In Coronavirus clouds, we are observing hidden silver linings in consumer behaviours and market conditions.
As the impact of the new Coronavirus (or nCoV19) continues to unfold, at OMD China we’re keeping a close eye on the implications across different categories sectors. Most pronounced is the impact on Tourism, Retail and Chinese manufacturing. Tourism has fallen by 55% compared with the Lunar New Year period in 2019, while the knock-on effect of the lockdown is permeating industries dependent on manufacturing output, such as technology, (IDC forecasts a 30% drop in revenue as production paused for 2 weeks) and smartphones hit the hardest. Canalys expects sales of Smartphones in China to decline in the first quarter, and globally, the number of smartphones sold will reduce by 12% compared to last year. All of this will no doubt trickle down to the global sphere affecting companies and countries that rely on China within their supply chain. The potential long-term effects could set back China’s ambitions to dominate the next era of technology with sectors such as artificial intelligence, 5G, robotics required to re-think their product roadmaps.
Domestically, the retail sector is among sectors being hit the hardest. During the SARS outbreak in 2003 growth was maintained at 4.3% YOY. The stricter containment rules with nCoV19will continue to impact bricks-and-mortar retail, however, companies with a strong eCommerce footprint are demonstrating resilience and an ability to stimulate sales through promotions.
Though the situation is complex we are observing reasons to be optimistic and there remain high hopes that China’s GDP could still be within the realms of 5% with rising CPI on food (+20%), health sector (+2.3%), education, cultural & entertainment (+2.2%), due to supply disruptions and hoarding effects of the outbreak as consumer stands strong domestically.
At OMD we are also observing other reasons to be optimistic with potential for both short and long-term effects on consumer behaviours and market conditions.
- Accelerated digitisation of sectors
Within the quarantine rules, brands and orgnaisations are finding creative ways to get their content, products and services in front of consumers in positive and empathetic ways. Advertisers that typically used blockbuster movies at Cinema took steps to release and allow people to watch for free through the short video social media platform (TouTiao & Douyin). While ‘Keep’, an exercise class obile app, provided tailored exercise routines designed to be done with minimal equipment and at home.
O2O delivery apps have additional fresh food delivery services responding to rising demand by reaching the masses, not just the digitally savvy. This has resulted in growth at an accelerated rate (MAU increased by 127.5% YOY Source: Quest Mobile).
Usage increases in ‘home’ entertainment and leisure activities such as online videos, short videos and gaming are well known, but we are also seeing a significant increase in online education services both for K-12 as well as professionals. Overall, self-education has accelerated during this period, we anticipate a 22% increase year-on-year (Source: Quest mobile) in both mobile apps and services as well as other supplementary categories such as podcasts.
We are confident the adoption of new O2O services will carry forward with penetration in further lower-tier cities as well as adoption by older age groups likely impacting their consumption behaviour permanently.
- Bringing balance and the focus back into homes, family and community.
Chinese people who live in higher-tier cities work at least 1.8 hours per day more on average than those in lower-tier cities. With the forced quarantine placed on all of the top tier cities, people were given the opportunity to spend more time with their families. With restrictions on eating out, we also saw an increase in home cooking and increase use of cooking vertical apps (previously this vertical was in decline for 2 years). Due to the limited logistics and delivery services, people are also shopping more locally at ‘Mom & Pop’ shops – via community-driven mobile apps or WeChat groups and WeStores. We expect that once the epidemic subsides this behaviour will carry forward and go from just buying Chinese into buying locally to help support the local communities and vendors who have helped during a time of need.
- The rise of the Socially aware consumer
You only had to look on your WeChat moments to realise how much of a collectivist community we are and how this outbreak banded everyone together. Consumers are hyperaware of the place of origin of their products, the production process and are even increasingly inquisitive about how companies treat their employees. We anticipate a rise in demand for socially and environmentally conscious brands, products & services. It is a perfect opportunity to forge and reinforce brand values within the realms of any corporate responsibility policies as well as prioritising those products within your product portfolio.
Situations like this test a company’s ability and agility to react. Advertisers who see this as an opportunity to help, to provide utility and to solve consumer problems rather will be able to curb the slump and come out the otherside stronger than before. Taking a more empathetic view can reveal opportunities and silver linings for communities, organisations and brands alike.
Sources: Canalys, IDC