Editor’s note: China is about two months ahead than the rest of the world in the fight against COVID-19, and our team from China is leveraging this foresight to offer their thoughts on the long-term impact of COVID-19 and the post-pandemic implications for brands. This is the first entry in the “COVID Lessons from China” series, which introduces the scope of the pandemic’s wide-ranging implications and summarizes the key learnings and observations from the Chinese team.
It has been 2 months since the initial outbreak of COVID-19 pandemic in Wuhan, China. With China now over the hump in its battle against the virus, life is starting to return to normal. Unexpectedly, however, coronavirus has since spread to 152 countries, disrupting work and life everywhere with no end in sight. All tentpole cultural events have been canceled or postponed — even the upcoming Summer Olympics has to be delayed till next year. All things considered, COVID-19 is going far beyond what we’ve expected. It seems the battle won’t be quickly settled, as many recognize the possibility that this pandemic could last at least for a year.
In the past 60 days, we’ve seen numerous reports covering COVID-19’s effects on marketing. As strategists, we want to look at things from a different angle. As the situation is changing every day, we can’t simply chase after the latest data points and react to the market, which would be ineffective. What we intend to do in this “Lessons from China” series is to discuss the cause and effect behind these changes, gauge their future directions, and use the foresight to guide and prioritize our strategic choices.
In the midst of a fast-changing crisis, no one has all the information, and no one should try to play oracles of the market. We hope that through our observations and insights from the Chinese market, we can inspire our marketing partners and make them think differently. As the saying goes, in the midst of every crisis, lies great opportunity. The important part is having the foresight to identify the opportunity and take appropriate actions.
COVID-19: Decidedly Not SARS 2.0
Many articles have referred to the 2003 SARS outbreak as a benchmark to predict the implications and aftermath of this epidemic, but given the severity of this global pandemic, that no longer seems an appropriate baseline for comparison. It is time that we recognize the fact that this pandemic is leading the global economy into uncharted territories and its impact on our way of life will be unprecedented.
First of all, COVID-19 is far more dangerous than SARS. Although the two viruses genetically belonging to the same family, COVID-19 is much “sneakier” than SARS with a longer incubation period is longer and ability to spread via asymptomatic carriers. Also, COVID-19 is mutating much quicker than SARS: so far scientists have tracked 149 mutation points in its DNA, spouting two subspecies that are even more contagious.
In addition, China’s connection with the world economy in 2003 is incomparable with where things are today. In 2003, China has just joined the World Trade Organization (WTO); in 2020, China, as one of the pivotal parts in the world production chain, has developed a mutually dependent relationship with the rest of the world.
In the early stage of the COVID-19 outbreak, the world worried about China’s ability to fulfill orders as many factories are shut down. Now, as Europe is also implementing lockdowns, it’s China’s turn to worry. As disruption ripples across the world, it affects not just the manufacturing sector but also consumption demands all over the world. Chinese consumers are anticipating a shortage of imported goods in the coming months, while Chinese workers in factories are anxious about keeping their workload full. As a Chinese netizen joked, “We are all grasshoppers on the same string.”
Back in 2003, our technological toolkit was not as advanced either. During the SARS outbreak, ecommerce was still absent, which contributed to a sense of deprivation during the outbreak and later spurred a wave of compensational shopping. Today, however, online shopping and telecommuting have become a part of everyday life for consumers in China and worldwide. So that wave of compensational spending will likely move towards non-retail categories.
COVID-19’s Wide-Ranging Impact
Historically, every epidemic has provided us with a strong imperative to reconsider our priorities and upgrade our way of life: the Black Death led to the emergence of the Renaissance; the 2003 SARS epidemic greatly accelerated the development of China’s ecommerce and digital infrastructure. For COVID-19, although it is still too early to predict all of its lasting implications, we also observed some early signs of how this epidemic is changing consumer expectations, facilitating new habits and consumer behavior, and accelerating industry transformations to address the needs of increasingly connected consumers.
Therefore, we intend to publish a series of observations on the long-term impact of COVID-19 from the following perspectives
1. Government Policies and Economic Stimulus
Besides the common indicators used to track the health of the global economy such as the GDP and the employment rate, we should also closely watch new policies effects to the economy in the epidemic. In China, the central government has already adjusted its previous goal of GDP growth for this year, touting “stability” as the keyword for the Chinese economy for the next two years.
On one hand, the central government has made stabilizing the employment rate a priority. The State Council has introduced a series of policies aiming to provide job security, including offering help and support people returning to work, debt relief and job matching for small and medium-sized businesses. Moreover, regional governments are also looking to boost job opportunities by optimizing their policies to create an encouraging environment for start-ups and flexible employment.
On the other hand, policymakers in China are also taking action to stabilize the consumption level. Some local governments have issued consumption coupons to stimulate consumer spending. For example, the city of Nanjing dispatched “consumption coupons” amounting to RMB 318 million to people working in business badly affected in the epidemic such as restaurants and travel, as well as those in low-income groups. In Shanghai, the transportation department released more car plates for monthly auction in a move to revive the automobile market. If we consider the post-epidemic recovery as a relay race, the government has started the first lap.
