COVID-19 proves digital transformation is a business

imperative that marketing must lead

Clement Yip
Source: WARC Exclusive, March 2020
Downloaded from WARC

The coronavirus will hasten the digital transformation of vulnerable, traditionally-run consumer retail
companies.

With a community-driven, social distribution strategy, TsingTao beer recovered from a time of
uncertainty when its traditional distribution channels were lost to quarantine measures and supply
chain disruptions.
As the economic fallout continues, it would be harder for marketers to have a casual attitude
about long-term digital transformation - the department should lead this.
A framework by PwC highlights five important functions: product innovation, supply chain,
sourcing and production, sales channels and marketing.

Marketing in the COVID-19 crisis

This article is part of a special WARC Snapshot focused on enabling brand marketers to re-strategise amid the
unprecedented disruption caused by the novel coronavirus outbreak.

Read more

Why it matters
Some companies are responding to the coronavirus within organizational silos (for example, the procurement
team is driving supply-chain efforts, sales and marketing teams are working on customer communications, and
so on). Lessons are learnt the hard way for companies that did not prioritise becoming more digitally mature in
the past.

Takeaways
 Organizations must build a stronger foundation of the five most important functions in digital
transformation. This defining moment is an opportunity for marketing leadership to strengthen operations
for the long term.

Advance planning at TsingTao has increased the rate at which the brewery adapts on-the-fly with quick
reflexes to changes in market conditions due to COVID-19.

Anta, HaiDiLao, Nestle, JD, Suning, Jiang Xiao Bai, Walmart, Chanel, Tik Tok, Kwai, Hema, H&M, Alibaba,
K11, Luckin and Uniqlo provide further examples of focus.

2020 is going to be a very challenging year for many brands and businesses across industries – most notably
consumer packaged goods. The tourism, airline, hotel, restaurant, retail, auto and other sectors have all been
heavily impacted by the epidemic.

During this unprecedented time, products and services powered by digital channels provide maximum
convenience, efficiency and accuracy, both empirically and emotionally.

In contrast to the suffering of traditional consumer retail businesses, apps and digital platforms have seen a
spike in demand. For example, in February alone, the online fresh food and grocery market grew between
250% to 300% (link in Chinese). Platforms for cloud-based education, enterprise work, and online
entertainment such as video, music and games all surged in user growth. Even a medical consultation app
received over 100,000 consultation requests in just a day.

Many companies relying heavily on conventional retail models are desperately cutting costs by announcing
reductions in shops, staffers and salaries with the goal to preserve cash.

However, some manufacturers are able to react to the coronavirus epidemic with quick action. For example,
TsingTao beer resumed production since February 10, and then launched a new 'Be a Distributor' digital
sales program on February 22.

The TsingTao program was meant to acquire 10,000 independent distributors through its WeChat channel in
one week; but within three days, 40,000 people signed up for it. These independent distributors got their friends
to order cases of beers via the brand's official WeChat platform for home delivery within 30 mins. The
distributors got cash commissions from the sales, the drinkers got their products, and everyone is happy.
Logistics are handled by TsingTao’s internal team covering 28 provinces and 324 cities in a meticulous
management system. It was a brilliant idea to open up distribution to both employees and the public by
leveraging personal friend-to-friend networks with a community-driven strategy to reduce the losses from
traditional distribution channels that were under pressure.

"We are actively transforming rapidly and trying to find ways to minimise the impact of the epidemic," said Zhang
Fan, deputy director of sales operations management of Tsingtao Brewery, adding that Tsingtao had been
planning for a 'community commerce' system in advance.

Tsingtao's ability to react to the epidemic doesn’t just happen by itself. It's an evolution at least two years in the
making. Without a robust O2O 'new retail' strategy, a strong digital framework, a process for innovation, and
supply chain management capabilities, there will be no foundation for the beer brand to resolve some of its pain
points as the coronavirus spread.

Digital transformation is neither a quick-fix solution nor just a marketing department matter, really. It’s imperative
for the whole company to transform its entire business model digitally, linking innovations in product, supply
chain, sourcing and production, sales, and marketing. This is needed to cater to constantly changing consumer
needs, to collect valuable consumer data via multiple touchpoints, to centralise databases for agile, integrated
operations.

Digital transformation is a long term strategy.

Even before the epidemic, China's consumer retail market has matured into a more rational, value-driven, and
seamless format focused on experience; this demands a corresponding change in strategies. In a world where
moderate growth is the new normal, the industry is prompted to go back to the basics and refocus on
fundamentals. Of course, with all the economic and market forces currently at play, brands and retailers are
trying to find a delicate balance between consolidating existing capabilities and making strategic investments to
enable digital transformation.

Companies should be more selective in how they deploy digital transformation, especially in 'new retail'
solutions, to accentuate their competitive advantages. Rather than experimenting with 'blue sky' innovations
(where real-world applications are not immediately apparent), retailers should focus more on aligning reforms
with strategy, and prioritising quality of change over quantity. This approach allows companies to partake in
China's 'new retail' revolution while taking a safer and more pragmatic path.

In our China consumer insight report last year, we introduced a framework that visualises digital
transformation and highlights five important functions: product innovation, supply chain, sourcing and
production, sales channels and marketing. We suggest that the entire business process and operating model
should be considered in any transformation. The framework also outlines a consumer-centric way to enrich
brand experiences that are supported by technology and big data.
1. Production Innovation

2. Supply Chain
3. Sourcing and Production

4. Sales channels
5. Marketing

There's no doubt that the epidemic has caused a short-term economic downturn, but there are also new
opportunities for digital transformation that companies need to think through clearly to plan for their recoveries.
When SARS hit Asia in 2003, it led the way in speeding up the development of e-commerce in China. B2C e-
commerce platforms such as Taobao and JD all started out during that time, and they both became two of the
most successful marketplaces in China.

I strongly believe that businesses should escalate their digital transformations to the next level, and certainly, to
be able to react to any epidemic or pandemic.

About the author

Clement Yip
Partner and Experience Centre Leader for Mainland China & Hong Kong, PwC

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