Purpose: The polarization in the society and economy, which has been progressing along with the shock of COVID-19, continues to have an impact on changes in production and consumption activities in the market. In the case of the retail industry, consumption behavior shifted to non-contact purchasing activities in the era of pandemic, and the contraction in demand for the traditional face-to-face service industry led to the overall domestic economic recession. Using the household trend survey data of Statistics Korea, this study empirically analyzes the effectiveness of the government subsidy policy implemented to stabilize domestic households’ consumption life in the pandemic crisis by a Difference-in-Difference (DID) model based on propensity score matching (PSM). Considering the SOR (Stimulus-Organism-Response) model as a theoretical background, our study explains the change in consumer sentiment (O) of domestic households due to the external environmental stimulus (S) of the pandemic crisis and the resulting level of household spending (R) from the perspective of retail marketing.
Research design, data, and methodology: In this study, the pandemic crisis is understood as an external environmental stimulus, and the change in consumption behavior according to changes in consumers’ psychological emotions is explained through the SOR model. Our study views a government subsidy as policy interventions aimed at boosting domestic consumption during the early pandemic period, and how the effect of government subsidy varies depending on product categories and household characteristics is examined.
Our study uses household trend survey data in the second quarter of 2020, when the first disaster subsidy began to be paid, and the second quarter of 2019 for comparison as a control group. The household trend survey data provided by Statistics Korea is a national representative cross-sectional data conducted every month for the purpose of identifying trends in household economic activities, targeting approximately 7,200 ordinary households residing in Korea. In this study, the household trend survey data in the second quarter of 2020 and the second quarter of 2019 (for households with one or more persons nationwide) are used as a treatment group and a control group, respectively. A total of 10,712 household samples are used for the final analysis. The following PSM-DID model is considered to examine how the interaction between the first disaster subsidy policy and whether or not each household received a government subsidy affects the households’ consumption expenditure across product categories.
In equation (1), i represents each household, j represents whether it is a treatment group or a control group, and t represents the period before or after the pandemic. The main coefficient of interest in the proposed model is β3, which explains whether the first disaster subsidy policy during the pandemic had a significant effect on the change in domestic households’ spending across product categories.
Results: <Table 1> and <Table 2> show coefficient values estimated through the proposed PSM-DID model for each product category. β3 is a coefficient of interaction term representing the effect of government subsidy during the pandemic period, and it is found to have a significant coefficient value although there are differences by product categories. This implies that households that received the government subsidy significantly increased or decreased their consumption for certain product categories, despite the overall decline in household spending during the pandemic period.
Specifically, domestic households’ consumption spending increased significantly after the implementation of the government subsidy policy, especially in the grocery category such as meat, vegetables, and alcohol, as well as durable goods such as clothing and outerwear, shoes, home appliances, and medicines whose demand rapidly soared during the pandemic. Our results show that the government subsidy has a positive effect on domestic households’ consumption expenditure of utilitarian goods in the pandemic situation.
On the other hand, in the case of hedonic goods such as home interior decoration and hobby items, there was no change or a significant decrease in consumption level even after the implementation of the government subsidy policy. The effect of government subsidy to stimulate consumption of hedonic services is also found to be insignificant (e.g., cultural service, lodging expense), and the level of domestic households’ consumption expenditure for some hedonic goods (e.g., hobby items) even decreased.
Table 3 shows a result of PSM-DID analysis by segment level, and it is found that there exists a significant change in households’ consumption spending after the implementation of the government subsidy policy by product categories. First, in the case of high-income households, consumption spending increased in food categories such as meat, vegetables and meals, and in essential goods such as clothing and outerwear, while consumption in the hobby items actually decreased. On the other hand, low-income households or single- or two-member households showed a significant increase in consumption spending on essential goods such as food categories and clothing and outerwear, as well as non-essential goods such as alcohol and some utilitarian goods such as home appliances. Our results also show that the government subsidy has a negative effect on consumption expenditure of hedonic goods for households with high purchasing power, while it has a positive effect on consumption expenditure of hedonic goods for households with low purchasing power in the pandemic situation.
Conclusions: This study attempts to empirically analyze the effectiveness of the government subsidy policy implemented to stabilize households’ consumption life in the pandemic period by considering product categories and household characteristics. Considering the SOR model as a theoretical background for the analysis, our study explains the change in consumer sentiment (O) of domestic households due to the external environmental stimulus (S) of the pandemic crisis and the overall consumption expenditure level (R) from a perspective of retail marketing.
According to the PSM-DID analysis of the household trend survey data, it is found that domestic households’ consumption expenditure on daily necessities and utilitarian goods such as food and medicine have increased significantly after the implementation of the first disaster subsidy policy. This consumption pattern is shown to be similar even in the case of households with a high income level and a large number of household members, thus it seems that the government has achieved the desired purpose of preserving the purchasing power and revitalizing consumption of domestic household through the subsidy policy. On the other hand, a significant decrease in consumption expenditure on hedonic goods or non-essential goods such as hobby items is observed after the implementation of the first disaster government subsidy policy, indicating that the direct consumption stimulation effect of the subsidy is insignificant for these product categories.
In addition, the PSM-DID analysis results by segment level show that there are significant differences in the level of consumption expenditure by product categories according to demographic household characteristics. In the case of high-income households, consumption in the food category and essential goods increased but spending in the hobby items actually decreased. On the other hand, low-income households or single- or two-member households’ consumption expenditure on both food categories and necessities as well as nonessentials such as household appliances and alcohol increased significantly. From the perspective of retail marketing, these findings suggest that households with relatively low purchasing power can use the government subsidy to purchase essential goods necessary to maintain basic living in a pandemic situation as well as using for impulse buying or hedonic shopping to psychologically adapt to crisis situations. In the same vein, it is found that non-elderly households or households living in cities also reduce consumption in the hobby items after the government subsidy policy. This implies that these households (similar to high-income households with high purchasing power) used the subsidy they received as a tool for consumption of essential goods needed to directly solve the problem of the pandemic situation rather than consuming hedonic goods.
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