COVID-19: Three impact scenarios on media planning

James McDonald, Editor-in-Chief, WARC Data, offers three scenarios in which the spread of the COVID-19 virus can potentially impact purchases, media consumption, and advertising investments.

Marketing in the COVID-19 Crisis

This article is part of a special ARM snapshot aimed at enabling brand marketers to redefine their strategy amid the unprecedented disruption caused by the novel coronavirus outbreak.

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Last week, we released our latest projections for global ad investment, which forecast a rise of 7.1% in dollars (5.6% underlying growth) to $ 659.6 billion this year.

This forecast may seem overly accommodating given the lingering concern about the ongoing novel coronavirus (COVID-19) outbreak, so we found it prudent to provide additional context on the potential ramifications of the virus spreading based information we have to date.

The epidemic has already impacted business decisions and budget commitments in Asia. Whether this trend is sustained and replicated in other markets depends on the extent to which the virus is contained, but three major hypothetical scenarios regarding the impact on media activity can already be determined.

Before exploring them, it is worth assessing the potential effect of COVID-19 on consumer-oriented businesses. This can be assessed, to some extent, by a study of the Severe Acute Respiratory Syndrome (SARS) epidemic in the first half of 2003 and the Middle East Respiratory Syndrome (MERS) epidemic between May and August. 2015.

Consumers most likely to cut back on luxury, entertainment and leisure activities

Out-of-home entertainment suffered severely during the SARS period in China, Taiwan and Hong Kong, with dining outings dropping sharply, both at fast food outlets and full-service restaurants, according to data from TNS.

Other out-of-home activities such as bar and movie theater visits also declined significantly. During the MERS epidemic, movie audiences fell 55% in South Korea, with similar rates recorded among amusement park (-54%) and water (-56%) attendances.

Retail businesses were also affected during the SARS period, but to varying degrees. The trend to stock up on basic necessities has led to a decrease in shopping trips, especially in China and Taiwan, while quick visits to convenience stores have largely saved them from significant declines.

Purchases of non-essential products fell in all three markets, particularly in shopping malls and department stores, with the most severe negative figures in Taiwan (-44%), but also in China (-38%) and Hong Kong (-30%).

Much of the consumer spending has been done online. In South Korea, online sales rose 27% for Lotte Mart during the MERS outbreak, compared to a 10% drop at its physical outlets. Online sales are also up sharply for E-mart (+ 63.1%) and Home Plus (+ 48.1%).

A similar trend can be seen in the reaction of consumers to COVID-19. Data Yimian, a sister company of WARC, shows substantial growth in health product purchases on Tmall between January 19 and February 9. Sales of surgical masks totaled 107.2 million (compared to 587,177 the previous year), disinfectants (+ 3271% year-on-year), vitamin tablets (+ 3171%) and disinfectants (+ 2673%) were also selling quickly.

A Wavemaker survey, conducted last month, found that 68% of Chinese consumers have not cut spending in light of COVID-19, while 83% are still paying for most as they previously did.

But projections from retail platform Re-Hub and information provider Zectr, based on their survey of consumers in Beijing, Shanghai and Guangzhou, suggest that travel, restaurant and entertainment companies should experience a decline in consumer spending over the next few months. This reflects the trends observed during the SARS and MERS epidemics.

Scenario planning in response to COVID-19

COVID-19 has already spread faster and further than SARS and MERS, and the human cost is, at the time of writing, already three times that.

We’ve seen evidence to suggest that brands take a conservative approach to committing budgets in the first quarter of the year. The severity of the investment downturn will become clearer as new market data comes out next month, but we have indications today, and these have led us to present three broad scenarios for the impact of the virus. on advertising investments over time.

Scenario 1: Expenses are displaced but full-year growth is hardly affected

The virus is contained, and the shifted budgets are reallocated to the second half of the year. This could, however, drive up costs as competition for inventory intensifies. Our current projections are based on this scenario.

