Impact of covid on business, Schemes and Mind Maps of Fundamentals of E-Commerce

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Impact of the COVID-

crisis on short- and

medium-term

consumer behavior

Will the COVID-19 crisis have a lasting

effect on consumption?

Introduction

The initial appearance of COVID-19 and its European spread in 2020 has changed the lives of millions of people. During this crisis, the world has observed the imposition of international travel bans, lockdowns of whole countries and the closure of shops and service points. Consequently, health care systems have been exposed to a large patient load while turnover within the world’s economies is declining. Considering these effects, COVID-19 is not only a risk for global human health but also for the social and economic balance in each affected country. Without a doubt, the virus is one of the greatest crises for humanity within the past 100 years and influences consumer behavior.

Already, leading economic experts recog- nize a high effect of COVID-19 on both consumption and GDP. Some even predict the largest recession since the Great Depression with a worldwide impact (Rappeport & Smialek, 2020). Estimates for the decline in economic activities within Germany go up to -10 percent for the second quarter (Börsch, 2020), while estimates for the recovery from the GDP recession range from three to 12 quarters (Wirtschaftsdienst, 2020). Although GDP and consumption crises do not always go together, these facts highlight a wide range of possible options in the coming months and years. In addition, the high uncertainty regarding the easing of lockdown measures and reopening of stores makes it difficult for companies to prepare for the future.

Companies are trying to counteract the current situation with new sales and ser- vice solutions to secure at least a minimum level of business. Some have adapted to the current situation by changing their business models (e.g., implementation of online shops, digital customer service, etc.). In doing so, companies not only execute

long-standing but never-introduced plans, but are also reacting to alleged changes in consumer behavior. Exemplary numbers prove them right. During the COVID-19 cri- sis, 13 percent of the people who normally buy medicine offline have bought it online instead (Statista, 2020), and more than half of Girocard payments have recently been contactless compared to one-third in 2019 (Beller, 2020). Consumers are changing their behavior during the crisis, and the crucial questions are: Does the crisis have the power to change consumer behavior not only in the short term but also in the medium and long term, and what will the behavior look like once restrictions on con- tact and store openings have been eased? These questions are especially important for B2C companies, which need to find a fast recovery and resolute way out of the COVID-19 crisis. Finding the right answers to the questions is essential to building a lasting competitive advantage and a sus- tainable business model for the future.

Impact of the COVID-19 crisis on short- and medium-term consumer behavior | Will the COVID-19 crisis have a lasting effect on consumption?

Approach and

core questions?

With this study, Monitor Deloitte sheds light on how consumers are expecting their behaviors to change during and after the COVID-19 crisis. The identified consumer megatrends of recent years provided the basis for the development of propositions that answer the following questions:

- Will demand move back from global toward local products? - Will consumers prefer owning over sharing again? - Will digital selling channels finally be the most promising selling strategy? - Will consumers continue to buy in-home and not return to out-of-home consumption? - Will consumers take less care of data security as convenience and electronic services become more important?

A survey as well as expert interviews delivered the necessary information to test these propositions and declare them true or false. The survey used a two-stage approach, which captured both the broad consumer behavior and in-depth industry insights. More than 2,000 participants took

part in the survey and completed it the last weeks of April 2020, during the COVID- crisis. Participants revealed insights on their behavior before and during COVID-19, and gave indications regarding their intended behavior after the crisis. Addition- ally, interviews with experts from different industries were conducted to provide a complete picture on changes in consumer behavior. In doing so, the Monitor Deloitte study covered all major industries affected by the forced shift in consumer behavior including retail, consumer goods, banking, telecommunication, tourism, etc. Addition- ally, the survey provides detailed behavioral insights regarding different demographical levers (residence, age, etc.).

The section “Key takeaways” summarizes the results and the most important facts. In the end, the survey helps to understand the detailed changes in consumer behavior during the crisis and changes possible in the 12 months after it. Thus, it enables companies to adapt offerings.

Impact of the COVID-19 crisis on short- and medium-term consumer behavior | Will the COVID-19 crisis have a lasting effect on consumption?

Increased utilization of goods and services via digital channels Proposition: Online vs. offline

Proposition Because people were forced to switch to online channels for purchase of goods or utilization of services, it is expected that a large proportion of customers will continue to utilize those channels even after stores have reopened.

In the course of the past years, more and more people have been using online channels to buy goods and utilize services. Because of closed stores and contact bans, this utilization has risen even more during the COVID-19 crisis in Germany. However, the question is whether this forced change of behavior will last even after the strict bans are loosened. To assess this, con- sumers were asked about their behavior concerning eCommerce in different cate- gories, their preferences in terms of digital payment and banking solutions as well as utilization of online customer services.

As expected, consumers have been using online channels for shopping, payment and services more during the crisis. However, the increased usage strongly depends on whether the consumer has used those channels before the crisis. First-time usage of those channels during the crisis is more unlikely than the more intense or frequent usage of experienced users. However, from the consumers who used online more during the crisis, a long-lasting effect can be expected. For almost all categories, respondents state they will continue the increased online activity. When looking at the reasons, convenience, time savings and increased selection online are ranked alongside health concerns. Because these benefits will not disappear after the crisis, it is likely the usage behavior will stay.