2. Accelerating Changes in Consumer Behavio
The conventional wisdom says it takes 21 days to form a new habit. During the past two months, we see a lot of emerging changes in consumer behavior because of the lockdowns and the resulting shortage of last-mile delivery services, especially during the Chinese New Year holiday. Specifically, the following three areas should be closely observed:
The “shut-in economy”: When people were quarantined at home, their desire for shopping and cultural consumption was not totally suppressed; On the contrary, they shifted the focus of their consumption and looked for upgrades, supercharged by mobile commerce and shoppable social content. We need to carefully consider whether the “shut-in economy” has lasting power and discern which elements and shopping scenarios will still be around after the epidemic? Of course, the “shut-in economy” is enabled by a broader ecosystem of supporting services and new platforms. How to adapt existing business model and plug it into this ecosystem is a question that many brands will need to answer.
The consumerization of healthcare: Over the past 2 months, the non-stop top-down communication of disease prevention and preventative health have led a lot of Chinese families to form a daily routine of sterilization and checking vital signs. These routines will no doubt lapse after the epidemic, but the mindset of healthcare as well as the demand for preventative care products will likely remain as a staple, thus opening a new growth area for brands in healthcare, food, fitness, and other adjacent industries to tackle.
The possibility of “compensational consumption”: Will there be a wave of post-crisis “compensational consumption” like what happened following the 2003 SARS outbreak? The evolution of shopping behavior and post-pandemic consumer spend are being closely monitored in China as cities lift lockdowns and return to normalcy, but what we saw so far suggests that the impact of “compensational consumption” will be far more limited this time around compared to what happened post SARS, and limited primarily to certain industries.
3. Adoption of New Technologies and Infrastructure Upgrade
During the epidemic, service robots, telemedicine services, and smart city management were quickly put into use and showed Chinese consumers the great potential of these new technological applications in transforming every aspect of our social and daily life. The recent meeting of the Standing Committee of the Political Bureau of the CPC Central Committee confirmed a tech-led infrastructure upgrade, including 5G connectivity, smart city infrastructure, enterprise integrations with cloud-based solutions, as well as consumer and industrial IoT, will be the central focus for the foreseeable future.
Together with the changes in consumer behavior, this coming round of nationwide infrastructure upgrade will further offer advantages to digital-native startups and innovation-savvy companies, and perhaps even force the hands of some industry incumbents and legacy firms to update their company infrastructure and business model to keep up.
4. Media Trends and Innovation Opportunities
There is no doubt that the outbreak and the resulting lockdowns have contributed greatly to the ongoing shift in media consumption and opened up new ways for brands to reach their audiences. The boom in live streaming and short video consumption could lead to new media opportunities, and the aforementioned infrastructure upgrade could give rise to more emerging media channels. Responding to the global fallout of this pandemic, how will brands of different categories adjust their media spending module this year?
Another area of potential innovations is the continuous merging of online and offline assets. Since the gradual recovery of offline businesses is a given, how will brands return into offline channels such as OOH and in-store shopper media and evaluate their spending is still up in the air. Also, we saw that especially in the middle of a crisis, brand power matters – bigger brands are just more trusted in this situation. Moving forward, marketers will need to think about balancing the investment between brand-building and performance and trying to work out a better investing model that will can both build brand equity and drive conversion.
5. The Evolution of Cultural Values
In a crisis, people tend to reveal the very best and the very worst of humanity, and a crisis at the scale of a global pandemic is bound to shift cultural values. In the case of COVID-19, the idea of globalization is being re-evaluated by many in China, which could lead to far-ranging implications in Chinese consumers’ consumption preferences.
Looking at globalization through the lens of the pandemic, many are pondering serious questions about China’s relationship to the rest of the world and its role on the global stage: How will Chinese consumers perceive different countries as a “friend” or a “foe”? How will this pandemic impact the course of the ongoing trade war with the U.S.? How will the pandemic affect Chinese consumers’ preferences for Western luxury products?
Before COVID-19, these questions were just conversation fodders for dinner parties; now, how Chinese consumers will answer these questions and the resulting shift in cultural values will have a long-lasting impact how we build our brands as marketers, and how consumers choose to spend their money, especially in luxury goods and international travel.
With these questions in mind, we will continue to think about the pandemic’s possible impact and future opportunities for brands and marketers. The pandemic is far from over, and the future is still uncertain, but we will try to approach the reality of the market as closely as we can in our search for real-time actionable opportunities. In this series, we will rely on data, observations, and real market response shared by our partners to inform our views, with the hopes that sharing our insights will kickstart discussions that will inspire us all.
Written by Lydia Chen, Group Strategy Director and Lin Liu, Chief Strategy Officer, UM China
The series of insight pieces on Covid-19 are co-authored by the strategy teams from UM China and Initiative China
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