Dragon Trends
Between 8:08am and 9:00pm on November 8, Chinese and foreign companies pledged to spend RMB14.25 billion on primetime advertising on CCTV in 2012. Having claimed over 70% share of China’s total advertising revenue in the first quarter of 2011, TV — and CCTV in particular — will remain the foremost advertising medium for marketers in the near future. For its part, spending at the CCTV auction has grown at a rate of more than 15% annually over the last decade, and the upward trajectory shows no signs of ending.
One supporting trend I’ve seen at the auction over the years is the ability of CCTV to remain a dominant player in news and sports, as well as TV drama. It’s resulted in a continuity of advertising clients, as well as the entry of new players and new industries. For many years, foreign MNCs like P&G were the biggest spenders at the auction. Last year, however, saw a major shift in adspend rankings as makers of baijiu (a fiery white liquor) made a splash at the top of the charts — biggest spender Jingjiu dished out a hefty RMB 440 million on ads for the year. This year, spirits producers did it again, with Maotai spending RMB498 million. With 110% growth in 2010 and 99% growth in 2011, it’s obvious that players in the baijiu industry are determined to expand their presence on CCTV.
As China’s only national network with over 15 channels broadcast nationally, CCTV is unique in its position as a trusted advertising platform. Although China boasts an increasing number of satellite channels, CCTV still commands the greatest reach and audience — an internal CCTV survey indicated that nearly 500 million people countrywide regularly watch its 7pm news broadcast program. For domestic brands looking to reach national audiences, CCTV is the preferred, proven communications medium.
In the constantly shifting world of social media advertising, Sina Weibo provides advertisers with a potentially effective and creative tool with which to reach and engage millions of consumers, yet there is no clear-cut way of doing this. Among the many social media platforms, Weibo is by far the most trendsetting and influential in terms of numbers, growth and engagement. On paper, Weibo has enormous potential for advertisers. In March 2011, Weibo had over 100 million users. By August, this had surpassed 200 million. This explosive growth still has immense space for expansion, with the number of Chinese social network users expected to reach almost 500 million by 2015. Moreover, Weibo has an extraordinary level of engagement. It occupies 57% of the microblog market, but accounts for 87% of its activity.
Unfortunately, these numbers have not translated into ad dollars. To the frustration of advertising agencies, Weibo has yet to monetize its business model and actually sell ad space, like Facebook has. However, it is still an effective platform through which companies can elevate their brands.
Compared to users of foreign microblogs like Twitter, Chinese users are much more likely to repost Weibo content. Therefore, topics picked up by users in China tend to have a quicker impact and higher visibility. Additionally, Chinese users are more accepting of marketing on social media than foreign social media users. A pertinent example of effective Weibo advertising occurred when the online dating site, Baihe.com, posted a picture of flooding in the Beijing subway during a major rainstorm accompanied by the comment, “The most romantic thing in the world is viewing the sea in the office and a waterfall in the subway.” This post was reposted almost 13,500 times and generated over 1,800 comments.
As the Baihe.com example shows, Weibo still offers advertisers immense opportunities to promote their clients’ brands and engage consumers, even though they cannot directly buy ad space. Until the time that is made available, the most successful agencies will be those who can consistently provide engaging and relevant content for their clients within a 140-character post.
In an age of short viewer attentions spans and growing media alternatives, television advertisers are struggling to convey their clients’ messages to consumers. They are increasingly turning to placement advertising—inserting a product or brand into the content of a television program—as a way of creating greater brand awareness.
A recent study we conducted found that placement advertising was significantly more effective in attracting positive audience attention than conventional TV advertising. Among five different brands, television viewer awareness of the brands was, on average, 12 percentage points higher for placement advertisements than conventional ones.
One of the distinct advantages of placement advertising is its more efficient targeting. For example, Head & Shoulders’ insertion of the brand name into the popular show “China’s Got Talent” delivers cost savings for the company by targeting the show’s specific audience demographic, rather than conventionally airing expensive commercials across difference channels, shows and timeslots.
A brand’s theme and message should also complement the program it’s placed in, and not bludgeon the audience with dull repetition. By matching the program’s theme, the brand can piggyback off the quality of the show’s content. Head & Shoulders promotes its brand image of self-confidence for all people by attaching itself to “China’s Got Talent’s” message of ordinary people having the confidence to perform on stage.
