9 Disrupting Business Model Shifts in a Post Pandemic Era

Have you ever given thought to what your establishment's business model represents?

Post covid-19, if you have not equipped your hospitality enterprise with out of the box business thinking, you are likely to suffer disastrous consequences.

The post pandemic era is demanding a complete rethink of how business is conducted.

Or be left behind!

Are you ready for it?

I will lay out a strong case for 9 major shifts in business models which redefine how business is conducted.

The blog post will cover the first 3 of 9 major post pandemic business model shifts.

What is a Business Model and Why Should You Care?

The first question in your mind must be: what the heck is a business model?

In a broad sense, a business model is the method of doing business by which a company can sustain itself and earn revenue.

A few points to note from the above definition:

• Method of doing business
• The method allows the company to sustain itself
• The Company earns revenue

You can immediately see how far reaching a business model is.

It is not some temporary occurrence or a seasonal fad in the life of the organization.

To begin with, it is the method of doing business itself.

This refers to how the organization goes about conducting its business.

This runs the gamut of operation, marketing, human resources, engineering information technology and so on.

It is the full monty!

The second point is that the method of doing business allows the organization to sustain itself.

This is huge.

Sustenance is about continuing to do business year after year.

It is in effect how the organization will survive in the market place.

Finally, a business model is a lot about earning revenue.

The primary purpose of a business establishment is indeed to earn revenue.

So, a business model is a long term paradigm that is foundational to a business undertaking.

Do you know your organization’s business model?

The Context for a Business Model

You may be thinking, what is the context here for a business model?

In other words, why are we talking about a business model here?

Let me clear the air on that.

The past two years have seen the covid-19 pandemic literally take over the world.

It has impacted every aspect of life in any corner of the globe.

Not surprisingly, it has impacted business establishments in a huge way.

It has disrupted entire industries.

The hospitality and tourism (including travel) industries have taken the brunt of the effect of the pandemic.

Why these two industries specifically?

Well, the fortunes of an economy are tied to the tourism and hospitality industries.

One of the first things the pandemic did was to freeze travel.

Travel is that glue which kept the tourism and hospitality industries thriving among other types of businesses.

In the pre-pandemic era, the tourism and hospitality industries were doing great business, running high occupancies and serving numerous customers.

The pandemic ground travel to a halt.

As a result, business travel suffered in a way never seen before.

It is only in 2022, travel is slowly limping back toward normalcy.

What is a business model shift?

Hospitality establishments which depended majorly on travel and tourism industries thus hurt in a disaster of sorts.

Revenue dried up almost totally thereby affecting the business model itself.

The very reason a business model existed was now in grave danger.

That is really the context of a business model - pre and post pandemic.

So, now you can see how the pandemic shook the very foundation of business models.

With travel grinding to a halt, there were no customers in hotels to serve.

Not just the revenue model but the business model itself was being threatened.

A business establishment has invested millions of dollars (the medium and big ones at least) in assets.

Assets which had been producing incremental revenue for them for decades before.

With no travel, no customers and no revenue, those assets were idling - an expensive proposition just by itself.

However, the key point to understand here is the shift.

Why are we calling it a business model shift?

Let us explain the business model shift here first before we proceed.

We will use an example to explain this shift.

EXAMPLE

The pre-pandemic hospitality business model was (is?) a unique one.

It is seasonal to begin with, meaning business volumes differ from month to month.

Hotels strive to keep the revenue graphs on an upward trend as much as possible while battling the phenomenon of fixed costs.

A hotel goes through annual cycles of high, low and moderate volumes of monthly business.

Occupancies are barometers of hotel business volumes.

A hotel could technically reach occupancies of above 90% (and a full house too on select days) in peak months.

Low months however are huge challenges for the hotel business.

With occupancies dipping below the 40% mark, revenues shrink.

An ongoing strategy of most hotels is to drum up more business (at high commission costs often) during the low months.

So that the overall revenues graph does not dip!

However, occupancies and revenues are only one side of the picture.

Hotels have also to deal with the other insidious enemy - fixed costs.

These are costs which do not change with business volume.

Fixed costs turn into an advantage during high occupancy months.

Because they are covered many times over by substantially high revenues.

However, they depress bottom lines in months of low occupancies.

So, this see-saw battle of high and low month occupancies goes on in the hotel business regularly.

This seasonality factor makes sustenance in revenues consistently over time a major hurdle.

One that needs to be crossed on a daily basis.

It is critical to understand that we are talking only about low occupancy months.

This could mean anything from 40% to say 50% and their effect.

At 40% occupancy, the hotel still runs and revenues are earned.

