Big and small firms change tack to survive the crisis

The reality of how companies are dealing with the crisis tells a very different story, one of pivoting to business models conducive to short-term survival along with long-term resilience and growth.

Spotify struggled to find a pivot that would enable it to overcome the economic recession triggered by the COVID-19 shutdown. Picture: AFP

The nearly instantaneous economic recession triggered by the COVID-19 shutdown has wreaked havoc on businesses large and small. The recipe for survival is supposed to be a thorough transformation of the entire company — or else a bankruptcy filing.

The reality of how companies are dealing with the crisis tells a very different story, one of pivoting to business models conducive to short-term survival along with long-term resilience and growth.

Consider Spotify, the global leader in music streaming. In principle, this type of platform has all the ingredients for success in the lockdown: customers trapped in their homes who would like to escape by listening to songs seamlessly streamed to a playback device.

Yet the Swedish company struggled to find a pivot that would enable it to overcome a basic issue: unlike Apple Music, Spotify disproportionately relies on free users who must listen to advertisements. Although the model was showing signs of maturity, its limitations did not become apparent until the pandemic hit and advertisers cut their budgets.

One pivot Spotify made in response was to offer original content in the form of podcasts. The platform saw artists and users upload more than 150,000 podcasts in one month, and it has signed exclusive podcast deals with celebrities and started to curate playlists. The shift in strategy means Spotify could become more of a tastemaker.

Does pivoting help traditional businesses? Let’s look at restaurants. One pivot would be to offer a flat rate for a set number of meals a week or a month, with limited menu choices. Restaurants could increase their margins as they learned how to manage captive demand. Another pivot would be to offer a combination of pre-cooked dishes with sides that could be prepared at home using ingredients supplied by the restaurant. The restaurant could send a link to a video that walks the customer through preparation. Deliveries could be in amounts large enough for several meals.

We’ve seen large incumbent companies pivot during the crisis. As demand has soared for essential products, consumer-goods powerhouse Unilever pivoted to prioritise packaged food, surface cleaners and personal hygiene brands over other products, such as skincare, where demand has fallen. The company does not yet know which changes may become permanent. If the upswing in remote work endures, Unilever may find that some of its pivots will remain in place. In fact, the move towards in-home consumption may require a repositioning of not only food brands but also personal care offerings.

An even bigger threat to established brands is consumers’ willingness to experiment with different offerings during the crisis. Consumers are holding brands and companies to a higher standard than previously, favouring those perceived as doing more for society. Companies such as Unilever and Procter & Gamble, whose portfolios include hundreds of brands, have no choice but to pivot in response. Brand loyalty can no longer be taken for granted. Brand purpose and messaging will need to be laterally tweaked, not overhauled, because consumers are becoming more interested in safety, experience and comfort as a result of the pandemic.

Three conditions are necessary for such lateral moves to work. A pivot must align the firm with one or more of the long-term trends created or intensified by the pandemic, including remote work and consumer introspection. A pivot must be a lateral extension of the firm’s existing capabilities, cementing — not undermining — its strategic intent. Finally, pivots must offer a sustainable path to profitability, one that preserves and enhances brand value in the minds of consumers.

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Mauro F. Guillen works at the Wharton School.

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Copyright Harvard Business Review 2020/Distribution New York Times Syndicate