How Bold Pivots Saved Brands During the Coronavirus Crisis
Plus: China's "Starbucks killer" gets killed, and the verdict for Shanghai Fashion Week.
The coronavirus pandemic is forcing brands and consumers to face the prospect of a very different future from what was previously contemplated and planned for, and China’s experience provides a glimpse into what that may entail for the rest of the world.
Responsiveness has been critical across the board, as brands shifted their marketing strategies to double down on digital to reach housebound consumers. The most successful brands have shown rapid flexibility in pivoting their products, services, and content and communication efforts in order to maintain relevance to consumer needs.
Unlike much of the rest of the world, where reactions to the spread of the coronavirus evolved over the course of weeks, China’s swift enactment of unprecedented lockdowns created an overnight “staying home” culture which everyone had to quickly adapt to. Instead of taking a wait-and-see approach or seeking to allay consumer concerns while trying to maintain regular business practices, Chinese brands were forced to make immediate moves in response to the drastically changed circumstances.
We’ve previously looked at brand action, communications, content and the role of livestreaming during the outbreak, and this week we turn to some of the more fundamental developments in how brands did business during the crisis.
In the United States, economic security and personal safety have emerged as critical points of contention for some brands, with those that have been able to keep employees on payrolls while offering expanded sick leave and on-the-job health protections reaping reputational rewards. In China, where paid sick leave is guaranteed by law and there were fewer shortages of personal protective equipment for frontline workers, these have not emerged as major issues, and the contrast between the actions of each market’s leading e-commerce platforms is instructive.
Alibaba and Amazon: A Tale of Two E-commerce Giants
Alibaba emphasized massive donations to the relief efforts centered in Wuhan, while also reorienting parts of its businesses to the shifting environment. For example, when its supermarket subsidiary Freshippo (aka Hema in Chinese) was faced with a huge surge in demand for grocery delivery services, the company partnered with dozens of businesses such as restaurant chains to deploy their sidelined employees, a tactic that was soon followed by competitors such as JD.com’s 7Fresh and Meituan Dianping as well as Alibaba’s own restaurant delivery unit Ele.me.
It also moved quickly to support retailers to make the transition to e-commerce with support from livestreaming to help drive sales, waived merchant fees and offered low-interest loans via affiliate Ant Financial. While the company’s bottom line is expected to take a hit (along with the rest of the economy), it’s betting that the emphasis on being a good corporate citizen first will create long-lasting brand equity that will help it emerge from the crisis in a stronger position, and it is now going global with a series of high-profile donations to dozens of countries including the United States.
In contrast, Amazon’s reputation has been weighed down by its responses to employee protests over pay, sick leave and working conditions. The company has also struggled to manage a supply chain that is heavily dependent on Chinese-made goods, leading to a postponement of its annual Prime Day shopping event.
The company has already cut back on the products its warehouses will accept to essential items, hurting sellers, and Prime customers are seeing delivery times for most non-essential items rising to four weeks from the usual two days. While Amazon has made donations to coronavirus relief efforts (albeit on a much smaller scale than Alibaba), announced plans to hire 100,000 workers to meet increased demand, and offered a pay hike, the perception of the company as putting profits first is fueling greater distrust.
Successful Cases From Fitness to Tea and Coffee
Fitness brands that were heavily dependent on retail stood out by pivoting to support their target customers with relevant content, which in turn helped to drive online sales. Nike launched a special series of workout videos and livestreams featuring local coaches and trainers that was available through multiple platforms as well as on Nike’s own app, while Lululemon offered dozens of live yoga classes and a list of instructors offering online classes on Douyin and livestreaming platforms.
Both companies have reported that online sales helped to offset losses from retail store closures and were optimistic about their China business bouncing back.
Other brands that relied on in-person consumption used e-commerce platforms to share new offerings with consumers, such as products that encouraged consumers to recreate in-store experiences at home. This trend was especially notable in efforts by major coffee and tea chains that partnered with Tmall to boost online sales.
To celebrate International Women’s Day on March 8, Starbucks partnered with the e-commerce platform on a line of cherry blossom-themed products, including a pink mug topped with a lid in the shape of Tmall’s cat-ear logo, an apparent reference to the coffee chain’s highly coveted cat’s paw cups from last year.
