China industry insiders assess the COVID-19 impact

The novel coronavirus is significantly affecting the marketing and advertising industry, with the impact already exceeding that of the SARS crisis.

The effects on businesses are being felt across all different industries, running the gamut from postponing the resumption of office operations, brand outlet closures and consumers staying home and spending less.

But how will this epidemic specifically affect the marcomms business in China? How should brands respond to the epidemic crisis and adjust their marketing strategies?

Campaign China interviewed senior managers and industry experts. Here is their take.

(Most comments have been translated from Mandarin).  

1. What major impacts will the outbreak have on your business?

Frank Xu, EBP CEO, DAN China:

The unexpected epidemic outbreak has affected the normal execution of numerous activities. Offline activities originally planned during February-March will be cancelled until further notice from the government. However, when the epidemic is over, users’ pent-up emotions during this quarantine period are likely to released in the second quarter. The second quarter is usually a low season, but all Chinese are looking forward to “celebrating another Chinese New Year”. Therefore, we expect that marketing activities will reach a high in the second quarter and will continue until summer high season. At that time, we'll likely see a half-year peak in marketing activity.

A senior manager from a large advertising holding company:

Most of the clients are keeping their full-year forecasts unchanged.  They're postponing (not cancelling) spending from Q1 to Q2. We see a stronger reduction of spending from clients in specific categories (auto, luxury, entertainment). At the same time, some other clients are increasing spending in Q1 (pharma, mother and baby care, retail with active ecommerce business) or pushing their campaign earliers from March to February, in light of the void in marketing activity in February.

2. How are you adjusting your business accordingly?

Xu:

During Chinese New Year, as soon as we were notified of the epidemic, we made adjustments immediately.

Firstly, we communicated with our customers, monitored the situation and shared some of our industry research reports on the epidemic with them so customers could get an understanding of the situation, and be aware of the impact and changes right away.

Furthermore, we strengthened our contingency plans for promotional activities during the outbreak, formulating reports for our customers, discussing with adjustments in activities with them. Some of the activities had been postponed and certain on-site events had been cancelled. Instead, we made arrangements quickly to shift offline experience to online interactive experience, so that consumers can have an experience without venturing out. For other activities, we integrated elements of disease prevention and cure in our communication approach, such as the anti-epidemic support activities conducted by a certain FMCG brand.

In addition, we also needed to project on the post-epidemic market conditions in order to plan ahead, making prior arrangements regarding marketing schedules, the timing of new product launches, as well as media plans based on available resources and staffing, vigilant for any sudden surge in demand.

Joni Ngai, chief product officer, UM China:

At this critical moment, data, media and consumer insights are key to building a close working relationship with our customers.

After the epidemic outbreak, we have been working with our customers actively to adjust their media investment strategies so as to minimize the impact of the epidemic on their businesses. We also made plans for different possible scenarios to ensure that our customers can master changes in consumer demand and achieve business recovery as soon as possible.

From the long-term perspective, consumers’ attitude, media spending behavior and purchasing behavior have changed. Due to changes in media spending behavior, we will work with our customers to develop a new digital ecosystem, such as video clips, to enhance consumer interactions and purchase experience.

Unnamed senior manager:

To hold full-year budget forecasts unchanged, clients will need to accelerate their sales and spending in the remaining 8-9 months through incremental reach and audience acquisition, with a smaller selection of media channels (fewer offline, OOH, cinema etc.). It will put pressure on supply of certain media channels.

It will also lead to a higher demand for performance marketing and a more creative media mix.  It will require agencies to have a stronger strategic planning capability to increase conversions and effectiveness from their media investments.

3. Which brands do you think the epidemic will open up new opportunities for? Which brands will face a critical test?

Jason Yu, managing director, Greater China, Worldpanel Division, Kantar:

In the short run, we believe that the purchase of foodstuffs, personal hygiene, household cleaning products and fresh produce will increase significantly. Hopefully, the epidemic will help develop good personal hygiene among consumers, and hence, the business potential for handwash, masks, anti-bacterial and sanitizing products remains great. Furthermore, consumers will continue to use more of ecommerce and O2O services, which will, in turn, accelerate and foster the digital transformation of retail enterprises.