However, it should be noted that television placement is not suitable for every advertising endeavor. Placement ads are more effective for brands than products. Brands project an image to create a sense of familiarity. Products have a function that needs to be explained, which may be difficult to do in a program without creating a sense of interruption. The primary role of placement ads is to show “who I am,” not “what I can do.” General Motors’ ad placement in the Transformers movies is a great example of this concept. By integrating its cars into the movie as actual characters, the company conveys an image of brand coolness, rather than showing each model’s real-life features and performance capabilities.
The game is changing for television advertising and the new rules are constant evolution and innovation. Like media platforms themselves, the boundary between advertising and program content is blurring. Creating sophisticated placement advertisements that are seamlessly integrated into the content of TV shows is one of the latest innovations for advertisers trying to enhance their clients’ brands.
Reaping the Wealth of Online Video Ads
According to research from eMarketer, China is poised to take over Japan in total ad spend by the end of 2011. With only four months of the year left, it’s worth taking a look at where the majority of advertisers’ spending in this burgeoning market is being channeled. Although TV is still the preferred medium, iResearch’s “The Core Data of Online Video in Q2 2011” report revealed that the market scale of online video ads in Q2 totaled RMB1.03 billion — a quarter-on-quarter increase of 57.1%.
One of the reasons for the rapidly rising popularity of online advertising may be the great degree of focus online video offers advertisers. With the availability of various video channels and video websites, advertisers can be more confident that their messages are reaching their intended audience. Increased precision means greater value and effectiveness.
At the beginning of 2010, China’s online population surpassed that of the U.S. to become the largest in the world. Online video (and consequently, online advertising) has been able to ride on the back of the boom. Currently, almost three-quarters of the country’s 420 million Internet users watch online video programs. iResearch predicts a compound annual rate of 36.3% for online video viewers in China between 2006 and 2012.
Reason would dictate that with both increasing user numbers and broadening total market value that online advertising profit would grow as well. However, there are two main obstacles to such growth: the capital necessary to expand bandwidth, and finding qualified advertising personnel. Industry experts, for example, estimate that only about a third of the 2,000 Internet salespeople in China has enough experience. With online advertising revenue set to reach RMB13 billion by 2013, advertisers clever enough to maneuver those obstacles will stand to make the greatest gains.
Advertisers in China will find increasingly rich programming to carry their commercials as provincial television stations break through the regulatory framework that shackles them to their respective provincial markets.
Provincial TV stations already produce some of the most dynamic and entertaining content for consumers, helping their viewership to surpass mighty CCTV’s for the first time in 2009. Dating shows dominate the ratings, and prices for these shows’ advertising slots have skyrocketed. The price per second of advertising of the top dating shows on Jiangsu TV, Zhejiang TV and Dragon TV increased 90.5%, 90% and 116%, respectively, in 2010.
Now, however, the market for content is heading for a radical shake-up, after the government agreed, in principle, to allow these broadcasters to separate their content and marketing units from news broadcasting, leaving this sensitive area under government control. This would allow already dynamic provincial broadcasters to take control of the content operations of other stations and become true national players, creating a freer market for content that will be a boon to advertisers.
Reacting to tacit government approval, provincial stations have already begun jockeying for position. Hunan TV and Broadcasting Group, the second-largest TV network behind CCTV, took over content production and a portion of the managing rights of Qinghai Province’s satellite TV station in 2010. And Shanghai Media Group, another large provincial TV network, followed suit soon after by completing a similar deal with Shandong Education TV.
While provincial TV is already a major outlet for advertisers – spending on advertising in the first quarter of 2011 on provincial TV grew by 33%, outpacing CCTV and television as a whole — the relatively closed national market for content demonstrates it is far from maturity. Being able to develop content for networks nationally would improve quality and attract greater audience numbers, thereby expanding advertisers’ capability to reach them. Savvy advertisers and companies will see the extraordinary potential inherent in the national expansion of provincial programming.
Traditional television broadcasters, like CCTV, have for many years been the cash cow of the advertising industry. However, recent trends have made it evident that consumers’ media preferences are changing. Between 2009 and 2010, for example, the time people spent on the Internet rose 44.8%. Internet advertising spending has followed suit, growing35% in 2010. And further changes can be seen on the horizon.