Imagine a worst case scenario where there are no customers coming to the hotel!

In other words, occupancy is at zero or close to it.

• Imagine employees ready to serve customers who just aren't there.
• Imagine hotel restaurants having prepared food menu items but no one to serve.

Aside from the colossal wastage that would happen, the hotel business would be devastated if this situation continued for a month or more.

But this is exactly what eventually happened when the covid-19 pandemic struck.

And carried on for two years at the least.

Hospitality businesses thrive on volumes.

These cheerful, busy establishments underwent the mind numbing reality of absence of customers.

This is the business model shift we are talking about.

It strikes at that very sustenance we talked about which is a foundation of the business model.

Now that we have understood what the business model shift is, let us get into what these shifts specifically are.

In this 3 Part Blog Post Series we will examine 9 business model shifts happening due to the covid-19 pandemic.

This Part 1 will deal with the first 3 of those 9 business model shifts.

Let us dive right in.

Business Model Shift 1 - Changing Consumer Behaviors

Possibly the foremost of the business model shifts is in the area of changing consumer behavior.

The covid-19 pandemic turned life upside down.

Lockdowns meant that people were not able to move around freely.

This is something that none of us even think about.

We just take it for granted.

But think we had to.

Because, the mandatory lockdown restrictions meant:

• hotels,
• restaurants,
• malls and so on

were closing down.

In the pre-pandemic era, consumers spent heavily on travel, entertainment, recreation, restaurant dining, to name just a few areas.

In economics, you call these discretionary spending.

Discretionary spending is all about spending on other than the necessities of food, clothing and shelter.

Probably the single most important element that kept hospitality, entertainment, recreation, dining establishments going was this discretionary spending.

Now imagine a situation where due to the pandemic, these consumers first could not travel.

Travel is not merely restricted to within a city, state or country.

You could not travel anywhere period.

Airlines cancelled often permanently thousands of flights.

That phenomenon unfortunately is continuing to this day!

With all those cancellations, bookings to hotels evaporated.

You had the never before spectacle of hotels running single digit occupancies.

The same situation was for entertainment.

Malls, casinos, entertainment related establishments had to down their shutters as there were no customers to serve.

How Consumer Behavior has Changed

But the business model shift is the area of change of consumer behavior.

First, consumers who considered some discretionary spending as must haves were now making those:

• nice to have or 
• even eliminating them.

Second, consumers were using discretionary spending to divert their money to internet or mobile services.

Internet based establishments suddenly saw their revenue streams soar.

This was the pent up demand from customers who were not able to travel or entertain freely.

Online course platforms saw increase in enrollments like never before.

In fact, one almost permanent business model shift is the importance of online learning.

This is one of the direct effects of consumer behavior changes wrought by the pandemic.

If you go over to the business side of things, you can see immediately what was happening.

Hotels and restaurants suddenly were seeing volumes come down drastically.

Not only volumes but pricing was affected disastrously.

Consumers were expecting huge discounts and give aways with their curb on discretionary spending.

Hotels had to bring down their rates greatly to woo these customers to their establishments.

In the restaurant business, in place dining was taking second place to take outs and deliveries.

With the lockdown first and later restrictions relating to social distancing, restaurants had to rethink their business models.

Many of them moved a huge part of the business to serving take outs and home deliveries.

In other words, consumer behavior changed drastically moulding the way business establishments had to serve them.

This leads us to the next business model shift.

Business Model Shift 2- Reimagining the Customer Experience

The direct impact of the Business Model Shift 1 we saw earlier is that establishments had to rethink how to serve the customer.

Reimagining the customer experience took the top spot in priorities.

And there was a specific mission in all of this - to build and maintain trust of customers.

Customer lives had been pummeled equally if not more than the business establishments themselves.

Many, if not most individuals saw job salaries cut significantly, others lost their jobs.

Households lost their sole bread winners.

Thus, it was important that business establishments did everything in their control to win the trust of the customer.

And sustain that trust.

With the global emphasis on safety, cleanliness took on a scale and measure never before even imagined.

Some of the more common fall outs of this reimagining of the customer experience were:

• Contactless deliveries for the restaurant business
• Touchless payments for all kinds of business establishments
• Self Check in and out facilities like kiosks etc.
• Temperature checks before entry,
• Track and trace measures,
• Installing plexiglass screens between customers,
• Separate spaces for take out and dine in
• Designating one way routes around dining rooms
• Restaurants setting up patio areas on sidewalks, streets, parking lots, and other public spaces
• Hotels sealing rooms and placing stickers to assure guest no one has been inside the room after cleaning
• Replacing furnishings and surfaces with ones that are both easier to clean and perceived as clean, swapping carpet for luxury vinyl flooring

There were much higher level initiatives too in this winning and maintaining trust crusade.

