Lessons from China: COVID-19’s Impact on Consumer Behavior
The reconfiguration of consumer needs and post-pandemic recovery perspectives
Co-written by Lin Liu, Chief Strategy Officer, UM China, and Lydia Chen, Group Strategy Director, UM China
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 second entry in the “Lessons from China” series, which focuses on how the pandemic accelerated new channels and consumer behavior, and how the market responded to meet shifting demands. You can read part one here.
Many have called the COVID-19 pandemic “the public health crisis of a generation”: Initially, we had believed that once we get China’s situation under control, life will return to normalcy in time. Unfortunately, this cautious optimism has been swept aside by the global outbreak. At this point, COVID-19 has evolved into a long-term global crisis that demands the wisdom and cooperation of the entire global community.
Globally, this pandemic happened amidst the rise of anti-globalization and populism. While its long-term effects on globalization remain to be seen, it has become abundantly clear that the pandemic has caused major disruptions to the global supply chain, which, in turn, will accelerate the evolution of consumer behavior in some categories.
Specifically in China, the outbreak coincided with a time of drastic changes. With deepening of urbanization and consumption upgrade, China’s per capita GDP exceeded the $10,000 milestone at the end of 2019. Conventional wisdom says a new habit only takes 21 days to form. As COVID-19 becomes a prolonged global battle, dovetailed with the ongoing 5G rollout and sweeping infrastructure upgrade in China, it is bound to compound these socio-economic changes and give rise to new consumer behavior.
No One Is Unaffected
There is no overstating the scope and depth of COVID-19’s impact on China. In the most recent press release from China’s National Statistics Bureau, the unemployment rate has hit 6.2%, which is a record high in the past 40 years. The service sector, now comprising of almost half of China’s GDP, has been hit the hardest, and people employed in this sector will bear the brunt first and foremost.
Other sectors are also strongly impacted. For example, the disruption in the global production chain has resulted in lost income for the manufacturing industry in China and the millions of factory workers they employ. Even the high-earning groups are not spared either simply because they can work from home. According to a report by online HR service Zhixin, the income levels for some of the “elite” professions, such as those in finance, real estate, and education, have declined by about 20% amid the outbreak. Factoring in the turbulences in the stock market and other forms of investments, it is safe to say that COVID-19 spares no one in its impact.
Yet, we have reasons to be cautiously optimistic. While we await the latest data on Chinese consumer confidence, the resilience of Chinese consumers, demonstrated in the fallout of the trade war with the U.S. last year, is always a safe bet. At this point, China has mostly got the outbreak under control, which has also boosted people’s confidence in the government’s determination to act and ability to execute.
That being said, we are also seeing the increasing fragmentation of consumption patterns along the lines of different “cultural tribes” and even geographic regions, so the impact of the pandemic could play out unevenly. Given the current scale of China’s domestic market, we anticipate that despite challenges and suppression of consumption in different areas; in the long run, however, COVID-19 is unlikely to stop the ongoing trend of consumption upgrade in China.
The Reconfiguration Of Consumer Needs
Instead of devastating consumer activities, the disruptions caused by COVID-19 ended up accelerating some of the existing consumer trends and offers a rare opportunity for emerging consumer behavior to break out and raise new expectations for brands.
The Reprioritization of Needs
Responding to the outbreak, consumer needs are being reshuffled and its impact is immediate: According to the sales data from JD.com and Suning, two major retailers in China, while the established products like TV and refrigerators experienced a severe decline in sales, the sanitizing appliances saw strong growth, including air purifiers, sterilizing ovens, steam mops, and robot vacuum cleaners. Remarkably, according to Suning’s data, the sales of air filtration systems went up 304% compared to last year. Furthermore, according to McKinsey’s 2020 consumer report, which was fielded prior to the outbreak, preventative healthcare has been a steadily growing consumer need in China over the past few years, to which the COVID-19 crisis has evidently and understandably give a strong boost.
Unsurprisingly, this pandemic also elevated environmental issues in the public discourse, along with debates on animal welfare and wildlife consumption. On social media, we’re seeing stories about wild animals roaming freely in cities under quarantine, and reports on dramatically improved air and water quality in cities. Satellite images from NASA have shown significant decreases in air pollution over China amid coronavirus economic slowdown. For brands with an environmental focus or an eco-friendly angle, this opens up another window of opportunity to engage with a wider audience.
The reprioritization of needs also strongly affects service and experience-driven categories. Heated debates on topics like patriotism and China’s performance in this global pandemic that bubbled up over the past two months will likely continue, which could potentially impact consumer behavior in China in unexpected ways. Take tourism for example: In the past, most Chinese consumers chose travel destinations based on the usual criteria of scenery, food, and entertainment. During this epidemic, unfortunately, some international destinations have been politicized based on their countries’ diplomatic relationships with China as well as their response to the initial outbreak in China. This could lead to a rippling effect over Chinese travelers’ choice of destinations for years to come.