Purchasing goods online The global eCommerce market grew consid- erably during the past years, and the global online retail volume is expected to grow further at the rate of about 15 percent until 2023.^1 However, this does not mean it has made shopping in brick-and-mortar stores obsolete. On the contrary, in many categories the proportion of goods sold online is comparably low. This is especially true for the German market where the share of food bought online is about 1 percent of the total 125.3 billion euros.^2 Some consumers have tried shopping online, but it has not yet become a consistent consumer pattern and differs heavily within categories. When asked, most survey respondents reported having bought fashion, consumer electronics, books and drugs/medicine online. Again, it can be observed that food has only been bought online before by around one-third of people.

Fig. 1 – People were asked whether they have ever bought a certain category of goods online before the crisis (N = 2007)

0%

20%

40%

60%

80%

100%

Food Fashion Household Beauty & Care

Consumer Electronics

DIY Gardening Drugs/ Medicine

Books Games Magazines

31%

59%

47% 43%

52%

29% 29%

43% 46%

26%

17%

While supermarkets, DIY markets and drugstores were still allowed to keep their doors open, many other stores had to close for several weeks. This has naturally increased online sales, but was it sufficient to convince people who have never done it before to shop online and for categories they have never bought online before?

Fig. 2 – People were asked whether they have bought a category more often during the COVID-19 crisis, split by whether they have bought it online before or not (N= 2007)

Food

Fashion

Household

Beauty & Care

Consumer Electronics

DIY

Gardening

Drugs/Medicine

Books

Games

Did not buy category online beforer Did buy category online before

While between 40–50 percent of respond- ents predominantly state health concerns as a reason to increase online shopping, the experience in terms of time savings, increased convenience and assortment online also matter, indicating that the effect cannot be attributed to COVID-19 alone and might be longer lasting.

This is of course not an accurate prediction of the future and is based on consumer sentiments. Our way of life might still be very much restricted during the upcoming months. But if in all those category experi- ences the online shoppers increase utiliza- tion of online channels, the crisis will have a lasting impact on channel management for retailers.

For most categories, about 40–50 percent of respondents who bought more online during COVID-19 stated that the crisis will not have any lasting effect on their online shopping behavior in the next 12 months. However, a still considerable number say that they will buy more online compared to before the crisis. This is particularly true for food with 46 percent of respondents. For

the other categories, between 24 percent and 33 percent of respondents said they will buy more online mid-term. When look- ing at the reasons for or against shopping online more during the next 12 months, arguments stay more or less the same across categories, as can be seen for three exemplary ones:

Health concerns Convenience Saving time Large assortment online

Support local stores I generally don’t like online shopping Personal service Large assortment offline

Food

Top reasons for buying more online in the next 12 months

Top reasons for not buying more online in the next 12 months

Beauty & Care

Drugs/ Medicine

Food

Beauty & Care

Drugs/ Medicine

Fig. 4 – Depending on their previous answer, people were asked the main reason why they will buy more online or less online in the respective category (N = 2007)

Impact of the COVID-19 crisis on short- and medium-term consumer behavior | Will the COVID-19 crisis have a lasting effect on consumption?

Reason for continuing to buy online

Health concerns

Convenience

Saving time

Better selection online

Saving money due to better offers

Other

Excurse: Buying online in the Telco sector

Only 15 percent of respondents bought Telco products such as

cellphone contracts during the crisis, mainly due to the fact that

they are not seen as essentials and most of the stores were closed.

That said, 81 percent of these buyers reported using digital channels

such as websites or apps to make those purchases. A learning curve

seems to be taking effect in the sector, however, as 36 percent state

that they plan to use digital channels more often to buy this type of

product during the coming 12 months.

Impact of the COVID-19 crisis on short- and medium-term consumer behavior | Will the COVID-19 crisis have a lasting effect on consumption?

To limit contact points during the COVID- crisis, many retailers – from supermarkets to small bakeries – have decided to offer card payment solutions. Combined with con- sumer consciousness, this increase has led to a steep rise in digital payment methods.

On the contrary, for online shopping the dependencies between usage before and increased usage during the crisis cannot be found for online banking and card pay- ment. For both groups of people increases range high, between 20–40 percent, for online banking, driven by the fact that many banks needed to close up to 80 percent of their branches. Usage of mobile payment has skyrocketed during the crisis, with 65 percent of those who tried it before stating that they use it more often now. Only 10 percent of respondents reported using it for the first time in the crisis. This goes in line with the opinion of Aydin Sahin, head of marketing at Commerzbank. He states that even though usage numbers are going up, he does not see that consumers who were not digitally perceptive before will change 180 degrees. When taking the example of mobile bank- ing, people who wanted to use it instead of credit cards had migrated already before the crisis.