Under a new plan from the Chinese government, all cable television at national and provincial levels will be digitized by 2015, thereby converging television broadcasters, telecom carriers and Internet companies. The plan will make it possible for one operator to offer services across all three platforms, giving companies the choice to advertise through one provider rather than ironing out separate deals in each industry.
Given the scale and breath of offerings needed to provide services in the newly-integrated industry, established television and advertising firms are the ones that stand to make the biggest gains from the transformation. Not only must their media solutions be innovative, their solutions must be flexible enough to be relevant a cross the blurring boundaries between media platforms.
The central government has already granted licenses to CCTV, Shanghai Media Group and Wasu Digital Group to operate across IPTV, 3G mobile TV and broadband TV.
This new business environment presents both opportunities and challenges for advertising agencies.
First, there is huge potential in this undeveloped market. With the integrated platform, marketers will have the opportunity to target bundled offerings at specific user groups. People are spending more time consuming media than ever, so the impact advertisers can have across an integrated media platform is huge. The advantage, of course, lies with established agencies, as they have the scale and experience necessary to deal with the challenges inherent to operating in the new age of digital media.
Second, ad campaigns will need to take into account differing behavior when people consume media on a computer, mobile phone and television. Creating those campaigns will require a much deeper level of expertise than most industry-specific advertising providers currently have. Internet advertisers will have to learn how to create content for TV, and TV advertisers will have to learn to create content for mobile phone users.
In most markets, the emergence of new media occurs organically, and smaller, more innovative advertising firms can increase their presence. In China, however, the government’s management of the formation of the integrated digital media market gives large advertising firms the greatest potential to dominate.
As I mentioned a couple of weeks ago, the group buying craze that began sweeping China in 2010 has now progressed from the preliminary stage of burning capital to a focus on winning market share. Following the localization of Groupon via Tencent, domestic group-buying websites were forced to raise ad budgets enormously to increase brand awareness.
According to statistics from CTR, team buying websites will choose TV as their advertising medium of choice in 2011. Only Lashou.com made such an investment last year.
At the start of 2011, Groupon.cn announced that their advertising budget would be increased to RMB550 million. Industry peers Meituan and Nuomi made similar budget declarations of RMB130 million and RMB200 million, respectively. Not to be left behind, Dianping.com followed suit by proclaiming their last round of financing totaled USD100 million.
I personally question the marketing plans of these group buying websites.
It is an open secret that advertising budgets are often exaggerated in order to attract investors. However, such moves can be a double-edged sword. If the group buying websites fail to perform to investors’ expectations, then any follow-up capital will be difficult to obtain.
On the other hand, if their proclamations are true, then the combined budgets of China’s top group buying websites would equal RMB1 billion — a highlight of China’s advertising market in 2011.
That is not to say that this battle for the biggest advertising wallet will extend far into the future. Unlike traditional industries which need continuous brand promotion, group buying websites can significantly cut advertising once their brand has been successfully created and shaped. It seems that this current spending war will only be a temporary flare in the competitive landscape and not a new growth point for the industry as a whole. As the market matures, advertising expenditures will slowly decrease as the top brands differentiate themselves from the crowd and less well-known entrepreneurs recede into the background.
A new trend is emerging in China’s television advertising market: no longer are marketers confined to the ad breaks — they are now encroaching more into the show itself.
In the West, many popular reality TV shows are produced by independent studios, which are then funded by a major network if the network decides to pick up the show. Advertising for the show is sold by the network rather than the production team, so advertisers have fewer soft advertising opportunities. Conversely, an increasing number of companies in China are taking advantage of opportunities to break new ground and boldly display themselves more conspicuously to their target audiences.
The reason for this recent development is simple: TV stations are seeking differentiated content in an increasingly frenzied fight for eyeballs, and cash-starved TV program makers have struggled to keep up with demand. As a result, they are relying more on corporate advertisers to fund the production of new shows. For the shows sponsored by advertisers, the advertiser is being given greater leverage with product placement, branded content, and other in-show advertising opportunities.
One example is Huaxia Bank’s sponsorship and production of a show on Shanghai Dragon TV, which Charm helped organize. By funding the show, the bank was allowed to insert its own name into the title of the show, “Huaxia Stars”. The show was an 11-episode reality show where start-up companies competed for a small business loan from Huaxia Bank. Huaxia Bank advertised and encouraged companies to sign up for the show on TV, the Internet, and at its various branches.
