Ad Age Roundtable: Part I

Industry leaders talk about challenges in China

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In late November, Advertising Age Editor Scott Donaton, International Editor Laurel Wentz and Normandy Madden, editor of AdAgeChina, invited a small group of marketing and media executives to take part in a roundtable in Shanghai, to discuss the challenges they face in China's fast-changing marketplace. Below is an edited transcript of the first half of the discussion. The participants included:

--Alfonso (Pon) De Dios, Procter & Gamble's media director, Greater China, based in Guangzhou
--Hung Huang, CEO of China Interactive Media Group (CIMG), publisher of Chinese editions of Seventeen and Time Out as well as iLook, a high-end fashion title, based in Beijing
--Kitty Lun, general manager and executive creative director of Havas-owned Arnold Worldwide, based in Shanghai
--Dale Sullivan, Shanghai GM's Chevrolet brand director and VP-China of General Motors, based in Shanghai

The second half of the discussion, which also included Mark Fischer, Beijing-based VP-managing director of the NBA in China, will be published in the next issue of AdAgeChina.

AdAgeChina: How important is China to your company's growth strategy?

Sullivan: China is definitely one of our top two markets. The U.S. is No. 1, China is No. 2. We hear that from our CEO Rick Wagoner on down.

De Dios: China is one of our top five global markets and is the fastest-growing at 20-30% growth. Most of the big brands in our portfolio are actively present and advertised here, so it's certainly a very important market for us. Since 70% of our sales are in beauty, there is an added push for our management to grow our beauty business here.

Lun: Arnold only focuses on 15 to 20 markets, and in Asia/Pacific, we only have offices in Shanghai and Australia. To echo your point, Pon, that beauty is important, we work with a lot of beauty brands like Estee Lauder and Clinique in China. It seems like every day we get calls from other cosmetics companies saying they want to advertise in China. There is a lot of room for development in beauty products since many women here, after 20 years of grey and black, have decided to perm their hair and put a lot of things on their faces.

Hung: For a new and privately-held media company, this is an exploratory and exciting territory. You have to make your own rules. We're taking luxury brands on television and the Internet and in print so that it will be a cross-media platform rather than single print magazine or television program. China is uniquely situated for this set-up. It's similar to the Martha Stewart model of running a media company. TV stations are run by the state, but you can make your own brand of media and your own content, it fits the political and business structure of China.

AdAgeChina: How much interest do CIMG's foreign partners like Seventeen publisher Hearst and Time Out have in understanding and succeeding in this marketplace?

Hung: Most media companies want to come to China and see the potential of the market. However with foreign media companies, the bigger the company, the more difficult it is to operate here, because corporations have their own rules for control of content. The bigger you are, the less it's possible to actually say, "Okay, we're going to bend the rules or make an exception for the China market."

AdAgeChina: Is Chinese media moving into branded content?

De Dios: It's a big opportunity. We deal with a lot of TV stations, which is much more difficult than working with print partners, because they are less flexible. But they do attempt to create their own business model within the parameters of state-control policies. Building on what Huang said, it's all about creating your own rules, you need a lot of improvisation and agility, and you need to ask for things and push people.

Branded content is a fairly new territory for most TV stations. When you talk about branded content here, top of mind is product placement, but that's a very literal interpretation. We need to train station executives that product placement is good, but we need to take it to the next level, product integration, to weave brands into program scripts. Some stations get it and are moving towards that direction. The farther you are from Beijing, the more autontony they have to experiment, like Hunan, which did Supergirl (see related story in the Oct. 10, 2005, issue of AdAgeChina) and they're relying more on advertisers to educate and train them about the value of this model and how it can work for the long term.

Sullivan: Exactly, they rely on advertising more than the marketing aspect. If we buy media, stations look at how much we're spending, how many spots, but they don't look at the marketing aspect of where that money is going. Supergirl was a big marketing ploy that didn't start until the very end of the series when people realized how big it was.

AdAgeChina: In the U.S., brand integration grew out of a feeling that traditional media is becoming less effective, while media integration and technology is making it easier for viewers to bypass advertising. What are the market forces at work here that might be playing into this trend?

