HONG KONG (AdAgeChina.com) -- As marketers struggle to recover from a global recession and sinking sales, China looks like the proverbial land of milk and honey....or maybe tea and wontons.
China's GDP is humming along at 8%, and ad spend growth is beating that figure. Most marketers who pulled back on ad spending in the first half of 2009 came back in the second half, as global headquarters realized the importance of China.
At CCTV's annual auction in November 2009, for example, media buyers spent over 18% more than the previous year, even though 2008 was a particularly strong year thanks to the Summer Olympics in Beijing. Car buyers face a waiting list for top models and most consumer goods are flying off shelves.
The recession may have largely skipped China, but in the decade ahead, advertisers can't lose focus if they want to maintain growth.
Here are ten predictions to help marketers prepare for the challenges ahead.
1. Advertisers will expand in China's lower-tier markets
Most multinational advertisers have cracked the country's largest and most sophisticated cities like Beijing and Shanghai, but they are home to only a fraction of China's total population. In 2010, companies need to figure out how to reach the one billion consumers that live beyond the tier-one cities.
These are sizable markets. China has about 150 county capitals with more than one million people and thousands of towns with a population between 500,000 and one million. Still, scale alone doesn't sell burgers and laptops in China's lower-tier markets. Disposable incomes, familiarity with foreign brands and products, and retail and distribution practices change dramatically when marketers move from Shanghai and Beijing to Changchun and Wuxi.
2. Media agencies prepare for battle
A major shift is taking place in the balance of power among global media agencies in China.
"The 'big two' of Zenith Media and GroupM have now become the 'big four,' with Omnicom winning PepsiCo and Unilever, and Carat collecting Kraft Foods, Nokia and other big moves," said Greg Paull, a principal at independent marketing consultancy R3 in Beijing.
At the same time GroupM lost clients like Mars and China Telecom.
"This will likely mean new competition, more pitches and more pressure on margins. The strong will survive by diversifying into content, digital and consulting," Mr. Paull said.
3. Shanghai prepares for its Expo close-up
Don't have an Expo strategy in place yet? Develop one now. Just as the 2010 World Expo has physically transformed Shanghai in the past year, as the city prepares to welcome millions of visitors from May 1-Oct. 31, 2010, the impact on marketers there will be enormous. Sponsors like IBM Corp., Cisco and Johnson & Johnson are ramping up massive Expo campaigns, bringing back memories of the Olympic-themed ads that dominated Chinese advertising two years ago. Even non-sponsors are looking for ways to capitalize on the attention focused on China's most cosmopolitan city.
4. Digital will take a greater share of media budgets
Digital media will continue to grow fast, both in terms of consumer usage and the development of new technology.
Advertisers recognize that media consumption habits have greatly changed and that reaching consumers through online channels is important. Major marketers like Coca-Cola Co., Procter & Gamble Co. and Unilever are significantly increasing their budgets for digital campaigns.
"These companies are spending more of their budget on digital sites, which will change how the market operates quite significantly," said Scott Kronick, president of Ogilvy & Mather Group in Beijing and president of Ogilvy PR in China.
Ties between marketers and interactive agencies will grow beyond short term project-based relationships into full-blown roster appointments. Digital agencies would be wise to expand into other below-the-line areas like CRM, loyalty programs and other services that creative and media agencies alone can't offer.
5. Advertisers will get friendly with social media networks
One of the biggest growth digital areas is social marketing, which is moving from the experimental stage to the mainstream.
"Most China marketers are testing out social media right now, but few have a long-term strategy in place. That will change this year as they start to see the value of better conversations," Mr. Paull said.
In the past, for example, multinationals automatically partnered with a handful of big, general interest sites like Renren.com, but savvy advertisers want to take a more strategic approach in China this year.
Looking for a job? Agencies will hire people this year to drive social marketing campaigns.
6. Companies in China will start to go green
China's green movement is nascent but it has traction, as consumers focus on the environmental impact of locally-made goods as well as improved safety and quality.
Smart companies will make sure their supply chains in China are adopting sustainability measures and green policies, and start communicating these practices in ad campaigns.
Green decisions are partly put in place to stay in line with companies' global guidelines, but they also stem from pressure from local consumers and suppliers.
"China wants to trump the world and show they are green citizens. They don't want to be pressured to perform or follow someone else's guidelines, but they are serious about it," Mr. Kronick said.
7. International firms will polish their corporate image
Foreign companies will invest more in corporate branding rather than focusing strictly on product campaigns, to enhance their image as good corporate citizens. Why?
"The Chinese government is doing more and more to favor local companies so multinationals are putting more effort into showing their contribution to China," said Chris Reitermann, president of Ogilvy & Mather, Shanghai and president of OgilvyOne in China.
8. Chinese advertisers will turn to western ad networks
A handful of Chinese companies are already focusing more on product quality and manufacturing. Marketing is the next step, and local manufacturers are starting to turn to the expertise and marketing tools of western agencies.
"We're seeing more middle-size Chinese companies wanting the prestige of working with an international agency association or thinking," said Stephen Drummond, Y&R's national planning director for China in Shanghai. "A lot more companies are coming into the market, shopping around for 4A (ad agency association) help."
While a handful of major Chinese companies, particularly in sportswear and dairy products, have already established positive relationships with western agencies, most Chinese advertisers are hesitant about the higher fees charged by western agencies.
Also, few are structured to develop campaigns well. But this is changing as local producers of cars, personal care items, noodles and other goods start to develop more professional marketing functions internally.
Although their brands will become a bigger threat to multinationals in China this year, local companies could be a great source of new revenue for western agency networks...except Chinese firms often drag their feet when it comes to paying invoices.
"There's a lack of understanding and a hesitancy to pay the money," Mr. Drummond said. "We're likely to see some showdowns, as this is a major point of tension for the industry. Is there too much of a cultural difference? Either way, the issue needs to be resolved and this could be the year."
One costly side effect: Expect to see an increase in production budgets, as Chinese companies start spending more to create ads with world-class production standards.
9. Local firms will expand overseas
Chinese companies will step up their overseas presence and investments. In the past, local firms made acquisitions mostly to secure natural resources. A handful of Chinese brand owners like Li Ning Co., Lenovo Group and Haier Group have already made significant investments outside China. They will be followed by dozens more.
10. China will emerge as a great power
Expect to see more of China's government on the world stage too, said Ogilvy's Mr. Reitermann. It's difficult to forecast whether the mainland's relations with the U.S. and Europe will get better or worse this year, whether the conversation is about trade disputes or environmental policies.
Either way, China understands the international relations game a lot better than it used to and is starting to feel -- and flex -- its muscle. This will lead to substantial changes in China's evolving relationship with the world.
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