Welcome to the Low-touch Economy
The Low-touch Economy is likely here to stay, and there are shortand long-term implications for both consumers and organizations.
How do you define the Low-touch Economy?
Our society and the global economy have been permanently altered by COVID-19. Reduced physical interactions between employees and consumers are one of the most noticeable constraints on business-as-usual, which is why we coined the term ‘Low-touch Economy’. My colleagues and I believe the pandemic is shaping a new era of consumer behaviour, and that successful companies will be those who adapt their business models to work with the different health measures and other challenges that COVID-19 presents. The current disruption is changing how we eat, work, shop, exercise, manage our health, socialize and spend our free time. Even the post-pandemic era will have an economy shaped by new habits and regulations based on reduced close-contact interactions and tighter travel and hygiene restrictions.
Who are the winners so far in this environment?
When people think of a low-touch business model, one of the first things that comes to mind is contactless payments, which were already gaining traction before the pandemic hit. The fact is, certain companies, like Amazon, were designed for a low-touch economy. The question is, can you adopt certain aspects of their business models to claim a piece of another market?
We estimate that about 15 per cent of companies actually saw a boost in revenue in 2020. Of course, many of them are related to the pandemic itself. Science and pharmaceutical companies are doing particularly well, but there are others. We have identified four categories of winners. First, there has been a big demand for low-touch living and anything that makes for a safer day-to-day environment. So e-commerce and the digital infrastructure are doing great, as are automation, cybersecurity, telecommunication services and cloud services.
The second winning category relates to investing in yourself. That could mean education, training or investing in a healthier lifestyle or in your appearance. Makeup companies like L’oréal are doing great in these times. Not surprisingly, the third category of winners are companies that focus on disconnecting from reality. That includes gaming, home entertainment and online gambling. The last cluster is smaller than the other three: businesses that support virtual creativity. Companies like Adobe
and Nvidia offer machine learning tools, digital creation tools and 3D scanning tools. So some categories are doing quite well, while overall, the global economy is in rough shape.
What are some of the changes in consumer behaviour you have noted due to the pandemic?
Lots of people have adopted healthier lifestyles. By some accounts, nearly 45 per cent of U.S. citizens started cooking at home using healthy ingredients, and the use of yoga, meditation and mindfulness apps has skyrocketed. People have also been investing in exercise equipment like e-bikes for recreational use and as a safer alternative to public transport. In Britain, purchases in this category alone rose by 184 per cent between February and April of 2020.
I have a particular interest in what is happening with seniors and people aged between 50 and 60. Pre-pandemic, these segments were not that connected to digital services. They probably used Facebook, e-mail and web browsers, but many of them are now embracing banking and shopping online, e-commerce services and video-chatting. There has been a lot of innovation in that space to meet this new demand. For instance, there are new ways to connect with your grandmother online or to monitor a family member remotely. Normally this behavioural adaptation would have taken a decade or more to achieve, but it has sped up significantly due to the pandemic.
What are some innovative business-model shifts that you are seeing companies make?
In most cases, unless they are directly impacted, big companies are doing less experimenting to find adjacent growth. Smaller companies have been more likely to feel the impact immediately, so they have absolutely had to change, and some have really branched out impressively in terms of what they offer.
A huge drop in tourism and fashion consumption pushed swimwear brand Granadilla to pivot in an entirely new direction. The company is now putting most of its marketing towards new business lines, including selling and delivering healthy food boxes via e-commerce. Intelligence Industrielle normally offers industrial Internet-of-things sensors and dashboards to track machines at industrial sites. But it has pivoted to provide interactive signage and crowd control solutions for pharmacists and retailers.
In general, we’ve found that the larger the business, the slower the response to a market shift. But there are exceptions. Pepsico, for example, understood that at-home food consumption would remain at high levels for an extended period of time. So, in less than 30 days it developed two new direct-to-consumer platforms: Pantryshop.com and Snacks.com. On the first platform, consumers can order specialized bundles of Pepsico’s top-selling brands, including Quaker, Gatorade, Sunchips and Tropicana; while Snacks.com, unsurprisingly, is an e-shop for snacks. For new initiatives like these, getting a consumer-facing web platform up and running is the easy part. Developing the right supply chains and navigating the internal politics in a large organization are more difficult challenges to tackle.
In the coming months, we expect to see more large corporations launching experiments as they try to tap into changing market needs. Overall, we are seeing a lot of movement towards direct-to-consumer models, where consumers can skip the middle man. We are also seeing new types of partnerships emerge, whereby companies in the same industry are working together to restart their activities. In the travel business, for instance, airlines, travel agencies and hotels are trying to create a new service model.
You have said “Low-touch is here to stay.” Why do you believe that?
As indicated, many of the trends and innovations we are seeing were already happening before the pandemic hit. There was a foundational movement in place, and people have recognized the value of it and are developing new habits. For all of these reasons, low-touch will not go away.
For example, in the realm of e-health or e-therapy, prior to the pandemic very few people would consult their doctor remotely or consider using a digital app to do so. Suddenly, the whole industry has shifted in that direction, and patients and
There will not be any reason to spend as much money on things like business travel and trade shows.
doctors alike are experiencing the benefits. When such a large number of people recognize the benefits of a new approach first hand, there is no reason to go back.
The ongoing crisis has not just forced companies to change, it has also forced governments to change their regulations and policies. We are basically seeing hurdles and bottlenecks taken away via things like virtual courthouses. As with the consumer side, a lot of this will stick.
Which industries do you feel will have the hardest time adapting and thriving in the Low-touch Economy?
The two that come to mind immediately are travel and live events, and within each of these, the business side is not likely to ever get back to pre-pandemic levels. In the past months, people have evolved to a new way of working. Their needs have shifted and they will not go back to the old ways. Companies will be under pressure to accept this, so there will not be any reason to spend as much money on things like business travel and trade shows, for instance.
On the consumer side, people are always going to have a strong need to escape from their stressful lives, so as soon as they believe it is safe, they will go back to travelling to far-off destinations. And some time after the vaccine is implemented, they will begin to return to large public events like concerts. Fashion is another area where demand is not going to recover anytime soon, because priorities have changed. For lots of people now, there is little to no desire — or occasion — to dress up.
Can you talk a bit about how cultural organizations and the arts can embrace low-touch?
That is a very challenging area. What I expect might happen is that a lot of cultural events will become less time-based. Art gallery shows tended to last for 10 or 20 days, or a particular food or music festival might have happened over two days. There has always been a constraint in terms of the length of time these things are available to people. But many of these formats are no longer possible, so for cultural organizations there might be a shift towards continuous interaction with the audience.
That could involve virtual sessions or new services where you connect with your audience on a regular basis, like every couple of days or weeks, and it will require a shift in mindset. At the same time, there will be more and more investments in technology. It’s possible that things will get up and running in a very different way, beyond the expected online newsletters or video