Partnerships and alliances began to mushroom and took on new meaning.

For example, the Hilton group partnered with Mayo Clinic to develop health and safety measures.

This is extraordinary and emphasized how seriously establishments were taking safety measures for their customers.

It is the pinnacle of that winning and maintaining trust mission.

Hotel chains were also creating or reformulating signature scents to increase customer perception of cleanliness.

This is again an example of how much that trust meant for the hotel chains.

Casinos were reducing number of players at gaming tables, expanded use of private rooms, VIP areas etc.

Sports establishments were going out of the way to design new flow of traffic into and out of their stadiums.

Capital Expenditure & Other Budgets in the Business Model Shift

All of these, of course also meant that hotels needed to completely reimagine their capital expenditure budgets too.

Along with earlier fire and life safety equipment, the customer safety and cleanliness equipment and entire systems were taking center stage now.

Amounts spent on capital expenditure were even exceed previously laid down limits.

Owners were supporting this.

In all of this, the establishments which were pulling out all stops to keep the customer safe, clean and virus free were being noticed.

Hotels were also adapting offerings to reflect changing preferences and behaviors of customers.

Consumers will remember brands that paid attention and took care of them.

It was all about making physical environments as clean and stress free as possible.

This also engendered innovation in managing safety without taking away from the customer experience as much as possible.

You could say reimagining the customer experience was huge as a business model shift in the post pandemic era.

How are you reimagining your establishment’s customer experience?

Business Model Shift 3- Operational Agility

Business Model Shift 1 (Changing Consumer Behavior) impacted Business Model Shift 2 (Reimagining the Customer Experience).

But that re-imagination of the customer experience had to result in critical and deliberate action.

And that is a degree of operational agility never imagined before.

Business establishments had to become nimble like they never thought possible.

What is operational agility and why is it important?

Operational agility is simply how quickly business establishments responded.

To changing consumer behavior and market place conditions.

For example, creating new sources of supplies and rethinking global supply chain demands and fulfilling them.

How to respond if a key supply item suddenly goes out of stock in the market?

This could only be achieved if a complete rethink of the purchasing and inventorying process is made.

Use technology to alleviate operational burden.

This meant forging new partnerships and alliances to deliver that heightened customer experience.

No area for the hospitality industry (actually applies to other industries too) is more critical in terms of operational agility than in employees.

With the low levels of business they had to contend with initially at least, hotels had to arrange flexible contract staffing to serve the customers.

While contract staffing is not new to the hospitality industry, it was taking on a dimension never seen before.

The contract staff had to serve for periods of more than a year or sometimes even longer than that.

This meant that the hotels had to ensure that these staff were trained to deliver the standards of the brand they were representing.

Not the easiest of things to achieve.

But it had to be done.

Re Thinking Process and People

Payroll costs which normally are the highest category of expenses in a hotel profit and loss statement had to be given a rethink as well.

It is important to clarify that all these are not temporary measures taken and then forgotten.

The fact that these are central to reimagining the customer experience through operational agility is now a business model shift here to stay.

One major area which will need to be again rethought for operational agility is the process itself.

Hotels will have to go back to the drawing board as far as customer facing policies are concerned.

Policies, procedures and manuals have to be rewritten with the changing consumer behavior in mind.

Owners and stakeholders will also have to get into this game and rethink their permissions.

For example, they will have to support management initiatives in investing in technology, artificial intelligence and so on.

It is clear that the business establishments need to take all this seriously.

Future survival depended on that.

Going right down to the root of problems and issues and remedying them will mean they are ahead of the game.

The customer will simply move on to an establishment which is ensuring that their safety, interests are being protected.

You could almost use the slogan: May the Most Customer Centric Establishment Win!

How would you rate your establishment in terms of operational agility?

Well there you are!

The first 3 of the 9 business model shifts we will be examining in this 3 Part blog post series.

In the blog post next week, we will discuss the next 3 of the 9 business model shifts in the post pandemic era.

What is your opinion on these three business model shifts we discussed?

How is your business establishment handling the changing consumer behavior?

Comment below, I will be keen to know what you think about the topic.

Steps You can Take Right Now

STEP 1

Examine your establishment's business model with fresh eyes in the post pandemic environment.

STEP 2

What Shifts in business model are occurring in your industry?

STEP 3

Zero in the consumer behaviors that are directly related to your industry. How do they impact you?

STEP 4

Are you reimagining your customer experience from all perspectives? 

STEP 5

How operationally agile is your establishment? Take action right now to correct any deficiencies.

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