As the number of confirmed cases of COVID-19 continues to grow, consumers are reacting in ways that some might consider to be irrational—from stocking up on water and toilet paper to saying that they won’t order the Corona beer. Surprisingly, in the grocery stores, banners have been put up saying that the beer has no relation with the corona virus.
The world has been devastated by this unprecedented crisis. The entire planet has come to standstill. The pandemic is going to have gargantuan impact on economies with massive decline in production and consumption. It has challenged the way we look at economics.
In this time of crisis, we need to analyse its impact through a different prism, and it might be very interesting to do so too! One of the ways for analysing the above mentioned impact can be through the analysis of Consumer Behaviour.
When we start talking about the same, a quote given by Richard Thaler, who gave the Nudge Theory ( A part of Behavioural Economics), becomes very relevant in the discussion – “By knowing how people think, we can make life easier for them to choose what is best for them, their families and society”. The relevance of the quote is highlighted when we think about how our society, family and the economy especially react post this pandemic. One of the important factor to consider is how the Corona Virus will change the consumer behaviour. Coronavirus is shaking up business and consumer behaviour on a massive scale. Both the public and private sectors are scrambling to slow the spread of the illness and contain COVID-19 infections. While the full economic consequences of this black swan event are still unclear, we know that the effects that the virus—and the drastic measures being taken to contain it—are already precipitating change across industries.
Talking strictly about the Consumer Behaviour part of Covid-19, we can divide it into six broad changes in behavioural patterns, per say which are as follows:
#1. Proactive Health – Minded People:
The consumer behaviour shifts and interest rise in products that support overall maintenance of health and wellness. We saw people around the world rushing to the nearby chemist shops and stocking up hand sanitisers and face masks. It is interesting to note how the demand curve for hand sanitisers shifted rightwards drastically, but the same change wasn’t seen in hand soaps, despite the fact that most countries were in lockdown and that soap is proven to be more effective than a hand sanitiser.
#2. Reactive Health Management:
The above mentioned example marks our second threshold and it also connected with the first. It might also be due to the various governments launching health and safety campaigns.
#3. Pantry Preparation:
Pantry stockpiling of shelf – stable foods and a broader assortment of health – safety products; spike in store visits; growing basket sizes. We saw endless lines at the grocery stores, with people buying essential items and stocking them up. This is also referred to as the Herd Mentality, which is also a concept in behavioural economics. When we talk about the cognitive analysis of human behaviour, an import thing which needs to be considered is the Domino effect, and how rumours can lead to people stocking up their pantries.
We also see during the current crisis that how the thought process of people is influenced by the majority. We can take the example of how fear spread and people who didn’t even had the need of stocking up essential items, got scared because of the majority and also indulged in stocking up of their pantries. This can be explained by the Solomon Asch experiment, and therefore by this, we can also relate psychology with behavioural economics too!
#4. Quarantined Living Preparation:
When we talk about consumer behaviour with regards to this, we can see increased online shopping, a decline in store visits, rising out-of-stocks and most importantly, strains on the supply chain.
#5. Restricted Living:
In this threshold, the consumer behaviour associates itself with severely restricted shopping trips, online fulfilment is limited, price concerns rise as limited stock availability impacts pricing in some cases. Here, we are also talking about mass cases of Covid-19, communities ordered into lockdown, restaurants closures, restrictions on gatherings, etc.
#6. Living a normal life:
When we talk about consumer behaviour after the Covid-19 pandemic, we are talking about how people turn to daily routines (work, school, etc.), but operate with a renowned cautiousness about primarily health. Permanent shifts in supply chain, the use of e-commerce and hygiene practices may also be witnessed.
While talking about consumer behaviour and behavioural economics, the example of the United Kingdom can be taken which has come up with “nudges”. Nudges usually offer positive reinforcement or indirect suggestions that aim to influence decision making and behaviour in people.
Some example nudges in response to the novel coronavirus include singing happy birthday while washing your hands or using funny alternative “handshakes”. These strategies emphasise the need for good hygiene, and create memorable rules of thumb which encourage people to participate. However, the question is whether these efforts can help mitigate something of this size.
Another factors which come to play while talking about the consumer behaviour aspect of Covid-19, is how work from home has become a common practice. Corporates and various other companies are scrambling to follow work from home practices. Employees have no start and end time and have to do work nearly anytime, hence overburdening them. Another aspect is which can be considered is about health insurances. Debate is going on around whether or not the Covid-19 claims can be included in the health insurances. Moreover, people all around the world have started giving more weightage and focus to health insurances in general because in nearly all insurances, claims of Covid-19 are included and people are realising how uncertain life may be.
One of the biggest lessons from behavioural economics is that we make decisions as a function of environment we are in. The Covid-19 pandemic is going to bring about a massive change in every sphere of our lives. We’ve seen how people reacted in different ways during this emergency situation. There are many things and aspects which are highlighted in this unprecedented crisis, on and about which the state and the policy makers need to ponder upon.
For the ending, a quote by Daniel Kahneman, a psychologist and economist is fully relevant – “True intuitive expertise is learned from prolonged experience with good feedback on mistakes”, and during this unprecedented crisis, hopefully, various states would have taken an experience and if god forbid, a similar crisis happens in future, they’ll be well equipped to handle it.
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Belonging to Gurgaon, he is currently a student at Kirori Mal College pursuing Economics Hons. Ishaan is a fun loving person, soft at heart and a confident and dedicated soul. You can typically find him working for his endeavours or attending a Model United Nations conference. He likes to keep himself aware about the happenings around the world!