Musings 2021:

Long term challenge of climate change is a crucial battle that the world is fighting today, apart from the ones being fought on the economic front. Many companies are creating real value through their environmental, social, and governance (ESG) activities and some of them have also developed hard data to measure even the long-term and indirect value of these programs.

A recent review by the International Consumer Protection and Enforcement Network (ICPEN), a network of governmental consumer protection authorities from over 65 nations, found products that boasted of great environmental credentials weren’t as green as they seemed. It aims to help protect consumers from paying more for goods that claim to be green, but in fact, aren’t. As much as 40% of the sustainability claims made online could well be misleading.

Green lifestyle is giving rise to a trend of “Green labelling” or “Greenwashing”

The desire for a sustainable lifestyle is triggering a social status-seeking behaviour among consumers. Can we really trust businesses when they say they practise fair-trade practices (sustainability, ethically produced, etc.) throughout their value chain?

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There is a growing realisation amongst businesses, that short-termism is the antithesis to long term value creation. We are witnessing the rise of ‘Stakeholder Capitalism.’ This is a departure from the decades of endorsing the principles of shareholder primacy — that corporations exist principally to serve shareholders.

There is an emerging need for brands to connect with consumers on an emotional level across the customer journey. It is imperative that brands move beyond meeting functional needs and understand what consumers truly value. Consumers want their brands to be transparent in the way they do business and the causes they support.

At the onset of the pandemic induced lockdowns, people went helter-skelter, being isolated from friends and families. In the midst of this, Zappos, the shoe retailer (in the US) created a ‘Customer Service for Anything’ helpline. Zappos is known for its differentiated approach — be it the organisation culture or dealing with customers. With its helpline too, it tied in its employees’ purpose with its mission. So how did the helpline work?

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One of the most economically significant trends of the past few decades has been the emergence of a global middle class. The expectation that this cohort of consumers would continue to grow relentlessly, as rising incomes in developing countries lifted millions out of poverty each year, has been a central assumption in multinationals business plans and the portfolio strategies of professional investors.

You can now add that to the list of economic truths that have been upended by this pandemic. For the first time since the 1990s, the global middle class shrank last year, according to a recent Pew Research Center estimate.

About 150 mn people, a number equal to the populations of the UK and Germany combined-tumbled down the socioeconomic ladder in 2020, with South Asia and sub-Saharan Africa seeing the biggest declines.

From a business standpoint, this is also providing an opportunity to relook at the way customers are been segmented. Over the years with the democratisation of technology, digital maturity can become an important metric in mapping customers.

Since the mid-2020, we have witnessed a spike in digital sales for businesses across the board. Many business leaders took that as a validation of their digital capabilities. This may be true to some extent, but a lot of businesses are now realising that was not the case.

In reality, people were forced to flock to digital channels due to pandemic restrictions on mobility. With the restrictions easing and people’s acceptance of the reality (co-existing with COVID), they are going back to the non-digital ways or hybrid way of doing things.

Businesses that were cognizant of this reality and paid attention to strengthening their digital capabilities, along with rethinking their business strategies have been able to effectively manage the transition — with minimal impact on their revenues.

The key learning here is that it is critical to introspect the reason for the success of a business vertical or the entire business as such. This becomes more critical if you are running a small business or a startup. We all have witnessed individuals taking too much credit for the success that is followed by the downfall of their business.

Some questions to ponder on:

• Which are the critical variables at play from your organisation capabilities perspective? eg: a key team member who is responsible for the traction.

• Who are the new entrants in your space? How are they doing vis-a-vis your capabilities?

• Are you witnessing a shrink in your margins?

• Are you riding the wave/trend? eg: the rise of Design Thinking in the past few years or the dot-com boom of the past.

If we look back in time (circa 2007) and compare it with now. We have witnessed two large crises — the financial crisis of 2008 and the current pandemic. Each of the crises has contributed to the change in human behaviour at large, not just to the investing mindset.

• Individuals locked in their homes during the early days of the lockdown, found an avenue to experience the thrill in mobile-first trading and investing — the rise of fintech at large

• The phenomenal rise in prices of cryptocurrencies across the board.

• The rise of social-media influencers democratizing access to financial knowledge

Keeping investor behaviour as the central theme, there are interesting similarities with the consumers of fast fashion. Almost, all the investors believe in the philosophy of long term wealth creation, but the excitement of daily price movements is too good to resist. This is especially true when it’s a good day in the markets — the current run of the stock markets is a case in point.

Similarly, consumers are willing to overlook questions about the sustainability of fast-fashion apparel due to the overpowering emotion of feeling liberated and finding value for money.

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Tesla posted its first full year of net income in 2020 — not because of sales to its customers but by selling carbon credits. A carbon credit is essentially a permission slip with a cash value that allows a country or company to emit a certain amount of greenhouse gases.

Certain states (US) require automakers to sell a certain percentage of zero-emission vehicles by 2025. If they can’t, the automakers have to buy regulatory credits from another automaker that meets those requirements — such as Tesla, which exclusively sells electric cars.

EV does make business sense.

It’s a lucrative business for Tesla — bringing in $3.3 billion over the course of the last five years, nearly half of that in 2020 alone. The $1.6 billion in regulatory credits it received last year far outweighed Tesla’s net income of $721 million — meaning Tesla would have otherwise posted a net loss in 2020.

This year the term which caught the attention of the world was ‘metaverse’, when Facebook spoke about its way forward. They envision people living, working and doing all the activities inside the platform — creating their own metaverse.

Metaverse as a term has been derived from the world of science fiction. It is an all-encompassing space in which all digital experience sits — going beyond the physical realm.

Metaverse is created on the premise of an open economy and is not controlled by any one company. The economic reality at present is focused on creating products and services that aren’t compatible with any competitor’s products. Building and protecting moats is the endeavour of all businesses. Only, governments and organisations which are set up in the public interest have the incentive to truly democratise access to key resources and services.

Facebook’s effort to build a metaverse is not the first effort, there are similar initiatives at play but primarily led by the gaming industry. Games have always provided a cocoon for people to escape from the reality and to live a life that is non-conformist or free of any judgement.

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