Rising advertising rates on television mean that advertisers have to be increasingly creative in how they use the medium to reach their target audiences. The blurring of the distinction between advertising and television means that even smaller players can get a big bang for their buck.
Although China’s economy and the income levels of its citizens are growing at a rapid rate, inflation and the economic crisis have nonetheless left their toll on consumers’ purchasing patterns. Recent trends in consumer spending have noticeably shifted away from blind purchases of expensive, brand-name products to a greater focus on raising one’s quality of life and having unique life experiences.
I’ve identified eight main purchasing trends which can be split into two main groups: the tangible and the intangible.
Tangible
1. Health as a fashion trend
In addition to the enactment of new food safety regulations and laws, the Chinese public is becoming increasingly aware of health foods. As a result, numerous health supplements and homeopathic remedies have entered the market.
2. New starting point for rural economies
The increase in income has reached China’s rural areas as well, and there is now a two-way flow of wealth between the farms and the cities. Rural people’s incomes and spending power are rising as a growing number of China’s young urbanites are taking trips to the countryside in a “return to nature”.
3. Rapidly developing market for male grooming products
The explosive growth of the male skincare product market has led to the successive entry of a number of brands into the competitive pool. Men’s pursuit of “beauty” has become increasingly prominent, and advertisers are taking notice.
4. Growing awareness of carbon in everyday life
Consumers are becoming increasingly aware of the importance and environmental benefits of a low-carbon lifestyle. As a result, marketers — from banks and insurance companies to clothing brands and home appliance manufacturers — are leveraging “low carbon” in their advertisements to adapt to consumers’ shifting preferences.
Intangible
5. Putting words into action for the public good
In addition to the purchase of material goods, Chinese consumers also believe that using their earnings to help those around them in small ways is also a form of self-affirmation. This presents new ground for advertisers as companies turn a greater focus to social responsibility and community involvement.
6. Loneliness: simple comforts
China’s fast-paced economy has brought about a single-minded focus on earning money. In answer to consumers’ needs for recreation, spiritual sustenance and comfort, numerous communication platforms have emerged, including new social media channels and group activity outlets such as KTV bars.
7. The pursuit of happiness
The current generation of workers places a high value on achieving happiness in life. Each has their own set of unique hobbies and interests, and they are willing to spend money on pursuing their own versions of happiness, be it at an amusement park or through outdoor activities.
8. Paying for the spiritual life
There is a growing demand for spiritual growth and cultivation, and advertisers are responding with culturally-derived experiences such as courses focused on national studies, mental healing, taichi and yoga.
Chinese consumers aren’t merely purchasing new items, they are purchasing a new lifestyle for themselves. They are using their newfound wealth to embark on a search for how purchases can add value to their lives by improving themselves, the environment, and society. Many marketers are taking note of the resulting business opportunities and are tailoring their advertisements to connect more deeply with consumers’ changing mindsets.
The war for supremacy among China’s group buying websites is now truly on. But the initial battleground isn’t online; rather you can see the fight playing out on the subways, on the sides of buses and over the airwaves.
Nearly every Internet giant is investing in group buying, including Sohu, 360, Taobao, QQ and Nuomi, as well as traditional classified websites such as Ganji and 58. The global success of Groupon and its entry into China have raised the stakes even further. But because group buying websites require little technology and enjoy low user loyalty, these sites can gain competitive advantage only through developing their brands.
The channels they are choosing, such as CCTV and the most popular satellite television stations Hunan TV and Anhui TV, focus on this goal of brand promotion. And now out-of-home screens, elevators, buses, subway stations, theaters and other advertising media are being called into battle.
Why are the websites choosing traditional media? The main reasons are:
- What group-buying websites are short of is brand awareness, so utilizing the most influential media in the most intense campaigns is the most efficient way to build awareness quickly.
- The sites are actually advertising to clients as much as consumers. The restaurants, cosmetics stores and other companies who offer their products and services at discounts to groups tend to pay more attention to traditional media, so this is the arena in which the websites can best attract them.
- Most group buying websites have a distinct regional dimension, so it is a more efficient use of resources to exploit media that target these regional audiences.
The group-buying phenomenon is developing at warp speed in China, and I’ll be writing more about its many fascinating aspects in the weeks to come.
Dragon Trends