In their speeches and conversation with Stuart Crainer, Martin Lindstrom and Tim Lowe talk about the changes in consumer behaviour because of Covid and how companies will need to accordingly transform.
Martin Lindstrom: After the 2008 financial crash crisis, we were seeing something called irrational exuberance, that is, people have temporarily lost sight of the true value of commodities. The perceived value of money is now changing in many ways, too. A lot of people are questioning what the worth of money is if we really can’t use it. This gives way to a discussion on the subject of the irrational mind, because, as it turns out, 85% of everything we do every day is irrational. It is relevant now because the world is crazy at the moment, and this crisis will have a profound impact on who we are and what’s going to happen.
In our research study for the last book Small Data, where I was spending time in more than 2000 consumer homes across 77 different countries, I realized that we are all out of balance. It is the gap between being imbalanced and out of balance, which represents the opportunity for a new brand, new service, or new product. For example, if I feel overweight, I can use Weight Watchers. This is an imbalance we fill with the help of a product. These gaps give us a sense of where the future will go, and that future seems crazy because the present reality is that billions of people have gone into a sort of detention.
It is the gap between being imbalanced and out of balance, which represents the opportunity for a new brand, new service, or new product. –Martin Lindstrom
However, it is not all doom and gloom. Some of the most successful companies on the planet were born during a recession or straight after a recession. They did that because they managed to detect a new out of balance opportunity, and that meant that there was an amazing opportunity for a whole new product and service, and this comes down to change.
Three fascinating insights are coming out of this crisis. One of them is fear. We have tried fear in the past. The 9/11 terror attack has been used a lot as a test guinea pig for the neuroscience world to understand what impact it had on our brain. In neuro-scientific terms, 9/11 is considered a somatic marker, a term invented by Antonio Damasio. A somatic marker is like an emotional bookmark, and events like 9/11 create negative somatic markers. They have a profound impact on both how we interact with other people and how we shop. This is one thing we are seeing happening right now as this health crisis is probably one of the most prominent global negative somatic markers we’ve ever seen.
Other things are happening on top of it, and it is that we are afraid. Fear is a driving factor when we are being irrational. The scary part here is that studies show that fear accumulates. Experiencing fear in one degree adds to existing fear that has accumulated at the back of your mind, and it creates more anxiety, making people be constantly on alert. In many ways, it is one of the reasons why we are where we are right now, why this has become such a big phenomenon. In 2009, 2 billion people were infected by the H1N1 virus or the Swine Flu virus, and 203,000 people died that year. I don’t recall a frenzy at all. It is not to dispute what’s going on right now in the world. It is horrible. The question, analyzing consumer behaviour and human behaviour, is how come this is so much bigger considering these numbers? There are two reasons for this.
We are going to have a fight between our fear centre in the brain, amygdala on one hand, which is hardwired, and then this behavioural change where we all are hardwired again to have a physical contact with people. –Martin Lindstrom
The first is accumulation of fear in our brain, which happened through the type of media we consume, like the movie “Contagion” or the show “Black Mirror” for instance. It’s almost like a trailer has been running about fear and these viruses long before, and when it suddenly hits the world, people are preconditioned to have this extreme reaction, and are going into a meltdown. The second is the aspect of social media. Today, social media is much more prominent than it was in 2009 during swine flu. Social media platforms amplified fear to an extreme degree, which at the end of the day means that the consumers have been primed into a certain way of thinking.
A second fascinating insight is touch. Social distancing has had a really profound impact on our world when it comes to touch. A controlled experiment on two groups of rats conducted by a professor, Dr. John Benjamin from the University of Colorado of Medicine illustrates this the best. In the experiment, the first group of rats were given water and food but they also were touched a lot, and the second group was never touched. The study showed that not only did the first group of rats learn quicker, they were also more motivated. It also showed that the fatality rate actually was much higher when it came to the second controlled group of rats, which were never touched. One thing to remember is that our biggest organ is not the brain but our tactile sensation, and when we’re not touched, I would profoundly claim that we actually start to go into depression. Now when touch is suppressed out of our life, it will have a profound impact on us. Once the gates open up to the rest of the world, the concern is if we can keep social distancing, and if we keep social distancing, the concern would then be about a very big spike in suicide rates or in depression. It really is a bad catch-22 situation.
