Chinese dot-coms and netizens have created a red-hot digital market

But are marketers moving online as quickly?

By Published on .

SHANGHAI--Some of the hottest stocks in China are internet firms such as NetEase, Sohu, Baidu, Sina and Tencent, operator of the popular QQ instant messaging service. These companies are enormously popular in terms of users but they, and newer dot-coms such as the video-sharing portal Toodou and the social networking site, depend on advertising.

While online adspend in China is growing, few marketers have really tapped the potential of the internet, mobile phones, and other types of digital media. Are marketers in the mainland heading online as quickly and aggressively as Chinese netizens? If not, are advertisers missing opportunities to bond with consumers in ways that build brand loyalty and drive sales?

Those questions were asked at the Westin in Shanghai on September 17, when AdAgeChina co-hosted a seminar with James Lee, a research analyst specializing in Chinese tech companies at WR Hambrecht + Co. in Boston. A group of U.S. investors visiting China examined advertising trends in China, with a focus on how marketers are using the internet, mobile phones, online games and other aspects of digital media instead of traditional media.

China’s media market reached just over $13 billion last year, said Alex Abplanalp, Shanghai-based CEO of media auditor China Media Consulting Group, and is forecast to grow 17% this year, 26% in 2008 due to extra spending surrounding the Olympic Games, and 11% in 2009. The mainland is the sixth-largest media market in the world, after the U.S., Japan, the U.K., Germany and France, and is likely to overtake France by the end of next year. Ad spend accounts for just .52% of China’s gross domestic product, far below the U.S. and significantly below western Europe, Latin America and the rest of Asia/Pacific.

As China is home to more than 137 million internet users--many of whom rank among the most influential, educated and affluent people in China and are the prime target market for most multinational marketers--online advertising is expected to grow from $621 million in 2006 to $ 2.2 billion in 2010, driven by categories like information technology, autos, real estate, online services and telecoms.

Online media accounts for “just 4%” of media spending in the mainland, said Mr. Abplanalp, compared to about 7% in the U.S. By 2010, he predicted, it will rise to 6%, “largely at the expense of newspapers.” By 2015, the internet will account for 11% of total ad spending in China.

“For youth brands, digital media is essential, because our consumers are consuming media through their computers much more than through television,” said Clarence Mak, marketing director for non-carbonated beverages in China at Pepsico. Like its global rival Coca-Cola, Pepsi has become one of the most innovative online marketers in the mainland, because the internet “is growing rapidly and becoming the mainstream media for youth.”

College students, a key part of Pepsi’s core target market, “all live in dormitories," he said. "Even if they wanted to watch TV programming, which isn’t very interesting in China, dorms don’t have TV sets. But they do have access to the internet and spend a lot of time glued to computer screens. Streaming TV is now the major TV programming source for these kids.”

To reach teens and college students, Pepsi is investing in programs that interact with and engage young consumers in the world, integrating online contests with offline channels, such as the Pepsi Creative Challenge. (See also, "Pepsi finalizes its latest digital contest in China," Sept. 12, 2007, AdAgeChina) Although Pepsi has not found banners ads useful in China, Mr. Mak stressed the value of using the influence of bloggers in China to increase awareness. Blog writers are a "seed, but viewers are your target," said Mr. Mak. China has seven million blogs that are updated actively, "but there are 75 million readers."

The seminar concluded with a roundtable discussion about digital media in China. The participants were P.T. Black, a partner at Jigsaw, one of China’s leading lifestyle and pop culture market research firms; Kel Hook, managing director of Wieden + Kennedy, Shanghai; David Turchetti, CEO of 21 Communications, one of China’s leading mobile marketing agencies; and Waters Xu, a senior account director at JWT’s interactive division in Shanghai.

Tapping into the popularity of the internet in China depends on coming up with good content, partly because most programming in China, particularly on television, is so poor.

“Brands play a different role in China, people here don’t hate advertising, it isn’t resented as an intrusion the way it can be in the West. Branding actually adds excitement. A new Nike ad can be the best part of a program on Chinese television,” said Mr. Black. In fact, “the best ads on TV here usually cost more to produce than the program did.”

Yum Brands’ KFC, for example, has created a strong partnership with QQ, agreed Mr. Xu. “JWT use QQ as content provider, not as media, and work with them completely to offer everything KFC consumers might want, including music, ringtones.”

When KFC customers buy food items, the packaging such as cups contain codes that can be redeemed online or by mobile phone for free music. Marketers like Nike and Coca-Cola have conducted similar programs.

“Music is the sweet spot. Chinese want music on their phones, but they don’t want to pay for it. If we cn offer it to them, they’re quite willing to take part in our mobile marketing programs,” said Mr. Turchetti, whose agency organized a mobile music program for Coca-Cola’s Sprite brand this year. Every can of Sprite came with a code that could be used to download music. A new song was offered each day during the campaign.

An “enormous amount” also is happening in terms of online games and instant messaging from services such as Tencent’s QQ platform, he added, but the industry is poised to explode next year with the planned introduction of 3G, or the third generation of mobile phone standards and technology, which will give users the opportunity to view streaming video and other content.

“It will allow us to do everything we can do on the web now on mobile phones, and that’s the one piece of hardware that nearly everyone in China carries with them all the time,” he said. He was referring to the demographic catered to by marketers of young men and women in first and second tier cities with relatively high disposable income.

Are marketers in China ahead of the U.S. and other developed markets?

“In terms of scale, absolutely,” said Mr. Turchetti. “Mobile and internet campaigns in China easily reach tens of millions of consumers, and we know who they are, we have their mobile phone number, we know what ringtones they’re downloading. We have a lot of data about who these consumers are and what they’ll react to.”

In terms of innovation, China is ahead as well, “but the U.S. is catching up fast. Once Silicon Valley gets involved, things move fast. I predict the U.S. will catch up and surpass what we’re doing now in China within a couple of years.”

While a handful of marketers in China are connecting with consumers online, most are not.

“This whole space, digital media, new media, whatever you want to call, requires a different mindset that has to come from clients and agencies,” said Mr. Hook. “If you asked eight people who live in China what’s happening in this industry, you’d get eight different answers. But they could all be right. In a sense, we’re figuring it out as we go along.”

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