Navigating China's ever-changing marketplace

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The global marketing community met in China in early September at the International Advertising Association's World Congress in Beijing, where delegates witnessed the country's fast-growing ad market first-hand.

There, five prominent marketing figures specializing in China-Viveca Chan, Grey Global Group's chairman-CEO, Hong Kong and China; Willie Fung, MasterCard senior VP-general manager, Greater China; Austin Lally, Procter & Gamble Co. general manager-marketing for beauty care brands in China; Bessie Lee, CEO, China for WPP Group's MindShare; and McCann Erickson's Tomaz Mok, managing director of the Interpublic Group of Cos.' office in Beijing and creative director for China-met for an Advertising Age roundtable

AA: What are some of the obstacles for marketing in China?

Mr. Lally: The biggest constraint for us today isn't the availability of agencies for design or the availability of special services. Frankly, it's talent. I'm sure there's not an agency in China who doesn't say its No. 1 issue is finding outstanding people to deal with the business growth. This economy is exploding. The demand clients are making for creative is getting higher and higher, but long ago, we ran out of fantastic, homegrown talent.

AA: What are the biggest challenges for MasterCard? Do a lot of people here have credit cards?

Mr. Fung: There are over 700 million payment [debit] cards in China. Even though you are looking at low activity rates, cards are already out there and with the right promotions, we can encourage more use. The best consumers migrate from debit cards to the secure cards, which have overdraft protection. There are about 26 million of these secure credit cards on the market, and about 4 million true credit cards. The market is growing very fast. China is moving from a seller's market to a buyer's market.

AA: Is the psychology for credit-card marketing different in China?

Mr. Fung: Consumers here need knowledge. In the past they didn't have any opportunity to apply for cards and they were penalized for using overdraft protection. Too many customers using a credit line means they're not good consumers. So we have to persuade them to try the card.

Mr. Lally: One of the biggest factors in the Chinese economy people don't talk about is the very high level of personal savings in this culture, it's gazillions of dollars. Chinese people have money in the bank. Young people who work for companies like P&G have a great standard of living today, but their parents didn't. ... Within a generation, things have changed so much. I don't think there's a worry that things will go back, I think people are over that, but there's a sense of dog-eat-dog, that no one's going to look after me 20 or 30 years from now, so I'd better put money in the bank to look after myself.

AA: Credit cards might also serve the purpose of getting consumers to spend more money, which could be a powerful force.

Mr. Fung: There's another benefit, the government can try to track their expenditures better. There's a lot of gray area that makes it hard for auditors to keep track of money.

Ms. Chan: That's why real people with real money are spending cash. One local entrepreneur who is one of my clients made a profit of $8 million last year, a medium-size business for China, and he pays for everything in cash.

Mr. Fung: Older Chinese really don't want to borrow, but the younger generation is starting to utilize their credit line to get the things they want. Credit cards are moving from a status symbol to common use. The growth of wealth is another symbol of the development of a middle class.

AA: Foreign magazines compare China to America's gold-rush era. Do you think this country's potential is over-promoted in the press?

Mr. Fung: Overall, it's [potential is] real, but how to reach or achieve [profitability] is a challenge. You're looking at a change from a planned economy to a free market. China is going from a very conservative, traditional mind-set to a very aggressive mind-set, it's a challenge operating in that kind of society.

Ms. Lee: There are so many opportunities, but there are also so many land mines. The biggest challenge in our business is that there is so much in accounts receivable that is turning to bad debt.

Mr. Lally: In almost every market where we compete, China is either already the world's biggest market or it's on track to be [the biggest]. Most markets are already definitely the biggest in the world by volume, but some are now heading to be the biggest market by value. [China's scale and growth] kind of hypnotizes people. But the question is whether your organization has got what it takes to win there.

AA: What are characteristics needed to win in China?

Mr. Lally: Winning in China depends on developing a deep understanding of who you are marketing to. If you start designing average products to meet the average Chinese consumer, you usually end up with stuff that isn't sophisticated or differentiated enough to win in Shanghai or Beijing, but you also end up with stuff that doesn't offer enough value for people in smaller cities and towns. What we ended up with is a much broader portfolio than we originally entered China with. ... Take a brand like Crest. We don't sell one tube of toothpaste in different flavors. We have different tiers of pricing and performance. Those different products we sell are not just cheaper versions of each other, they are designed against different groups of consumers

AA: How big is P&G compared to your operation in the rest of the world?

Mr. Lally: Last year, China was No. 6 and climbing. It's clear to us that China will, within the foreseeable future, be the second-largest market [for P&G after the U.S.]. Companies who come in and say China is an investment market have already written themselves off.... We've always focused on China as a big market and said [from the start] we should make money here. We have a big business and leading market-share positions in all the product categories where you'd expect P&G to be leaders in. But we [also] earn margins here that are in line with what the company earns [in other countries].

AA: Will marketers have to use different appeals within China depending on how sophisticated different groups of consumers are?

Mr. Mok: I wouldn't use the word "sophisticated" yet to describe Chinese consumers, but there are differences. However, I still don't see a lot of big differences when it comes to advertising, most often I see one ad that runs across all of China.

AA: Is that good or bad?

Mr. Mok: Brand-wise, it's good. But for effectiveness of sales, it may not be so effective. Then you could see a lot of local low-budget activities like promotions that could be different from place to place.

Mr. Lally: There is a clear difference in what you might call the advertising literacy between the top cities of China and the rest. When I use the phrase one size fits all, it doesn't just apply to product design, it also applies to how you tailor your communication message.

AA: What kinds of measurement can you do when you're buying media?

Mr. Lally: It's comparable to most markets around the world in Chinese cities, which is probably one-third of the consumption of the country. The real dilemma for some marketers who want to sell national brands is that once you get out of the cities and into the town and villages in rural China, you're suddenly in the dark. You have to do ad-hoc research, sweeps and you have to go a bit by the seat of your pants. We don't look at the population sizes, you end up skewing towards big cities that may really be full of poor people. Instead, we look at personal spending power. You can get GDP per-capita data in China and you can make a lot of smart media decisions that way.

AA: What about product placement and branded programming, is that developing in China?

Mr. Lally: There are so many advertisers now chasing a limited supply of space [that advertisers] are going to be forced to communicate in different ways compared to the past....[The quota] on the number of advertising minutes per hour in prime time was rarely respected. You could find six-, seven-, eight-minute advertising breaks. The government is now stepping up on [enforcement]... forcing even big advertisers like P&G to find alternative ways to reach consumers.

AA: The government is cooling the economy to curb inflation, which has slowed down consumer spending in areas like car sales. How is this policy affecting your business?

Mr. Lally: We remain very confident. The government is doing an excellent job of creating the soft landing they want. You're not going to see a crash here.

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