As they are busy sorting out which functional changes will last and which will be sidelined, Marty Lariviereprofessor of Operations at the Kellogg School and co-author The Chamber of Commerce blog, anticipates less seismic changes in the future than many might envision.
But that doesn’t mean everything will be business as usual.
“We’ve already had something of a return to normalcy,” he says. “But there are aspects of convenience — like click-and-collect grocery and grocery delivery — that aren’t going away.”
Here, Lariviere offers three predictions for the year ahead and beyond.
Consumer goods companies will keep it simple
In a stable economy, product variety is a feature of consumer goods: businesses tempt customers with choices and compete in new offerings.
But the pandemic shrunken variety in consumer goods.
Both online and online stores stocked fewer SKUs, a trend that extended across product categories early in the pandemic. Grocery stores, for example, reduced their average number of items by 7.3% at the beginning of the pandemic. Manufacturers dropped less popular products to streamline production—a common cost-cutting strategy.
“You lose productivity every time you change things like flavor, size or packaging,” says Lariviere.
When customers just want common items such as disinfectant wipes in stock, whether they are available in lavender or lemon is less important than availability. Keeping a wider variety of products also makes it more difficult to forecast demand and manage inventory at a time when companies are striving for efficiency.
Lariviere and others predict that this streamlined trend is likely to continue, at least in the short term. Customers are used to smaller product selections, he says, while stores are unlikely to diversify beyond what they know they already sell.
“Over time, broader options may come back. But at the moment, unless you can really convince stores that it’s going to increase demand, I don’t think they’d be eager to take on the complexity of more variety,” he says.
Supply chains will start to look a lot like pre-pandemic
Regional shortages and panic buying are common before storms or natural disasters. The global nature of the pandemic meant that every region shared this strain. And early in the pandemic, product-specific products — such as toilet paper and pasta — left many consumers with the impression that global supply chains were vulnerable.
But most supply chains eventually proved resilient. In Lariviere’s view, rather than bolstering inventories to protect against future shocks, companies will likely return to something that won’t be normal.
“We may see some changes at the edges, but no dramatic changes at sea,” he says. “It is very expensive.”
His rise just in time Supply chain management means that companies have little incentive to produce excess inventory, only to store it in a warehouse until the next crisis.
“In a steady state, people like cheap stuff,” he says. “Would you be willing to pay an extra 20 cents for a pack of paper towels if it meant there was, somewhere, a large inventory or idle capacity to be called upon in an emergency? Unbelievable.” In fact, paper company Kimberly Clark is reporting lower sales of toilet paper, with many consumers now working through their home supplies.
So Lariviere believes there will always be some fragility in the system — and thus the potential for shortages — especially for commodities and consumer goods.
“Supermarkets and Target and companies like that are always first and foremost going to compete on price,” Lariviere says. “They’re not going to be in a place where they can afford to carry a lot of excess inventory for an awfully long time.”
Even items like PPE are subject to some of the same pressures, which could leave us vulnerable to the next public health crisis unless policymakers intervene.
“It’s hard to imagine a national stockpile without the government subsidizing production and storage,” says Lariviere. “Hospitals are already under cost pressures, so they cannot afford to save excess supplies. This pressure on prices is not going to go away.”
The travel industry will struggle with prices
Much has been made of the pandemic’s impact on the travel industry. However, according to Lariviere, one of the industry’s biggest challenges for the foreseeable future has largely fallen under the radar: how to price their services.
For decades, travel companies—especially airlines and hotels—built their businesses around dynamically managing prices and revenue, or adjusting prices based on historical data and timing. Armed with extensive data on sales and customer habits, airlines have mastered the practice of demand forecasting. As a result, customers with adjacent plane seats often pay different prices for the same service.
“The trick is to sell a few positions at $300 early, while making sure there are positions to sell at $2,000 later,” says Lariviere.
But the last year has overturned these practices. Airlines and hotels have gone from being able to pinpoint demand to having to guess. So while there may be many pending travel demand between customers, effective revenue management will be difficult.
“We now have a year without data, and the years of data before the pandemic are not going to guide these companies terribly well over the next couple of years,” says Lariviere.
Consider the uncertainty faced by airlines, which have reason to fear that business travelers, their more profitable customers, may be delayed in returning to pre-pandemic levels. (THE Global Business Travel Association predicts it will take until 2025 for business travel to fully recover.) Consumer behavior in leisure travel is also highly uncertain. The CDC issued travel instructions for fully vaccinated individualsbut variants are still spreading and children remain unvaccinated, so consumer preferences may take time to catch up with public safety.
All of this means that the traditional “sell cheap early and expensive late” model may still work—or may need to be tweaked.
“Airlines and hotels should be ready to adjust their prices very quickly,” says Lariviere. “Forecasting demand at different price levels will take some time to correct.”