Currently, the impact of the epidemic is felt more on small and medium retail businesses. in particular, on certain specific channels (such as cosmetics stores, maternity and baby stores), food and beverage outlets, department stores, and shopping malls, and the epidemic might drive restructuring and reshuffling in these industries.

Xu:

During the epidemic, with everyone staying home, online shopping has benefited directly across the board. This includes online entertainment, e-commerce, knowledge payment consumptions, as well as take-out and deliveries. In addition, we also notice great potential in wellness-related categories, such as medical and pharmaceutical, sports, household cleaning, health food, and healthcare home appliance upgrades.

However, for offline channels such as food and beverage, entertainment and travel industries, losses will be significant. Even the sales burst in the second quarter will not be able to make up for the losses caused by the epidemic outbreak.

Ngai:

Taking reference to the data and behavior during SARS, we forecast the following for certain industries:

Travel: in the short run, the travel industry will be affected the most. However, based on the SARS data, once the epidemic situation improves, and travel restrictions are lifted, travel demand will rebound very quickly. Therefore, this might be among the first industries to recover.

Retail: during the epidemic, offline retail businesses will be hard hit in the short run. As the epidemic situation improves, ecommerce will further take over the market share of conventional offline channels, and the conversion to online consumption will accelerate. Therefore, integrating the offline and online consumption experiences will become a key marketing focus for brands.

Medical and healthcare: in the short run, online pharmaceutical consumption and O2O pharmaceutical demand will rise. As indicated by SARS data, the demand for medical services, and imported and domestic drugs will significantly increase during epidemic outbreaks.

4. What advice you would give to brands on how to adjust their marketing strategy?

Richard Frampton, head of strategy, media, DAN China:

There is a fine line between identifying opportunities and being opportunistic, and this is a path brands must tread very carefully at this time. For now, the focus must be on understanding the immediate impact on demand, supply, needs and responsibilities. It’s important to take the lead from consumers at this time.

At this point it’s essential to get a clear view of the likely impact across the whole business and begin to plan accordingly:

• Understand consumer demand and respond accordingly
• Follow developments in media behavior and ensure flexibility in budget allocation
• Evaluate supply chain for any potential issues in fulfilment or availability in coming weeks
• Consider online & offline mix, knowing where consumers are watching, shopping and sharing
• Priorities branding and public interest messaging in short-term, rather than tactical or promotional activity
• Consider medium & longer term impact on demand, supply, consumer confidence and regulation

Xu:

Many brands will need to plan to invest more in the second quarter to compensate for a loss in the first quarter and to prepare for the summer sales season. Ecommerce platforms have been affected, cancelling some offline activities from February to March and moving the focus online.

Our advice to brands is to adjust to the situation and to prepare for the next phase:

• Move your offline activities online and let users experience and understand them in a virtual way
• Increase investment in short and live content, and increase engagement by distributing online video, information streaming and other platforms
• Do in-depth product education through the creation of ongoing content topics, in conjunction with health/wellness, medical content or IP
• Focus on managing CRM, pay attention to private traffic where possible, communicating with returning and new customers to accumulate members and promote online sales
• Further optimise ecommerce media investment, and use analytical tools such as strategy centres and databanks to accurately target audiences, so as to enhance brand awareness and sales transformation.

Yu:

During an epidemic crisis, building an image of reason, courage and social responsibility for a brand is very important. However, the brand also needs to reflect tolerance at the same time so that its values as well as its solid support can be reflected and felt by the consumers during the crisis. (Regarding daily necessities, measures such as avoiding price appreciation and ensuring supplies are also crucial)

As consumers reduce their outdoor activities and shop less at stores and supermarkets, it is all the more essential for the brands to make use of new digital channels (for example, WeChat official accounts, Mini Programmes) for online customer acquisition and direct user contact. This is also the best time to promote digital marketing.

