How digital coupons help fuel the economic recovery post Covid-19
As the pandemic stabilizes in Asia, countries are slowly emerging from lockdowns and gradually easing social distancing measures to allow hard-hit businesses to restart operations. While societies are adapting to the new normal, there is an urgent challenge that governments face – how to quickly revive their economies and help small businesses in particular, in order to protect jobs and livelihoods.
Key to recovery
Among the first countries to lift restrictions and restart its economy, the experience in China offers some food for thought on how the power of digital technology can be harnessed to aid recovery, especially for SMEs that lack the resources to overcome the crisis on their own.
Small and micro businesses were the most hard-hit during the pandemic, especially those in retail, F&B and leisure and entertainment sectors. Even with the lifting of lockdown measures, “revenge spending” did not happen, at least not on the scale anticipated.
In March after lockdowns first ended in China, the average daily revenue among businesses in these sectors was less than half of what they were making before the pandemic. Weak market demand is the biggest culprit, as consumers were reluctant to go out and participate in social activities.
Unlike other economic crisis in the past, the immediate economic impact of Covid-19 has concentrated on employment and consumer spending, which has a direct effect on the survival of small and micro businesses, the backbone of local economies. Therefore, driving consumer spending was vital in recovery and stimulating the economy. Only when consumer spending increases can small and micro businesses sustain their operations, and so to protect jobs.
Going digital
Governments and private sectors in China have adopted digital coupons as ways to encourage spending. As of May, over RMB19 billion worth of digital coupons have been distributed in over 28 provinces and 170 cities. Alipay has been selected as the distribution platform in more than 100 cities across Zhejiang, Guangxi, Guangdong, Jiangxi, Fujian, Inner Mongolia, and Sichuan.
Through a joint research conducted by the Chinese Academy of Fiscal sciences and Ant Group Research Institute to look into the trends of how consumers have been spending these coupons in Foshan, Guangdong, we discovered that every RMB 1 in digital coupon has led to RMB 7.66 in real spending, i.e. revenue for businesses. During the five-day-long Labor Day holiday, digital coupons distributed through Alipay have generated a total of nearly RMB 5 billion in retail revenue countrywide.
It was also discovered that the effectiveness of digital coupons has been particularly strong among small and micro businesses. For every RMB 1 in digital coupon, small businesses have seen RMB 2.97 in revenue on average, while the figure is RMB 2.79 and RMB 2.40 for medium and large businesses respectively.
Significant growth in total transaction amount was noticed in three sectors – F&B, beauty and grooming services, and leisure and entertainment, which have recorded growth rate of 207%, 164%, and 228% respectively, with leisure and entertainment showing the greatest increase in total transaction value.
Effective for small and micro businesses
Eight million small businesses reported year-on-year sales growth, and more than five million businesses doubled their daily revenue, signalling a strong turnaround in consumer spending. 80% of small business owners surveyed have agreed that digital coupons have had a positive impact in bringing back shoppers.
Why are digital coupons effective for small and micro businesses? We believe there are three main reasons:
- The prevalence of mobile payment in China allows for almost everyone to obtain digital coupons, and to spend everywhere from street vendors, retail shops to service providers. The entry barrier for small and micro businesses, which are usually lack in technology and marketing capabilities, is low.
- The digital coupons are designed in small value, with low spending threshold and simple terms and conditions. This makes it easy for consumers to participate. Furthermore, with a mechanism designed to precisely target and distribute coupons for certain sectors, governments and industries could leverage digital coupons to effectively assist industries and businesses in need.
- Payment platforms such as Alipay are equipped with robust risk management capabilities, which can prevent abuse of digital coupons and therefore strengthen business confidence to participate.
The value of digital coupons is not limited to short-term recovery; it can also bring traction and create a cluster effect to the economy in the medium and long term. While the immediate effect is to encourage consumers to go out and spend, in the medium term, multiple rounds of digital coupon distribution could reshape consumers’ spending habit and behaviour.
Digital coupons also allow for industry collaboration, businesses across different sectors in the same region could consider issuing coupons that can be redeemed in different shops and different sectors, so to create more scenarios where consumers can use the coupons for.
Note to the editor: Mr. Liu Shangxi is the President of Chinese Academy of Fiscal Science, and the co-author of the report 消费券促进居民消费及复工复产的效果评估 (Impact Evaluation Report of Digital Coupons on Consumer Spending and Economy Recovery), a joint research conducted by the Chinese Academy of Fiscal Science and Ant Group Research Institute.
Merchant Case Study
Retail
Shanghai Bailian Group
During the Labor Day holiday, Bailian Group, an established department store chain in Shanghai distributed 80,000 digital coupons via Alipay.
According to Xucun Chen, General Manager of Shopping Center Business at Bailian Group, the distribution of digital coupons has effectively led to more than RMB20 million in sales revenue and brought over 20,000 new shoppers to the stores during the holiday.
“We used to give away coupons via our social media platforms, but it has limited our reach to only existing customers. With Alipay’s platform and technology, we are able to engage potential customers nearby to further drive sales,” said Shenyu Zhang, CEO and General Manager of Bailian Omni-channel E-commerce Co., Ltd. This is the first time that Bailian has adopted the new retail model of offline (sales in brick-and-mortar stores) + online (digital coupon via Alipay).
Riding on the success, Bailian Group has distributed another batch of over nine million digital coupons, totaling nearly RMB500 million via Alipay, since 1st June. With coupons covering eight businesses under the group - shopping malls, supermarkets, pharmacies, building and renovation materials, and so on. This is the largest coupon distribution by one retail company in Shanghai.
Liao’s Bon-Bon Chicken
Liao’s Bon-Bon Chicken (Liao’s) is a good example of a small business that has embraced digital technology to revamp its operations. As early as 2018, Liao’s has implemented Alipay in all outlets across China to boost operation efficiency. Last month when Wuhan distributed digital coupons to local residents to boost consumer spending, this Chengdu-originated eatery chain leveraged its digital capabilities to become the business that recorded largest sales increase in Wuhan.
“Even though we are in a traditional food business, we are eager to adopt technology and smart marketing to seize the benefits of digital innovation.” A manager of Liao’s said. “In my view, Alipay is the leading digital platform which locals can’t live without in everyday life. We hope we can integrate every aspect of our business with Alipay,” he continued.
“During the first week of digital coupon distribution, our outlets in Chengdu have recorded a 50% surge in total sales and the transaction value via Alipay has gone up by 128%,” said Liao’s executive overseeing business operation in Chengdu. On top of the RMB20 discount for every RMB60 spent, Liao’s decided to offer additional RMB10 vouchers via Alipay, allowing customers to enjoy up to 50% off their bill, making it even more attractive to customers.
Liao’s Bon-Bon Chicken is one of the 230,000 small and micro shops in Chengdu that has benefitted from digital coupons. Its revenue in May this year has surpassed last May and recorded a year-on-year growth during the post-pandemic recovery.