The third insight is the sense of exhaustion. In this crisis, it is very likely to make a lot of mistakes or not be at the top of your game. It is demonstrated in a 1998 study by Roy Burmester that when we have to hold ourselves back from something we had decided to do, we use so much energy that we become exhausted.
In many ways, this is what is happening right now. We have had to switch up small and big routines. We would estimate around 40% of all our routines are out of the window, and that is the reason why we feel exhausted, and it is activating our brains to such a degree that we do drop all these balls on the floor, and we’re just not our true self. There are a couple of consequences of exhaustion. There is a direct correlation between being tired and eating more and I think most of the world right now would end up being overweight. That is going to be an imbalance there. I also think that when we are exhausted, we also are much more aggressive, which may lead to rise in a divorce rates and people asking fundamental questions about life, like the purpose of life, worth of money, etc.
With all these changes, the next question is, what is the future going to be? A study about a year ago showed that by the next 10 years, basically half of the Fortune 500 or the S&P 500 companies would be out of business. The takeaway here is that we are going to see a huge flip of companies happening around the world, and we have two choices- to sit back and wait for everything to go back to normal, or to fundamentally change your business model and mirror what these new behavioural changes are going to be. It is therefore fair to say that a lot of companies are going to suffer from this. Lowes have completely changed their business model over the past years. So, Tim Lowe, the president of Lowes can give a lot of insights about transformation.
Tim Lowe: When it comes to change, there are some cultural norms that we have got to overcome. One is being able to be honest with yourself, with the consumers as well as with your team about the reality of where the company stands. Also, you’ve got to be willing to answer the questions, and lastly, you’ve got to move. You can’t sit still, and whenever change is needed, then you have got to build momentum and you’ve got to move, whether it is a company, a community, an organization, a school, or any other entity.
In our case of creating momentum, we wanted to change the perception of consumers from looking at us as just a normal grocery store to feeling something towards us, so we had to go through and create some momentum around that. For that, we really had to get a real clear vision of who we wanted to be and where we wanted to go. We knew we were disconnected from the consumer, and we knew we had to move and so we had to go after experience, because we knew experience was really a dominant feature for us.
With regards to changes happening due to COVID-19, one example of the different changes is that about 2.5% of the grocery business in the US is being done online through e-commerce. The changes caused by COVID happened overnight and dramatically. In our e-commerce business, for instance, sales jumped from $70,000 a day to $400,000 and $500,000 in a given day, which created some havoc for our organization that we had to learn to adapt. Another change in consumer behaviour, as per a recent study by FMI, is that about that 76% of the people have suddenly changed their eating habits overnight. The study also showed that 25% of the folks were extremely worried about having enough food, which connects with the idea of fear that is causing people to act irrationally and hoard, but this fear has also made them minimize their waste. As the consumer is going through this long experience, the businesses, communities, and governments have an opportunity to make some significant change, to ensure that we meet the consumer and the individual where they are, after everything comes down to a sense of normality.
As the consumer is going through this long experience, the businesses, communities, and governments have an opportunity to make some significant change, to ensure that we meet the consumer and the individual where they are, after everything comes down to a sense of normality. –Tim Lowe
Another interesting scenario is that besides a rise in unhealthy food consumption, 36% of consumers are actually trying to eat healthier in order to build up their immunity and to keep from getting COVID-19. But on the flip side, a large congress of the people that are affected by the top three issues -diabetes, heart and cancer- who go to hospitals for normal maintenance or for other frequent issues have reduced their visit dramatically. This tells that even though we are protecting our bodies from the day to day anomalies of fighting this COVID-19, we are giving up on three of the top killers out there, and this is going to have a ripple effect that will last for quite some time.
Crises also give businesses an opportunity to impact the consumer in such a way that changes their behaviours in the long term. Since this crisis has lasted so long, it’s going to continue to have ramifications so we have to make sure that we are meeting the consumer where they are at. It is an opportunity for leaders to build their brand, their company now because this will never be forgotten later on. Many communities, businesses, and governments are going to err in expecting the consumer to go back to the way they were. It would be a huge mistake to not change based on where the consumer is headed.
