Аdaptation of business practices to the COVID-19 pandemic: Evidence from micro and small enterprises

Abstract

Goal: to determine how three business model adaptation (BMA) strategies (namely, product development, market development, and diversification) influence firm profitability through the mediating mechanisms of customer behavioral loyalty and acquisition during the COVID-19 pandemic. Methodology: the study is based on a telephone survey of 210 Russian micro and small enterprises conducted in the beginning of 2022. Structural equation modeling is used to test the relationships between three BMA strategies, customer behavioral loyalty, customer acquisition, and firm profitability. Findings: three BMA strategies positively influence customer acquisition but have no effects on customer behavioral loyalty. In turn, customer behavioral loyalty and acquisition unequally contribute to firm profitability. Diversification strategy is found to be the only strategy that positively influences firm profitability during the crisis. This effect is mediated neither by customer loyalty nor customer acquisition but is supposedly achieved through the strategic choice of higher-margin destination markets. Originality and contribution of the authors: the study contributes to the literature on crisis management by examining the effects of product development, market development, and diversification strategies on firm performance in the crisis environment characterized by shrinking demand and increasing turbulence. Unlike most existing studies, the current study goes beyond testing the overall effect of BMA on firm financial performance in times of crises and uncovers customer retention and acquisition mechanisms that mediate this effect, thus reuniting strategic management and marketing areas.