Overview of results from a WFA / Forbes Insights research presented at Global Advertiser Week in Beijing, April 2011.
Presentation by Stephan Loerke (WFA) and Christiaan Rizy (Forbes Insights). See speaker notes for detail.
16. Download the full report here: www.forbes.com/forbesinsights More about the WFA here: www.wfanet.org
Notas del editor
Ladies & gentlemen, good morning. It is a great pleasure to be here in Beijing. And to be here at such an exciting time. Few markets in the world are as fascinating for brand marketers as China is today. The size of the market, the rapid growth of the middle class - the potential for manufacturers of consumer goods and services is nothing short of staggering. Just consider a few statistics which have made the news recently: China has overtaken Japan to become the world’s 2 nd largest economy, it has surpassed the US to become the world’s largest car market last year and it is on track to overtake Germany to become the world’s 3rd largest ad market next year And you know what? It’s probably only the beginning!
Why? Just consider a very simple fact: China has had an average growth rate in consumer spending of over 15% per year over the last 5 years. Impressive…Yet, as it stands, private consumption only represents 36% of GDP in China. That compares to 71% in the US. No need to explain much more why there is a massive potential for growth of consumer spending in the years to come.
And that growth of consumer spending is precisely one of the key planks of the new 5-Year Plan, which has just been adopted and which sets out the government’s strategy for 2011 to 2015. It’s declared ambition is – among other things - to gradually re-balance the economy from an export focus to one driven by consumer-demand The stage is set for a major transformation that should significantly boost consumer spending in the coming years. So much so that, according to the latest Credit Suisse forecast, China will be the world’s largest consumer market by 2020 – that’s in just ten years time.
Now, let’s be clear: the dynamics of China are unlike anything marketers have seen before. The challenges are as immense as the market itself. While consumers are here in numbers, brands don’t necessarily know how to reach them. So… « How are companies connecting with the Chinese consumer? » That question was the starting point for the research which Forbes Insights , in partnership with the World Federation of Advertisers (WFA), ran in January and February of this year. We surveyed 300 senior marketing leaders in China. Executives who work for Chinese or international consumer product companies. We set ourselves 3 main objectives: To explore their goals – short and medium-term To understand their strategies to reach the Chinese consumer And to identify some of the critical barriers which they will have to overcome
I’ll briefly share the headline results of the research before handing over to Christiaan Rizy of Forbes Insights who will be fleshing out the insights for you. After Christiaan has done that, I will come back with what I think are the key take-outs for WFA and for CANA, our Chinese association. We have identified several key insights in our survey: The first one is what I would call: « World to China & China to the World ». The vast majority (63%) of non-Chinese marketers believe they need to adapt their brand for the Chinese consumer. They feel that it is indispensable to align with Chinese culture and Chinese tastes in order to succeed here. No less than two third of the interviewed CMO’s felt that companies which were not prepared to do this would ultimately fail. The second one is that building brands in China is not a one-way game . While global brands are eyeing Chinese consumers, Chinese brands are looking to expand their presence beyond their borders. No less than 27% of Chinese respondents declared they had plans to expand globally. Ultimately, what this could mean in a few years down the road, is that brand competition now witnessed in China, could spill over into the home markets of non-Chinese companies.
And finally - there are tremendous opportunities in China, no doubt - but marketers are actutely aware that they will have to deal with a number of challenges on the way: Lack of transparency, lack of reliable market research and a shortage of talent are seen as the top 3 barriers – in that order - both for Chinese and international marketers. On a positive note, I’d like to highlight the near unanimous commitment there is to support the introduction of ethical standards for marketing communications: 94% of interviewees felt the marketing industry should establish a self-regulation system – in order to protect the excellent reputation which marketing enjoys with consumers and regulators in China. Let me now hand over to Christiaan who will flesh out and illustrate those key findings in more detail.
Thank you Stephan and Good Morning: As Stephan mentioned, Forbes Insights, a division of Forbes Media, has surveyed Chinese business executives on behalf of WFA. What follows are some key findings from the report. The first thing we asked about was marketing priorities. When it comes to brand, consumers in China are a blank slate. Which is why today, marketers are focused on two pillars of branding—building brand awareness and developing positive brand perception. This is true both for non-Chinese marketers as well as for native Chinese companies. For example, Converse sneakers has been working with a Chinese creative company to associate itself with music and build brand equity with China’s youth, just as they have elsewhere in the world But other western brands have found that the brand equity they’ve established in the U.S. or Europe doesn’t transfer to China. Best Buy, for instance, opted to close its branded stores in China to focus on a Five Star, the domestic Chinese stores they bought in 2006. But three years from now, priorities change. By then, with brands more established, marketers are shifting from awareness to growth and acquisition,. In particular, they’’ll be looking beyond the standard Shanghai-Beijing-Tianjin corridor to the so-called second and third-tier cities -- eight-of-ten survey respondents agreed that is the greatest growth opportunity in China.
The second major insight we gathered from this research is that today, the top priority for many marketers (both Chinese and international) is brand-building: creating a positive brand perception and generating brand awareness. This is what focuses their attention right now. But that priority is bound to shift significantly over the next 3 years: the name of the game will be focus on growth. Growth in sales, growth in revenues. And the main lever for this growth strategy will be, according to the CMO’s we interviewed, expansion into Tier 2, 3, & 4 cities. Cities such as Wuhan, Shenyang, Nanjing, Wenzhou – which are not very well known internationally, but which are larger than Vancouver, Milan or Brussels.