Stuart Crainer in Conversation with Martin Lindstrom and Tim Lowe
Stuart Crainer: How do you determine the speed of organizational transformation?
Tim Lowe: One of the things we talk about when we talk about speed is that you can never go fast enough, but be careful not to go too fast. It speaks out of both sides of your mouth. It is not necessarily speed alone that is important but also momentum. It is having the dot on the horizon to know exactly where you are headed. For us, it was going through and discovering that we needed to move towards the entertainment company. Once we got that dot figured out, then it was time to move. At that point, we couldn’t be stagnant, we couldn’t be stale. We had to move quickly. What the COVID-19 experience has showed us is that we had to do in six weeks what we would have normally done in six years, and so you have to be prepared and get that in your DNA.
Stuart Crainer: The pandemic has shown people can change behaviour very quickly at scale. How can we leverage this lesson in the future?
Martin Lindstrom: Some years ago, there was a strike going on in the U.K. Half of the tube was down for 48 hours, and the fascinating thing was that people adapted to the change and realized they had to find another way to get to work. As they found another way to get to work, in average they actually were saving between six to seven minutes because they were being forced to make a change happen. The bad news is that as soon as the tube strike was over, in fact, 95% bounced back to the default behaviour. That is probably what we are going to see happening here. We are going to have a fight between our fear centre in the brain, amygdala on one hand, which is hardwired, and then this behavioural change where we all are hardwired again to have a physical contact with people. So, I do not believe we are going to see in this society that consumers will keep their social distance anymore. On one hand, we will see a change happening, but it will be a different format than what we expect to happen and I think that that change most likely will come back to these needs activated throughout the crisis, where people have been forced to change the entire behaviour and they will become comfortable about doing it.
Tim Lowe: For us, when we think about the change, it is about focusing more on being an entertainment company. With our brands, there are things we have had to put on pause and the things that we do. We do some pretty crazy things, but the connection back to the consumer is the most important and right now, one thing to make sure is that we keep that portion of our brand alive and that spirit strong within our brand as a total company. Secondarily, we’re seeing a high need and desire back from the consumer. Even though we have full backs on what our experience should be, that we want to have, we are still getting just rave reviews back from our consumers because we still do everything we possibly can to keep them safe throughout the process.
Stuart Crainer: In the near future there is going to be social distancing issue, so where does it leave bricks and mortar stores?
Tim Lowe: It depends on the industry. People are migrating online, so there is some opportunity there. However, this whole idea of tribe and community is still strong within the DNA of the consumer. Bricks and mortar will therefore not go away entirely. Those who actually use this momentum to lean into it and to adapt to the consumer to offer them both, let them to be truly omni channel, they will survive this crisis. At the end of day, there is a need for that tribal community.
Stuart Crainer: What was the silver lining of all this?
Martin Lindstrom: Change is something we all believe we want to do and very rarely people actually want to change. I can’t count the number of times I have asked thousands of staff around the world if they are willing to change. They’ll say yes in the moment, but when push comes to shove, they do not change at all. The silver lining is that we will have a separation happening right now. We will have companies and people see this as an opportunity, so the glass is half full.
The second silver lining lies in how we find out where to survive. You need to peel the subconscious onion and into these deeper layers. For example, Hyundai, the Korean car company was facing a huge problem during the 2008 crisis. Most of the car companies in the U.S. were bailed out because they couldn’t sell any cars. Their conclusion was that that people didn’t have the money, so they lowered the price, but still no one wanted to buy the cars. Hyundai, on the other hand, had started to do deep consumer insight, and they realized that people actually did have the money but were afraid of spending it in case they would lose their job. Next, they created Hyundai Assurance, which was basically an assurance that if you lose your job within the next year, you can return the car and all money will be refunded back, no questions asked. By 2010, only five cars were returned. The point is that you have to go deeper. You cannot just take what you see as the conclusion of it. For leaders, this is the moment for defining their legacy. It’s not going to be if you earn 5% more or 6% less in 2035. It’s right now where you are with people.