At-Home Economy
A generation of young Chinese collectively unlocked cooking as a skill point during the lockdowns, which may have a lasting impact on the restaurant and food businesses. Early in the pandemic, as most restaurants had to shut down and food delivery workers returned home, young people who lived off food deliveries were forced to find alternative solutions, and the sales of instant noodles and frozen meals shot up 3.5 times on JD.com during the first ten days of the Chinese New Year holiday. Of course, those products could hardly serve as a long-term solution, and before long, the notoriously pampered “little emperors” were resigned to having to cook for themselves. According to a report by Meituan, during the Chinese New Year holiday, search for baking-related items increased by 100 times.
As marketers, we need to understand the key drivers behind changes in consumer behaviors more so than the changes. Had this new behavior been only driven by hunger, it wouldn’t have been a sustained trend after the crisis. Digging into the reasons behind this sudden interests in cooking among the younger generations, we discovered that two additional concerns — “it’s safer to cook for myself to avoid contracting the virus via takeout” and “home cooking results in better diets that can help boost my immune system” — were also powerful factors driving this behavioral change. We expect such concerns over food safety and dietary benefits will continue to drive more people to home cooking, even as fears over coronavirus gradually subside. At the same time, a new generation of chic and powerful kitchen appliances is also making cooking less a chore but more of a thing to post on social media about.
Overall, we are seeing a compounding effect of these factors, resulting in a growing “at-home economy” as consumers embraced life under quarantine. According to a recent report from Oliver Wyman Consulting, 80% of respondents reported a change in their meal habits since the pandemic started. On the other hand, content related to food is also picking up on live streaming sites. For example, in the month since the virus outbreak began late in December, cooking and food-related content drew more than 580 million views on its platform, video streaming site Bilibili reported. Even after the outbreak when cooking and eating at home are no longer a necessity, they could still remain highly relevant for Chinese consumers, especially those of younger generations, as a conscious choice to rebalance the relationship between their domestic life and the social life.
Seizing the “At-Home Moments”
As consumers embrace home life and new activities, life under quarantine created new scenarios and contexts for brands to explore and connect with their audiences at home. For example, as bars and restaurants shut down, many alcohol brands that relied on these establishments as distribution channels suddenly found themselves at a major loss. People are still drinking at home, so those brands were forced to compete with spirits and wines that were usually marketed for home consumption, as they attempt to translate their shelf presence and brand recognition into online sales.
Some brands also seized the new opportunities provided by the new contexts and accelerated the growth of their business in new channels. During the past two months, many restaurant brands used the groceries they already bought to create half-cooked dishes for deliveries to recoup some of the lost revenues. Granted, this practice is likely to end after the crisis as the cost equation doesn’t quite add up. But for some restaurant brands that already showed ambition of entering the business of prepared meal delivery, such as Xibei Choice and Pizza Hut, the pandemic provided a perfect opportunity to accelerate the acceptance of their extension into prepared food or even groceries.
New Channel Choices
In a way, this pandemic and the resulting quarantine pushed some brands to diversify their audience channels and learn to sell directly to consumers online. Now that life is starting to go back to normal in China, this shifting focus birthed by lockdowns will continue, further fragmenting audiences across various marketing and sales channels and creating new brand opportunities.
Case in point: the transformation of the “micro-merchants” on WeChat during the outbreak is a good example of the crisis leading consumers to try out new sales channels. Before the pandemic, these independent sellers were often the subject of derision for selling products of shoddy quality. During the pandemic, however, they quickly adapted their role into “organizers of self-help” and proved their value.
At the beginning of the pandemic, grocery inventory was in short supply for many markets, given that the epidemic caught everyone off guard, especially during the Chinese New Year holiday when most delivery workers, often migrant workers from the rural areas, went back home. Resultingly, many consumers had a hard time acquiring their daily necessities, which created a strong sense of urgency that compelled many to search for new channels for fresh produce.
On the other hand, many B2B grocery suppliers could no longer sell their inventory to restaurants and were dying to find sales channels to reach consumers. Given the crunch, the realignment of channels came naturally and the effect was immediate. The aforementioned Oliver Wyman Consulting report found that 32% of respondents said they shopped more on social commerce channels over the past two months, and 9% used it for the very first time. As some consumers jokingly put it, one benefit of the pandemic is that it opened their eyes to better products outside the dominant online grocers such as Alibaba’s Hema.
The Rise of KOE (Key Opinion Expert)
The reconfiguration of marketing and sales channels also led to a new category of influencers. While certain product categories got a push thanks to the nationwide lockdown — for example, home cooking and health management — there is also a dire need for customer education, tutorial content, and peer-to-peer marketing. Typically, grassroots influencers who have racked up sizeable followers on platforms like TikTok and Bilibili would come in and fill those roles with sponsored content. But this time around, many professional salespeople from offline channels also stepped up and become brand ambassadors and category experts themselves. To differentiate them from the folksy grassroots influencers (typically referred to as KOC, or key opinion consumers, in China), we named this new class of influencers KOE, or key opinion experts.