For some specific products and categories, such as personal hygiene, household sanitising, and healthcare products, linking the brand with consumer education on disease prevention will leave a stronger impression on the consumers. This will also help in keeping consumers’ interest in and purchase of the brand’s products after the epidemic, and converting them into loyal customers.

Brands should avoid using simplistic, sketchy, and pushy approaches in customer communication at such times. Instead, they should consider investing more in content marketing, providing more value in the content, and offering more spiritual comfort and fulfilment to the consumers who are home-bound. For example, food brands can offer online cooking classes by means of short videos, thereby enriching consumers’ lives and teaching them new skills at the same time.

5. What’s will be the economic effect of the epidemic on the marketing and advertising industry?

Xu:

Under the impact of the epidemic outbreak, the offline market is in a downturn, and many brands are actively adjusting their business focus, such as cutting budgets originally allocated to offline channels, shifting the focus to online channels, and increasing their investments in ecommerce. Therefore, all in all, there will be adjustments in the areas of creativity, media, and public relations correspondingly, and clearly defined plans will be developed to induce e-commerce transactions through online interactions.

Currently, the brands’ key concerns are firstly around the uncertainties of the epidemic and the latest policies, which will affect the accuracy in making judgments and deploying counter measures for related businesses. Secondly, prior to a clearly defined policy direction, ecommerce will obviously be the area for increased investments and where implementation can be effective. It can also help make up for lost business opportunities and increase product sales. Therefore, everyone is focusing more on ecommerce investments, such as integrating ecommerce related activities, and further optimising media investments.

Frampton:

This event has affected consumer behavior, media consumption and social creativity in ways which have never been seen before, in China or anywhere in the world. some categories such as technology & auto will have impact from supply & value chain complications as workforces are reduced and some factories are located in the middle of the epicenter of the virus.

Residential OOH may be considered to be of special interest right now, but there are issues with execution as compounds restrict access to non-residents. TV has seen an understandable boom in impacts, with CNY viewing figures up c18% YoY, however entertainment programming has made way in schedules for information, news and educational programs, with less opportunity for ad placement.

Ngai:

The impact of this epidemic on the advertising industry is significant. GDP is highly correlated to advertising spending. Hence, when a decline in GDP growth is expected, customers’ businesses and their advertising spending will also be affected. Increasing marketing efficiency and effectiveness will become crucial.

During the epidemic outbreak, significant changes will occur in consumers’ behavior and the media environment. Outdoor media and offline media will be the major losers, while digital media and TV will be the winners. For digital media, more new users are acquired, and both usage frequency and duration increases. Examples are online games, online entertainment, and online collaborative offices.

Unnamed senior manager:

The event this time is different from SARS. The interruption of consumption will create a more significant impact on business and economy than in 2003. In 2003, there was no cross-cities lockdown and thus less interruption to logistic. Ecommerce was not an integrated component in clients' business either. This time the impact to short-term sales and interruption of supply chain and ecommerce delivery will likely be more noticeable to brands’ business than in SARS' time.

Below is the effect to marketing and advertising industry:

• The need for financial soundness: Given the already pressured economy and tightened cash flow. Delayed payments from clients will create significant financial stress on agencies with weaker cash flow and financial discipline, sequential impact on third party vendors.
• There's a bigger impact on agency networks which can't swiftly make talent mobile across agencies to respond to rescheduled / postponed projects.
• Creative projects face a bigger business impact than the media business during short term market shock.
• There's a stronger demand for crisis and CSP PR.

Under the impact of the epidemic, finding ways to stay afloat is essential.  Campaign will continue to monitor the impact of the epidemic on the market, and we welcome other industry experts to share their real-life experiences and recommendations.