For marketers entering China, there’s a push and pull that goes on between maintaining consistency with the global brand and also creating attributes that appeal to the local tastes of Chinese consumers. There are a number of well-known anecdotes in this area, such as the Scotch brands that have had to embrace the local Chinese taste for mixing the whiskey with ice and green tea. While many non-Chinese companies understand that they need to adapt their brands to China, it doesn’t necessarily mean they need to have a wholesale brand shift. Rather, they need to make changes that show they are committed to being a part of the local culture. Nike, for instance, has focused its efforts on basketball since that’s become such a popular sport in China. But their ads use local artists and try to touch on some of the nuances of China’s basketball scene. Even the product itself has to be honest to China’s market—the soles are tougher and more durable since the courts in China are more abrasive. Finally, when Nike brings one of its celebrity spokespeople like Kobe Bryant to China, he doesn’t just stay in the coastal cities but goes to smaller provinces to hold clinics. Some non-Chinese companies have taken Chinese expansion to include re-imagining their brands, such as GM’s Buick brand. Despite a stale reputation in the US, Buick is seen as hip, masculine and fierce with minimal design changes. It would have been a lost opportunity to GM if they had simply transferred their marketing strategies, which include targeting older demographics with a message of comfort over performance to China. Finally, as marketers start to push into the provinces, they need to be concerned with other issues—in particular, price, since pay is lower there. Non-Chinese marketers may find that consumers are less willing to pay a premium for “international” brands when powerful regional brands offer quality products at more reasonable prices
Today, with brand and reach so important, marketers need to look for quick hits to get their messages out. Perhaps that is why television advertising is still the top tactic brand marketers are using in China. In particular, it lets brands reach both emerging urban consumers, as well as the half of the population that is still rural. Still, the perception that China is a heavily wired society is quite valid, especially for the desirable younger demographic. So being able to create an integrated campaign that involves traditional outlets like TV as well as emerging online and mobile media will be key. Alternates to TV will become important. Word of Mouth will see a dramatic shift in importance as plans become integrated with PR, and mobile marketing. 90% of respondents said that digital and mobile marketing are becoming a critical part of the mix, especially with younger consumers 420 million internet users and 850 million mobile phone subscribers Young and affluent mobile users are savvy: Blogs and banner ads do not connect with users, creative approaches must be the rule, contests, social networks, and virtual clubs are more appealing and engaging. Sean Leow, founder of NeochaEDGE, a Shanghai-based creative agency, contends that digital is all that matters to the under 30. “The Internet is their primary consumption and sharing platform for everything they do.” Loew goes on the recommend “Weibo” the microblogging site similar to Twitter that has 80 million users and is adding 10 million users a month. For AB InBev, it was Renren, where users could interact in a virtual bar, sell beverages and export them to the US.
Chinese companies are looking to non-Chinese nationals and vice versa 67% of Chinese companies are looking to non-Chinese nationals to build their marketing leadership 55% of non-Chinese companies are looking to Chinese nationals to build their marketing leadership Simon Pestridge, global brand director for Nike contends the most important thing is “Hire an amazing group of local staff, who speak English, and who can keep you very informed,” he said. Interestingly, 95% of Nike’s corporate staff in China is local and 80% of Pestridge’s direct reports are local.
Among international marketers, the consensus is that there isn’t the kind of demographic and psychographic information on consumers that they are used to, nor is there enough vertical industry specific information let alone brand or product specific information. When Marks and Spencer expanded to the mainland from Hong Kong, it assumed that clothing sizes would be similar, but it soon found that smaller sizes were selling out and larger sizes were sitting on the shelves. It had failed to foresee the regional difference.
I’d like to conclude our presentation by sharing with you what I think are the key take-outs and action points for WFA and CANA, its national association member in China. There are 3 key take-outs I think: The first one is the need to help improve accountability in the market place. Brand-owners who plan to invest ever increasing amounts of resources into marketing communication in China require soild data. Data that can measure the impact of their efforts. Data that they can trust. This is a fundamental requirement to give confidence to marketers. And longer-term , an indispensable foundation for sustaining the growth of the Chinese ad market. WFA is available to work together with CANA and its agency and media partners to help put in place an industry-wide media measurement system that would create trust and confidence and significantly improve accountability of marketing spend.
The second take-out for WFA and CANA is the need to build a fully-fledged advertising self-regulation system in China. A system by which advertisers, agencies and media set themselves voluntarily high standards for ethical advertising, on top of existing legislation. Such systems exist in all the major ad markets around the world such as US, Brazil, India, UK, South Africa. Of course, it would have to be adapted to China’s unique social and cultural environment. We are starting from a very strong position in China: brand marketers enjoy trust levels among consumers and regulators which are among the highest in the world. This reputation is a very valuable asset which we need to protect. WFA is committed to work with CANA, CAA, CAAC and other partners in the industry to make this happen. And without revealing much more, I can tell you that we will be making the first important step in that journey at the end of this conference today.
And finally, one simple and powerful message to you, marketers, here in the audience: You’re not alone! The speed and scale of change, the sheer number of challenges and obstacles are such that no one will be able to figure it out all by themselves. This is precisely why WFA exists: none of us is as smart as all of us! Come and join your network of peers! Share experiences with your colleagues, talk to them, get inspired by them, pick their brains, benchmark yourself…! There are plenty of things you can learn. No need to re-invent the wheel all by yourself! WFA is well placed to support those Chinese brand marketers which are keen to expand internationally. And CANA is committed to offer a similar network of best practice exchange in China. You’re not alone – use the support of WFA and CANA to succeed.