The upscale tea chain Naixue Tea (also known as Nayuki) encouraged users to recreate the brand’s signature “cheese tea” drinks at home with a drinking glass that featured a foam design around the top, which was sold on Tmall along with a range of new products that celebrated the brand’s connection to China’s cultural heritage. In another innovative partnership, Naixue teamed up with e-commerce livestreamer Zhang Dayi and her BigEve beauty brand on a gift box in the shape of a to-go cup with drink vouchers and limited-edition beauty product collaborations, which sold 10,000 units through Zhang’s Taobao Live broadcast.
Rival chain Hey Tea (喜茶) is also planning a flagship store on Tmall to sell derivative products along with new product lines including juices, yogurt and snack foods. During the coronavirus outbreak, Hey Tea collaborated with Alibaba’s Freshippo on joint-branded sweets for the Spring Festival, and the new store will expand its reach beyond the current limited radius for delivery from its retail outlets.
Outside China, media brands have shown creativity in offering content that meets consumer needs. One good example comes from the entertainment oriented-publication Time Out — with everything outside the home cancelled, it has rebranded as “Time In” and focused its coverage on online entertainment, streaming events and other suggestions for activities to do at home, meeting the ongoing need for relevant information.
With many consumers facing economic stress, numerous outlets from the New York Times to HBO to Audible have made at least some of their content available for free, further building up brand goodwill that consumers are likely to remember after the outbreak.
Mentioned in today’s newsletter: Alibaba, Amazon, Budweiser, HBO, Kuaishou, Luckin Coffee, Lululemon, Naixue Tea, New York Times, Nike, Rémy Cointreau, Starbucks, Tmall.
Luckin Coffee’s Brand Narrative Collapses Amid Fraud Investigation
Luckin Coffee (NASDAQ: LK) used savvy digital marketing to brand itself as China’s “Starbucks killer” — but now it’s being killed by allegations of massive financial fraud, losing 75% of its market value after the company disclosed an internal investigation of more than $300 million in potential revenue inflation by its former COO.
The company is also facing a probe by China’s securities regulator along with numerous class-action lawsuits from U.S. investors.
Founded just two and half years ago, Luckin had big ambitions of blanketing China with its quick-service outlets, a goal it has met on paper with more than 4,500 “stores” as of January 2020 (already at least a few hundred more than Starbucks, which has been in China for two decades), although the vast majority are little more than pick-up counters for mobile coffee orders placed.
Its much-hyped Nasdaq IPO in May 2019 raised more than $650 million and share prices had been resilient even after an anonymous report alleged the depths of Luckin’s fraud back in January.
Unlike Starbucks, which originated as a traditional brick-and-mortar retail concept in the pre-internet era and pioneered the concept of a “third space” beyond the home and office, Luckin’s “new retail” strategy was always digital (and really mobile) first and designed to appeal to the needs of Chinese consumers, particularly through the heavy use of giveaways and discounts.
With prices that were only slightly lower than Starbucks, mixed reviews on the quality of beverages, and operating in a market where coffee culture was still weak, Luckin relied heavily on digital marketing for customer acquisition. A partnership with Tencent offered a powerful challenge to Starbucks’ tie-up with Alibaba, with campaigns via WeChat using referrals and location-based ads, access to user data, and further opportunities for promotion through the expansive Tencent ecosystem.
Marketing costs represented the largest share of operating expenses and were equivalent to nearly 90% of revenues in 2018, according to Luckin’s IPO prospectus. To make its “little blue cups” ubiquitous across urban centers, Luckin gave away a free first cup of coffee for downloading its app, while subsequent discounts could amount to as more than 80% off menu prices — an unsustainable long-term strategy.
Luckin leveraged national pride and its status as a homegrown brand to compete with Starbucks. Tapping into the Chinese consumer’s love affair with cultural heritage, it opened a sit-down cafe in the Forbidden City in 2018, in the exact location that Starbucks was unceremoniously booted from in 2007 after a media campaign raised concerns about its Western brand imperialism. Luckin used elements of traditional art and design from the Palace Museum in the shop’s decor and for special themed cups, packaging and other products, and developed a mini-program to establish a digital connection between the brand and China’s preeminent cultural institution.
Following the latest news of the fraud scandal, Luckin has been rallying consumers to help support its business via social media, but it appears that customers may be more concerned about claiming their discount vouchers while they are still valid, with a rush of orders crashing the app’s servers at one point.
The Verdict on Shanghai Fashion Week
Tmall’s collaboration with Shanghai Fashion Week to make the event wholly digital was a bold move amid the unprecedented disruptions wrought by the coronavirus epidemic. Rather than catering to the elite few, this “cloud” fashion week had a potential audience of more than 700 million who could shop on-demand through “see now, buy now” features.