In addition, companies with a strong omnichannel retail infrastructure were also well-positioned to sell directly to consumers via online and social channels during this pandemic. Not only were they able to meet the surging online demand for their own products, they were also able to steal share from competitors who relied on physical retail. Louis Vuitton is a great example of this — the luxury brand’s 2020 Valentine Day’s online sales doubled numbers than the previous year, partly thanks to deploying a successful KOE strategy that mobilized their Chinese sales force to reach out to customers via social channels and direct them to order online. For a local example, 73 Hours Shoes, a Shanghai-based fashion brand, used WeChat groups to engage with their customers on a store-by-store basis while their physical stores closed. This group-based KOE outreach effort, combined with other tactics like live-streaming featuring the founder and a strong ecommerce operation, also helped the company to achieve a strong year-over-year increase in sales.
KOC and KOE play by very different rules: the former trades on attention while the latter focuses on service and added value. In a scenario like nationwide lockdown where consumer needs are increasingly fragmented and urgent, KOEs are able to leverage their professional knowledge and CRM skills to win over consumers. In a time of crisis, whether you have a pretty face no longer matters. In fact, two of the most prominent KOEs who burst onto the scene were mid-aged businessmen — founders of Lin Qingxuan Skincare and Old Folks’ Chicken Restaurant, respectively — who saved their businesses by promoting their products via WeChat and live video on Tmall with total confidence and endearing sincerity. When these well-trained salespeople from the brand side enter the social commerce scene and start to build up their own communities, and it is bound to squeeze the space traditionally occupied by the KOC.
Post-Quarantine Splurge Varies by Category
As we gathered insights with our peers, we learned, not surprisingly, that consumers didn’t stop shopping at all while under quarantine. Given China’s highly advanced ecommerce infrastructure, the difference is whether a brand has deployed an omnichannel strategy well enough in advance to win in this crisis. Chinese consumers didn’t delay anything — not even their divorce applications — so why would they delay their shopping spree just because the retail shops were closed?
Imagine a woman who, after yet another fight with her husband during the long lockdown, desperately needed some retail therapy to assuage her rage. She was never going to wait until the quarantine is lifted so she could go to the mall again — not when she can easily order a new Louis Vuitton bag right on WeChat. And if you’re a competitor that didn’t invest in an omnichannel strategy to fulfill her order, you just lost your business to those who did. Brands that relied too much on offline channels were at high risk of losing consumer relationships to those who can reach customers online.
Of course, the impact of this pandemic is very uneven across different categories. There are categories that had no choice but to wait for the post-crisis, compensational consumption:
- Out-of-home entertainment and nightlife: bars, tea houses, cinemas, nightclubs, for obvious reasons, suffered a great loss. But there are exceptions to the rule, such as “cloud raves” on TikTok, which we’ll cover in the upcoming “technology” chapter.
- Travel. This is probably the industry that was hit the hardest, especially for overseas travel, which, not only has been impacted by social distancing but also shifting cultural value. We will dig into this in the upcoming “culture” chapter.
- Other categories that involve in-person services. The big-ticket household appliance brands, for example, suffered a pause in sales because their products usually require professional installations, and robots can’t replace human yet.
What’s Next?
So far, we have reason to be cautiously optimistic. We are seeing enough vitality left in the market to believe that despite the brunt all consumers have to bear, there’s more reconfiguration and re-prioritization of consumer needs than outright suppression. In the context of China’s ongoing “New Infrastructure” initiative, which focuses on upgrading the country’s technological infrastructure leading with 5G, we look forward to the following disruptions:
- The “at-home economy” born out of necessity during lockdown is turning into a new lifestyle movement. Home will pick up more emotional potency as it establishes new consumer touchpoints, and it is set to become the new central hub for consumption upgrades, including products, services, and content.
- New channels and product categories will continue to emerge and gain mainstream adoption. While it’s still early to tell when we’ll get out of the recession, we believe that, despite the COVID-related disruptions, the over trend of “consumption upgrade” will continue in China, with some outdated categories and legacy brands getting deprioritized to make way for the new ones.
- Expertise will become a crucial success factor in influencer marketing. Thanks to the rise of KOE, the age of pretty faces might be coming to an end (and thanks to beautifying filters in live-streaming apps, everyone will appear pretty online). Livestreaming will be their choice of communication channel, which spells great potential for brands looking to expand their online footprint and connect with consumers in real time.
- All these aforementioned developments will both drive the race to the next platform and escalate competition between existing platforms, and the popular O2O (online-to-offline) model will the at the center of the battle for consumer attention in China. Alibaba and Meituan, two of the largest O2O commerce platforms in China are about to take on each other head-on. Both camps will no doubt come up with enhanced user experiences that cater to new consumer behaviors and meet their shifting demands. And it is up to marketers to help brands tap into these emerging channels and upgrade their brand experiences.
All in all, we believe that signs are pointing to a big disruption. A year from now, when the crisis wraps, we will not just get a recovery, we’ll get a new generation of consumers, ecosystems, new rules, new products and experiences.