Fig. 6 – People were asked whether they use digital banking or another payment method more often during the COVID-19 crisis, split by whether they have bought online before or not (N = 2007)

Fig. 7 – People who said they had increased online shopping behavior during COVID-19 were asked how they think they will use digital banking and payment solutions during the next 12 months: more, same, or less than before the crisis

Mobile Payment

Card Payment

Online Banking

Online Banking 44%

Card Payment (^) 47% 15%

Mobile Payment (^) 23%

More Same Less

Did not use service before Did use service before

From respondents who said they will utilize the methods more during the crisis, a clear continuation of the trend can be seen with 38 percent (card payment) to 50 percent (mobile payment) of respondents expecting they will use it more than before COVID-19.

Looking at the main reasons why or why not people will use digital banking and payment solutions, 30–40 percent of

respondents reported convenience fol- lowed by health concerns. Combined with the increased infrastructure, this leads to the conclusion that the increased usage will last during the next year.

Top reasons for using more digital banking solutions in the next 12 months

Top reasons for using fewer digital banking solutions in the next 12 months

Mobile Payment

Card Payment

Online Banking

Mobile Payment

Card Payment

Online Banking

Fig. 8 – Depending on their previous answer, people were asked the main reason why they will use digital banking meth- ods more or less in the respective category (N = 2007)

Convenience Health concerns Saving time

I prefer cash/personal transactions Increased transparency about transactions Going back to old habits

Survey data shows that those who were already using digital services before the cri- sis are also the ones who use it more now, likely because they already had positive experiences with it or knew how to use it. Still, some forced migration can be seen as between 10 percent and 20 percent of con-

sumers are now using these services for the first time. Data from companies also shows that service experiences are going quite well. Sahin states, “For Commerzbank, around half of service requests are suc- cessfully being solved without any human interaction.”

Fig. 11 – People who said they used more digital services during COVID-19 were asked how they think they will use digital services during the next 12 months: more, same, or less than before the crisis

More Same Less

eCommerce (^) 43%

Travel (^) 26% 37%

Insurance

Telecommunication (^) 35%

Impact of the COVID-19 crisis on short- and medium-term consumer behavior | Will the COVID-19 crisis have a lasting effect on consumption?

Positive reinforcement comes from the con- sumers who are using digital services more during the crisis, with more than one-third stating they will use digital services more in the next 12 months compared to before the crisis. The fact that these people will likely change their behavior is also reflected by the reasons they gave, with the combination of convenience and saving time stated more often than health concerns.

Fig. 12 – Top reasons for using digital services in the next 12 month across industries

Top reasons for using more digital services in the next 12 months

Top reasons for using fewer digital services in the next 12 months

Telecom- munication

Travel

eCommerce

Telecom- munication

Insurance 24%

Insurance 41%

Travel

eCommerce

Convenience Health concerns Saving time

Support local store More transparency Personal service

Impact of the COVID-19 crisis on short- and medium-term consumer behavior | Will the COVID-19 crisis have a lasting effect on consumption?

Sharing mobility Even before the crisis, most mobility- sharing solutions had profitability issues and were more of a bet on the future than an efficient business model, mainly because of too-high costs.^6 Before COVID-19, more than 45 percent of survey participants used some form of mobility sharing, 27.4 percent used ride sharing or on-demand ride services, 26.7 percent used micro-mobility solutions such as bikes or scooters and 11.1 percent used car sharing.

After the COVID-19 crisis, car sharing and ride sharing could especially suffer from the decreased usage of mobility solutions with approximately 30 percent less demand. For car sharing, customers will likely return to their own vehicles (bike or car) because they want to decrease infection risk (37%), became accustomed to driving their own car or bike during the crisis (26.7%), or they just want to save money after the crisis (19.5%).

Fig. 13 – Which mobility solutions did you use before COVID-19? (N = 2007)

Fig. 14 – Do you think the COVID-19 crisis will change the way you will use these mobility solutions in the future? (N = 2007)

Electric scooters/ bikes

Car sharing

Taxi/Uber

Ride sharing

None of this

Ride sharing 66%

Taxi/Uber (^) 65% 29%

Car sharing

Electric scooters/ bikes 64%

More Same Less

These implications will put many market players at risk and lead to market adjust- ments, with consolidations and even bankruptcies in these sectors possible during and after the COVID-19 crisis. For micro-mobility solutions, 15.3 percent of customers expect to increase their usage of these services, which is a relatively high number in contrast to the other mobility- sharing options, which range from 2.6 percent to 5.9 percent. The major reasons for this consumer behavior are the reduction of infection risk in public transportation (32.8%), the availability of these mobility solutions (21.4%) and

their convenience (17.2%). It seems as if consumers are afraid of infections in shared cars but are not afraid of the infection risk of a scooter. This could create additional potential for some micro-mobility providers if they make it through the current crisis with its reduced demand for mobility. In addition, the number of people who want to use this mobility solution less after the pandemic is significantly lower. However, 21 percent of consumers also want to reduce their usage of micro-mobility solutions such as electric scooters or bikes.

Fig. 15 – Why do you think that you will use these mobility solutions more often in the future? Electric scooter/bicycle (N = 2007)

For safety reasons/reduced risk of infection than in public transport

The mobility solutions are always available

I save money

It’s more comfortable

I save time

I would like to support the companies

Other