Si(g)nology

Manufacturing is not the only sector to have taken off in China. So has advertising. Professor Elisabeth Köll (Harvard) has put together a case which looks at Chinese advertising in general and the development of JWT China in particular.

Tightly restricted for some forty years, China’s advertising market has been booming in the last twenty. For the 2006-2008 period, advertising growth as compared to GDP growth has been greater in China than in the major Western markets

JWT China
It was logical for JWT (formerly J. Walter Thompson), the fourth-largest advertising agency in the world and the largest in the United States, to make the jump to mainland China. It did so in 1990 with the opening of an office in Beijing, followed a year later by an office in Shanghai. It has since added more offices and built up alliances that allow it to serve nearly fifty large clients.

Professor Köll’s case (see reference below) draws attention to the stewardship of Tom Doctoroff. It was in 1998 that Tom Doctoroff moved from Hong Kong to become the Managing Director of the Shanghai office. Two years later Doctoroff was named head of China operations, thereby adding Beijing to his responsibilities and a further two years later he added Hong Kong, Taiwan and Korea when he was promoted to Northeast Asia director.

Up to 1998 the Shanghai office derived most of its revenues from two clients, Unilever and Pepsi. Over the next ten years, Doctoroff would lead the expansion and diversification of the office. By 2008 it had increased the number to over twenty. Furthermore, it added some big Asian companies such as Anta (sports shoes) and President Foods to its more traditional portfolio of major Western multinationals.

The Beijing office is a little more than half the size of its Shanghai sister, both in terms of clients and employees. It deals with more Chinese clients, state-owned enterprises (SOEs) and local firms, which contributed up to 70% of revenues. These clients demanded less creative work than the southern ones in part because these companies were more traditional and not as far along on the marketing learning curve.

In 2004, JWT took a 30% participation in a Guangzhou advertising agency, New Sun. Located in Guangdong province south of Shanghai, JWT was considering whether this could be used as a base to approach inland 2nd-tier cities such as Xiamen and Xi’an. JWT had a much smaller office in Chongqing, in the province of Sichuan on the upper Yangzi river, which served principally the ChangAn Ford Automobile corporation.

To optimize JWT China’s services, Doctoroff built up a Chinese quartet. In 2006, JWT purchased a fast-growing marketing and sales promotion agency, Always, founded by Cai Hua. Always established and managed relationships with customers and stores using a small army of 10,000 young women for promotion, road shows and audits. So while JWT Shanghai took responsibility for managing the upstream idea, Always managed the downstream promotions. In 2008, JWT took a 51% stake in Glendinning, a management consultancy partnering with Always, which could provide demand management solutions. Finally, the fourth member of the quartet, RMG Connect, was entrusted with digital customer relationship management.

What JWT is facing
The Chinese advertising market is characterized by an 80/20 split. About 80% of the advertising business is handled by some 100,000 very small local agencies. The remaining 20% is served by multinational agencies such as JWT.

Dealing with Chinese companies presented several specific challenges for JWT. First, these companies had not all built marketing into their corporate strategy and tended to be more sales-focused than brand-focused. Because of this shorter term sales orientation, getting the leader of the company involved was crucial to building a longer-term brand orientation. Also, JWT had to adapt itself to shorter client relationships as Chinese relationships tended to last a couple years, against the European standard of a half-dozen years.

A further particularity of the Chinese market is the need for different brand positioning. Professor Köll highlights two traits of the Chinese consumer: safety consciousness and status consciousness. An example of success linked to the former trait is Safeguard (the germ-killing soap which had a 25% market share in 2005). For the latter trait, look at the presence of Ferrari which two years after its arrival in 2004 had set up shop in ten cities. The success of Buick in China can also probably be explained because it has succeeded in combining the two demands of solidity and status.

The different media
In terms of media, TV advertising is dominant and is expected to remain so for a while. In North Asia television provided 71% of growth, as opposed to a 49% contribution in North America.  The question remains when China will jump on to the Internet advertising bandwagon (Internet advertising provided 42% of growth in the North American market).  While most rural households have televisions, far fewer have computers. In Guangdong province, nearly 75% of urban households owned a computer while only 10% of their rural brethren did. That said, the number of internet users in China crossed the 250 million threshold in 2008.

Two problems confront advertisers when dealing with the dominant television medium.  The strict Advertisement Law of 1995 still regulates the industry. In particular, comparative advertising is highly restricted which means that such strategies which may have worked elsewhere can not be transplanted in China. Advertisers must also be careful not to hurt consumers’ nationalistic sensibilities or offending the traditional respect for hierarchy.

The case points to a Nike failure and a success on this front. A TV ad in which LeBron James defeated a computer-generated kung fu master created an uproar and was ultimately banned by the administrative authorities. On the other hand, Nike was sensitive enough to abandon its hierarchy-upsetting Just Do It campaigns in favor of harmony-oriented ads that did not feature challenges to elders. That leads one to wonder whether the Chinese opportunity might not be summarized as follows: there sure is room to do it but do it heedfully.

Reference:
Harvard 9-809-079
“JWT China: Advertising for the New Chinese Consumer”
Professor Elisabeth Köll and Carmelo Tringali
Harvard Business School

Published April 2010