The learning curve was steep, with some unsurprising technical mishaps and issues that will need to be ironed for future events. The concentration of content on the Taobao app limited viewership to China and localized to Chinese speakers.
Brands had to figure out how to balance content and sales, with more independent labels using their time slot to experiment with going beyond runway shows or encouraging viewers to shop.
Regular consumers appreciated the access to “front-row seats,” engaged in seamless purchasing, and interacted with livestream hosts, while up-and-coming brands had the opportunity to gain massive exposure and use creative content to stand out.
Read more on Jing Daily, a CCI sister site.
Brand Film Pick: Kuaishou’s Supporting Role in Coronavirus Documentary
The Qing Ming holiday, also known as the tomb-sweeping festival, is an occasion to honor one’s ancestors, but in the wake of China’s coronavirus epidemic, this year it took on a collective significance and was marked with a far more somber tone than usual. There was nationwide mourning, virtual tomb-sweeping amid ongoing travel restrictions, and entertainment programming was suspended while sites across the internet went black and white for the day on April 4.
The short video platform Kuaishou’s rise to mainstream prominence has coincided with the coronavirus outbreak, which has created new opportunities for it to emerge stronger from the crisis. Kuaishou was already in the spotlight just as the extent of the epidemic was becoming clear: As lead sponsor of CCTV’s Spring Festival Gala, which aired as Wuhan was being placed on lockdown, Kuaishou drew users by giving away massive amounts of cash while simultaneously encouraging them to donate to relief efforts by offering matching funds.
Soon after, it became a key source of both information about the virus and entertaining diversions.
On April 2, Tsingying Film, a documentary studio affiliated with Tsinghua University, released an 18-minute film, “Wuhan 2020: How we fight Covid-19” (手机里的武汉新年), compiling footage from 122 short videos made by 77 Kuaishou users. The film traces the city’s journey from New Year’s Eve in Wuhan, one day before the closure of the seafood market connected to the earliest infections, to the tense preparations leading up to the city’s lockdown on January 23, and over the course of the Spring Festival holiday through February 8, giving glimpses into the lives of quarantined citizens and workers on the front lines.
Kuaishou’s grassroots reputation makes it accessible to all, and its content tends to have a realness that is not seen as much on the more polished Douyin, which reportedly has policies to suppress videos from less “attractive” demographic groups. The film struck a chord with its release as Qing Ming approached, drawing more than 33 million views on Weibo, where it has been shared by a range of prominent accounts such as Tsinghua University, China Newsweek and actress Yao Chen.
This is the third time that Kuaishou has partnered with a well-known documentary studio to turn user content from Wuhan into a short documentary. “Wuhan at 4 A.M.” (凌晨四点的武汉) was produced with Xinshixiang to celebrate city’s overnight workers, and “Floating Life Epidemic Days” (浮生疫日), a collaboration with Figure, showed how people kept their spirits up during the weeks of self-quarantine, from baking cakes to building a doghouse.
News in English
Top Chinese livestreamer Viya sold a “discounted” rocket for RMB 40 million (US$5.6 million) on Taobao Live. Sixth Tone
And while Taobao livestreaming still dominates for e-commerce, 58% of Douyin users say they’ve shopped via the short video platform, as have 41% of Kuaishou users. Abacus
Kuaishou added half a million livestreaming merchants between February 7 and March 31, thanks to a broad initiative to provide subsidies, promotion and other support for users of the platform. KrAsia
In the beauty sector, the coronavirus forced brands to expand their digital footprints into e-commerce livestreaming, and given how the format captures viewer attention for longer spans, it’s here to stay. Glossy
Budweiser and Rémy Cointreau are among the alcohol brands that partnered with JD.com to sponsor a series of livestreamed “cloud clubbing” parties, and noted an immediate bump to their online sales from the events. The Drum
Amid ongoing theater closures, Chinese regulators are putting their weight behind the production of movies for online streaming. Variety
A virtual roundtable Q&A session with top executives from LVMH, Starbucks, Budweiser and other consumer brands discussing how they navigated the coronavirus in China. McKinsey & Company
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China Film Insider: China’s Twitch Hoping to Turn Men on to Livestreamed E-Commerce
Jing Daily: Should Brands Follow Net-A-Porter’s Animal Crossing Lead?
Jing Travel: The Thinking (and Staff) Behind Art Institute of Chicago’s China Strategy
Thank you for reading! We will be back on Thursday with more news and our CCI Report Corner. In the meantime, we hope you and your families, friends, and colleagues remain safe and healthy.