The sudden outbreak of novel coronavirus (nCov) in Wuhan, the capital of China’s Hubei province, in late December 2019 sparked a health crisis with national, regional and global impact. What does this mean for China’s economy, consumers and businesses?
The economic impact on Chinese and Global businesses
Given the quarantine status of several important markets in China, the denial of entry in a number of countries to Chinese and foreign nationals who have visited China in the past 14 days, plus global suspension of many flights to and from China, there has been an immediate commercial impact locally and around the world.
One category impacted significantly so far are global luxury brands – as of 7th February, shares of Burberry are down almost 15% in versus mid-January, with their CEO stating the virus is having ‘material negative effect’ on business considering more than one-third of its stores are closed, and the entire sector is now estimated to retract between 1 to 5% in value this year (according to Jefferies’ analysts). The global oil industry has also felt an immediate pinch from the reduction in oil production – currently China’s oil demand has dropped 20%, with prices dropping globally about 10% and production output dramatically slashed everywhere.
Local Chinese and regional retail and travel (especially airline) businesses are also feeling the immediate impact, and inbound and outbound tourism has all but dried up – the number of mainland Chinese tourists to Macau has dropped 80% and inbound Chinese tourism has for the most part ceased. With a limited movement of people and suspension of most office-based working, companies like Starbucks have also temporarily closed there outlets – the US coffee chain has so far shuttered over half of their over 4,000 Mainland China stores.
In order to prevent the short term economic damage and volatility, People’s Bank of China will inject RMB 1.2 trillion (USD 174 billion) in the economy, and also the government has launched a fund worth RMB 300 billion to help affected businesses. While the government is without a doubt investing a significant effort and resources to mitigate the crisis impact, it is likely that China’s economic growth in 2020 will be affected in the range between 0.3 and 1 percentage point, depending on the time necessary for the crisis to be resolved and business operations get back on track.
Meanwhile, businesses need to understand what the nCov means for China short and long term, and adjust their communications, marketing and business plans appropriately.
What should brands consider for marketing and communications during the nCov crisis?
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Be sensitive in brand messaging
While some brands will be tempted to use the current coronavirus crisis to play with satire and irony to attract the attention of global digital media users, this approach is not appropriate considering the scale and severity of the crisis. Instead, a compassionate and responsible approach to the crisis is likely to be more positively perceived by consumers and local authorities. In general, consumer sentiment is extremely precarious at present, so sensitivity in all communications is strongly advised.
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Focus on direct consumer benefits of product or service
What can your product offer to consumers? Do you have any specific benefit during this period? If you provide a service, do you need to share information such as opening times, availability of services, etc? This may be an opportunity to inform your customers of your ongoing assistance or support at this time to any current or prospective customers.
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Consider the higher media consumption during this time
As the majority of the Chinese population are in their homes, with their immediate families, TV media consumption has increased (+18% YOY in daily time spent, source: CSM) as well as online video, news and gaming, with 40% of users spending between 2 and 4 hours on these platforms each per day. With more media impressions, and higher co-viewing, focusing on your key product benefits to reach a large audience would be appropriate rather than tightly targeted niche messaging. And because of limited travel and movement around cities, audience availability for OOH platforms including public transport and cinema will be reduced, although a softening market may offer opportunities for some brands.
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Understand the sales conversion challenges
With many delivery services severely limited or out of action, focus on lower funnel product sales would not be immediately beneficial, so be aware of fulfillment challenges. For products that have a direct benefit to consumers during this period, however, there may be opportunities with eCommerce platforms to promote product sales in areas where delivery is possible (certain larger platforms continue to deliver in key cities). Do ensure your brand eCommerce teams are informed and in close contact with online shopping platforms regarding delivery service availability in the current period to ensure media investments are not wasted.
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Consider giving back to the community
During a crisis such as this, there are opportunities for brands to show they are responsible members of the society by helping communities in crisis. Some local businesses have made significant efforts in this aspect – Alibaba has donated RMB 10bn for the anti-nCov effort, offering rebates for medical products and launching a relief fund for the city of Wuhan, while Huawei has built a 5G infrastructure network for medical facilities in Hubei in a record period of time. FMCG companies such as P&G and Jahwa have donated hygiene products to Wuhan to help ease the current shortage of basic necessities. And non-competitive agnostic public service messaging to provide advice or offer assistance from a brand (demonstrated by recent brand messaging from Unilever’s Lifebuoy) would also demonstrate civic responsibility.
We are providing a weekly update on the impact and implications for this current health crisis. If you have questions or suggestions, please feel free to email us at:
Mark Bowling – CSO PHD China mark.bowling@phdmedia.com or Vladimir Prostran – Group Director Strategic Insights PHD China vladimir.prostran@phdmedia.com