ARM’s Global Marketing Index, a monthly barometer of practitioner opinion on business terms, marketing budgets and staff levels, shows budgets were tightened in APAC last month, with a value of index of 40.7 the lowest in its seven-year history (a value below 50 indicates a decline). Survey data shows that traditional media saw the worst declines in Asia, while digital growth has been significantly slower than it had before.

Baidu’s guidelines, released last week, suggest that revenue could drop 5% to 13% in the first quarter of 2020, which equates to $ 444 million. Weibo said its revenue could drop to a fifth, or $ 79.8 million. Both companies stressed that it was too early to be certain.

Scenario 2: Spending is reallocated significantly as brands focus on the short term

Increased restrictions – beyond those already announced – are imposed on travel and large gatherings in several countries and territories. Cinema is sensitive to a smaller audience and the out-of-home market is likely to suffer from a lower reach, especially in places of transport. The radio, at the heart of the journey, is also left somewhat exposed.

Conversely, an increase in self-isolation leads to an increase in television consumption, as has already been observed in China – in some cases 50% above the daily average. Consumption of AVOD services and other online videos is also increasing, especially among young audiences. More than two-thirds (70%) of Chinese respondents to the Wavemaker survey said they watch more TV and video content than before – four-fifths (83%) read more information.

Social and messaging investments can exceed organic rates in Western markets, alongside increasing usage, as people stay in touch with family and friends, although the correlation between social impacts and ad spend is questionable. Growth in in-game ad spend has the potential to triple, but from a relatively low base.

This scenario should be taken with the additional caveat that changes in consumption will not directly translate into changes in marketing strategy. Brands can continue to exercise caution before incurring spending, especially in industries that rely heavily on Chinese supply chains.

That said, a prolonged hiatus and the risk of lower consumer spending will cause many advertisers to delay the work of the big brands, instead promoting a tactical retreat towards performance marketing. This would be relevant during the Easter period in the West, for example, with retailers and CPG brands in particular focusing on discounts and promotions to avoid any delays in sales.

If e-commerce volumes increase, it is conceivable that investments will focus on digital advertising to ease the buying journey, especially in channels closest to consumers’ decision-making (such as paid searches and online shopping). social platforms with a commerce element, like WhatsApp). This course of action is most likely among advertisers who embrace attribution modeling.

A renewed focus on short-termism at all levels may defeat the desire to pivot to mark, which was observed in the 2020 ARM Marketer’s Toolkit.

Scenario 3: A serious disruption increases the potential for an advertising recession

The epidemic takes a percentage point away from global GDP, according to Nomura’s projections, as major economies bypass or enter recession. Large urban areas are confined for prolonged periods (three-quarters – 74% – of Britons support quarantining cities to prevent the spread of the epidemic, compared to 70% of Americans and 62% of Germans, by Ipsos MORI), and major sporting events are either postponed or canceled.

In this scenario, the likelihood of the global advertising market going into recession is higher but not guaranteed – the relationship of ad spend to GDP is quite strong, with a correlation coefficient of 0.62 over the last one. decade, although this is weakening as the industry migrates online. (Internet advertising spending has grown six times faster than the global economy in recent years).

Alphabet, Facebook and Amazon stand to gain from focusing more on achieving short-term marketing goals in times of crisis, but a significant portion of their revenue depends on small and medium-sized businesses, and it is the advertisers who may be. -be the most vulnerable to a sudden economic downturn.

The cancellation of events such as the UEFA Euro 2020 football tournament – the first to take place in several European countries – and the Olympic and Paralympic Games, is most likely to have a negative effect on mainstream media (the Games Olympics increase TV spending by nearly $ 1 billion in the US alone) but will also have an impact on online publishers and BVOD platforms.

In a briefing note this week, Brian Wieser, Global President, Business Intelligence, GroupM, rightly reiterated the need for marketers to prepare credible alternatives as they develop marketing strategies – this is especially true for big brand moments around events like the Olympics. ARM research shows that such a practice enables agility and promotes innovation.

For brands and media owners, scenario planning should now be a priority.

Cathy W. Howerton