De Dios: P&G buys a lot of spots, we buy 30 to 40% of a TV station's prime time airtime for our brands, but there is a limited inventory of TV advertising minutes. So it's a crunch for me and our media partners. We need models to engage the consumer beyond massive share of voice and TV GRPs (gross rating points), especially for beauty brands. This is more of a gut feel than based on research, but we know we need to change our models towards more engagement zone models, there has got to be a threshold where the consumer turns off their TV, especially in more advanced markets like Shanghai, Beijing and Guangzhou, where consumers are looking for something more.

Hung: From a content point of view, you are constantly worried that advertisers will corrupt your content and you'll lose your audience. While consumers are getting turned off by advertising, they need and crave information and education, but you have to put your best creative team on it for it to look good, both for the client and the reader. It doesn't do any good for the advertiser, reader and media brand to do "cut and paste" product placement with product materials, but this unfortunately is what a lot of Chinese media do.

Lun: If you flip through most magazines, the back half is boring advertorials. Do they do any good? And after Supergirl came out, there were all these copycat shows. We need to get our act together and stop being copycats. Why aren't people coming up with new ideas like what Huang is talking about?

AdAgeChina: Some say marketers should evolve from saying "Made in China" to "Created in China." How is that happening?

Sullivan: Chinese brands have not been raised to the level they need in order to compete with Western brands. In some industries, they're thought of as cheap, or copies, or low-quality. We see that in our industry a lot, but it's only a matter of time before they catch up. Already many have the ability to go to an Australian film director or an Italian design studio.

We're all here to help China in a sense, but from a global perspective. China will be No. 1 in almost every category there is in the world in the next ten years, whether you're talking about population, income, ad spend or the number of new products coming out. We launched ten products this year, and 72 products launched in China's auto industry last year. I'm sure it's the same in the beauty industry. But if their quality doesn't get to the level of products from Western countries, they won't succeed.

De Dios: I agree with Dale 100%. There are 2,000 hair care products in China, and about 1,800 skin care products. It's a massive arena. The last couple of years, our success was built on massive ad spend. We and our competitors try to outspend each other, but even local rivals are realizing we can't continue to escalate this pattern. That's why we need to create new models that can really work.

Hung: One of the key problems for China's media industry is the lack of audited circulation figures, there is gross exaggeration to a point that would be criminal in any other country. Waste and overspend are critical problems. All print titles care about is advertisers, but TV stations say, "We never know what advertisers want, but we know what gets good ratings so they only sell advertising based on ratings. We work with the Travel Channel and try to get them to integrate content with brands, but Chinese media is low in management and creative talent. It's a people problem.

AdAgeChina: Why do marketers tolerate the lack of audited ratings?

Sullivan: Figures exist but they're way out of line and people make stuff up. But we've got to be there, you'll be known by your absence if you're not on TV. The big figure we look at is brand awareness, not so much do you have enough GRPs, just do you have enough brand awareness.

De Dios: Media stations and titles have so many advertisers coming to them for inventory they don't see the need to bring in solid measurements. The person with the budget doesn't necessarily have the leverage because there's such a need to have a presence in media.

AdAgeChina: We hear a lot about tiers in China. How do you work with them?

Lun: We've been in the first tier--Beijing, Shanghai, Guangzhou and Shenzhen--all along, but increasingly our luxury clients are organizing shows and events in cities like Xi'An, we are seeing a shift to the second and third tier, because it's so expensive to cut through the clutter in big cities like Shanghai. Why not be the king in smaller cities?

Sullivan: As infrastructure, population and income change, we're moving into second and third tier cities. The question is how you reach consumers there. A lot of homes in the smaller cities don't have TV sets in their homes.

AdAgeChina: Do you alter your marketing message for the different tiers?

Sullivan: Not the message, but the way you communicate the message does change, because every city in China is unique. If you go to Beijing, for example, they're very into detail. Shanghai is very fashionable, but down south, they tend to be more technical.

De Dios: We play across all the cities, already half our business comes from the smaller cities and that's where future growth will come from. The brand principles don't change, but the execution of the product offering, packaging or even the actual product will be customized. The battle will be in how that message is delivered. In large cities, you've got national and provincial stations to deliver your message for you, but in smaller cities, maybe you need more in-store support or bus and bus shelter advertising, which always works well in low-income markets.

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