There she goes. Your neighbor, a small business owner, is leaving her house and heading into work. Despite partial and confusing shutdowns and stay-at-home orders, she has decided to reopen her business and call back her employees. Certainly, she is taking a calculated risk; some of her customers will probably come back immediately, while others will play it safe and remain at home. As your own business continues to contract, you must also decide whether to open your doors and continue your services or remain shut and possibly go under. And until you decide, that biting question will remain: is now the right time?
The question of whether to open your business amid the COVID-19 pandemic crisis presents the ultimate two-sided market conundrum. The stakes, in this situation, include something far greater than whether your product or service survives in a competitive, free-market economy – the stakes include people’s very lives. I’d like, for a moment, to redefine and reassess how we think about the concept of the two-sided network platform, from a unifying product or service to something less tangible: a psychological state. This consideration will be necessary for any business that hopes to reopen its doors in the era of COVID-19.
A two-sided market unifies businesses and consumers who become inextricably linked. Both sides bring costs and revenue and supply and demand to the table simultaneously, creating mutual value for themselves and each other. Married together, these two sides become dependent on each other for survival. This interconnectedness requires that both parties agree to mutually beneficial standards, wherever those standards are set. (Those standards could be set high or low – it doesn’t matter so long as expectations are deemed acceptable to both parties.)
Typically, two-sided markets are reserved for business-to-business (B2B) operations. However, given the current state of affairs, business-to-consumer (B2C) product and service providers are finding themselves confronting the same issues as any traditional B2B. Right now, a business’s customers have more power and bring more value than ever before. This is because they have been forcefully separated from the things they thought they needed and will implicitly be re-evaluating and second-guessing whether they want to reintegrate those products or services into their lives – especially given the current recession and future economic uncertainty. Simply put, they are not in the same psychological space they were at the beginning of the year when consumer confidence was higher.
As Thomas Eisenmann, Geoffrey Parker, and Marshall W. Van Alstyne explained in their 2006 Harvard Business Review article “Strategies for Two-Sided Markets,”
Products and services that bring together groups of users in two-sided networks are platforms. They provide infrastructure and rules that facilitate the two groups’ transactions and can take many guises. The platform’s value to any given user largely depends on the number of users on the network’s other side. Value grows as the platform matches demand from both sides.
For the sake of clarity and simplicity, here are some examples:
Book distributors link bookstores and publishers
Search engines (like Google) link advertisers and web surfers
Credit cards link businesses and consumers
Video game platforms (think PlayStation or Xbox) link game developers and gamers
Because the terms of service – the rules – have drastically changed for both provider and consumer, a new middle ground, or platform, has been created that goes beyond supply, demand, and revenue. This new platform is that of trust and psychological safety. To further complicate the situation, the new platform will be different and unique, not just for every industry, but for every business! Each individual business will need to figure out how to meet its customers in the middle and provide the level of psychological safety that is expected from their customers. And to make things harder, there is no data yet available to help guide the way.
If you are a restaurant, for example, serving the best tacos at the best price is no longer enough – now you must meet your customers in the middle by communicating to them what you are doing to protect their health, how you’re going to do it, and why it matters. If you are a consumer, the sheer desire to eat tacos may no longer be enough to motivate you to risk your health and change your behavioral mindset that has been conditioned by ongoing protective stay-at-home orders and social distancing. Though those tacos might be delicious and meet your price point, the psychological costs might be too high to prompt you to leave your house. The switching costs from perceived safety to perceived risk is significantly higher than pre- COVID-19. So, where does this leave us in terms of reopening the economy and getting back to business (not as usual)?
Businesses will need to create robust, insightful, and consistent messaging strategies, using social media channels to present their new value propositions – moving away from product and service-centered messaging to larger issues that meet customers in the new shared platform of psychological safety. Business owners will need to consider, very carefully, how they must adapt (and possibly pivot) to the new realities and meet their customers in the middle – listening to needs, concerns, and requirements and changing accordingly. These needs might be different for each industry and business; figuring it out will be up to each executive team. Likewise, stakeholders will need to be willing to stay agile by quickly adapting to new regulations (federal, state, and local), in addition to shifting social mores and individual purchasing behavior.
For businesses, these efforts do not end with the customer; rather, businesses will need to make concerted efforts to also make their employees feel safe and bring them to a place of psychological safety. Businesses will need to contend with trying to build trust with their employees and communicate that they have their best interests at heart and are doing everything possible to protect them as well as the customer. A business’s employees are also part of this two-sided market and will participate in the equation just as much, if not more, than customers do. Employees will need to know if they can trust their employers. As some states begin to reopen their economies and managers and CEOs begin to call in their staff, demanding their presence is not enough– business owners must provide their employees with open and transparent communication to share with them the same information that is being provided to customers: namely, what they will be doing to keep their employees safe and how they are going to do it.
On the other side of the platform, each customer will need to judge what level of risk he or she is willing to accept to fulfill the desire to purchase a good or consumer service. Each customer must decide what the boundaries of psychological safety are and then decide which businesses to support. The role of the customer, in this scenario, goes beyond the simple demand side of the economic equation – customers represent a tolerance quotient in the marketplace and what they are willing to do. Observed strategically and carefully, businesses can use insights about customer behavior as data points to determine their next moves, whether that means adding more or fewer tables to the café floor or choosing to continue with online sales calls.
The future is uncertain. We do not know when, or if, the economy will fully reopen and how long it will take to recover. However, if businesses are willing and able to reframe the way they think about their market – from simple supply and demand to a two-sided market platform – then they will be able to better respond to the ever-changing needs of their customers. The rules have changed and so has everything you thought you knew about your business.