market as soon as your solution is at least as good as that of the competition.
- If your competition is not online yet, start immediately and simply. Every bit of head start helps. Even in the B2B field, simple B2C solutions can help to compensate for the loss of sales during the pandemic. Use ready-made modular solutions such as white-label platforms from Shopify, ePages, Niceshop, or the like.
- Test user behaviour again and again. Because of the corona pandemic, some people are using e-commerce for the first time. You should therefore continuously use A / B testing, clickstream analyses, or dwell and response time measurements to keep an eye on your users and their reactions to how the solution performs.
- Do not make hasty decisions about platforms. Platform decisions are not constructive before you have earned your first online sales with individual off-the-shelf solutions and know exactly which processes make sense in the long term. E-commerce platforms are now available as cloud subscriptions without long-term contracts. Try commercial and open-source frameworks and see what fits your innovation culture best.
- Differentiate yourself with machine learning and voice commerce. Chatbots and voicification are the great differentiators of the 2020s. Even in B2B, voice commerce has massive potential in the customer and service context. This means that a fitter could point out replacement parts needed for the next service while doing a repair. “New brake pads in 10,000km” – is sufficient if the voice commerce system can establish from the service system which vehicle the fitter is currently working on.
- Use cloud native services and architecture. Existing e-commerce solutions can become more attractive again if they are combined with modern cloud services. For example, conversation-compatible chatbots or voicification can be implemented with AWS Lex without having to change the entire e-commerce platform.
After the corona pandemic, the fate of your company may be determined by a “new normal”. With this expert view, Cloudflight hopes to have provided you with suitable food for thought for the “new success” that goes with it.