Prediction: Brands Face Major Risks with a COVID-based Pivot
By: Eric Allred
Tags: Entrepreneurship, Brand Strategy, Strategy, Ecommerce, Digital Marketing

Pivot…a buzzword we’ve all heard used across the start-up world, a term that has been sensationalized throughout Silicon Valley. The term pivot originates from the book the “Lean Startup Movement”; in the book, Eric Reis and Steve Blank layout using something akin to the Scientific Method to test and validate hypotheses about what you are doing with your entrepreneurial firm. The premise is simple, when a hypothesis is not valid, you should make a shift (or change), generate a new hypothesis and look to validate it again. This is what a pivot is.

During COVID, there has been a lot of dialogue around brands having to make a pivot. I am writing this because I don’t think these pivots create sustainable success in the long-term, although they appear to provide a lifeline in the short-term. There are two fundamental issues with these pivots brands are making:

The nature of how the pivot is occurring; these pivots aren’t based on gradual trends and evolving sentiment; they are based on an exogenous event. Trying to survive isn’t an appropriate validation criterion for the new hypothesis. How brands are allocating resources in the short-term activities that are highly relevant and differentiated because of COVID. I think this over-indexing in the short-term will impact long-term, strategic resource planning for resuming core business functions when things revert back to some sense of normal.

The Challenge

One of the most challenging things for business owners to do is to balance short-term and long-term initiatives; it’s a game of trade-offs, decisions we make today create flexibility or constraints for our decision-making tomorrow. As a business owner or CEO, the job is to allocate resources to the most productive areas with the highest probability for success while managing risk along the way. Effective resource allocation is a challenging task, even in a favorable economic market. Plenty can go wrong, even with the wind at your back.

Kat Cole, the President and COO of Focus Brands, which owns companies like Auntie Anne’s, Cinnabon, Jamba, etc. shared that real brand sustainability comes down to one of two buckets, relevance or differentiation. The goal is to be high on both.

A highly differentiated brand can quickly become irrelevant. A highly relevant brand, but undifferentiated, quickly becomes a commodity.

What is brand relevance?

We can think of relevance as…does your brand matter to the consumer’s life today?

Access can influence your brand’s relevance, can your customer find you? And pricing, can the customer afford you?

If a customer can’t afford you, they can’t get you; therefore, you are not relevant.

Note: This doesn’t apply to brands that are aspirational and are seeking to price at a premium.

What is brand differentiation?

We can think of differentiation as…how unique is your brand in your customer’s mind?

Can a customer identify its uniqueness?

The Challenge + COVID

So what happens with balancing the trade-offs when a global pandemic comes out of nowhere? A business owner must weight short-term survival; how do they keep their doors open or people employed? With the long-term trajectory of the business, why do they exist, and what are they ultimately setting out to accomplish in the market?

The pandemic has incentivized business owners to “pivot” into service offerings or products that are highly differentiated or highly relevant in the short-term as a result of the pandemic, a way to survive. While it may be necessary to pivot for the sake of survival, it is irresponsible to over-allocate resources to the degree that as a business, you are unable to return to some derivative of your core business as things return to normal.

An Event, Not A Trend

The nature of the pivot is another aspect to examine because businesses aren’t’ making this shift as a result of customer feedback or a gradual change in the sentiment of a market. These short-term pivots are fear-based shifts, predicated on surviving this new normal, waiting for this exogenous event to end — this mode of operating leads to businesses engaging outside of their core competency.

There are several examples of companies repurposing existing infrastructure to arbitrage short-term revenue opportunities. One example is the many companies that shifted to PPE and mask manufacturing during March and April to help meet excess consumer demand.

These opportunities are certain to erode overtime at an accelerating rate as more players, just like them, see this excess demand as an opportunity at survival in the market.

Herein lies the risk, these demand spikes are event-driven, and no one can be sure of how long they’ll last. They depend on public sentiment; they are a byproduct of government policy and regulation. Under allocate and you go out of business in the short-term, over-allocate, and you run the risk of going out of business anchored to a service or product that becomes undifferentiated and irrelevant.

These same business functions that were highly relevant in the pandemic are likely to lose relevance as sentiment shifts, and life returns to a sense of normal. This creates a surplus of the product on the market, those companies that don’t specialize in these categories or have strong distribution relationships prior to the pandemic are likely to be caught holding the bag.

I think a more grounded approach is to get costs under control and find how an existing part of your core business can flourish in this market and has sustainability in multiple environments.

If you think that your brand or company could use help going through a COVID-based pivot, reach out. We would love to help build a strategy and position for your brand’s success beyond the pandemic.