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Silicon Hutong - China and the World of Business • China Business and the World

Rethinking Mobile Advertising in China

Mobile Advertising Lags China’s Smartphone Explosion
Angela Doland
Advertising Age
January 24, 2014

Reporting from Shanghai, AdAge‘s Angela Doland writes a thought-provoking piece on how mobile e-commerce continues to outpace the growth of mobile advertising in the world’s largest smartphone market. As a percentage of all e-commerce, mobile is creeping into the double-digits, reaching as much as 21% during major holiday promotions.

At the same time, after years of effort, the most optimistic projections would have mobile advertising reach 3% of total ad spend in China this year. Given that Chinese users spend some 40% of their media consumption time staring at their mobile screens, you can understand the frustration of the advertisers.

Mobile Advertising Done Right

On the one hand, this trend should not surprise us. History teaches that effective advertising techniques for any new medium emerge only after an often extended period of trial and error. E-commerce initially grew much more quickly as a percentage of Internet-based revenues than advertising, and advertising was slow to find purchase in print news, radio, and television.

What this suggests is that the problem is not whether advertising can be adapted to mobile. The problem, rather, is that advertisers have yet to find an approach that makes the channel compelling.

Mobile Ad 1.0

There are three ways to approach mobile advertising. The first is to approach it as another channel for online advertising. This is where you talk about text-based advertising, display banners sized for the mobile screen, mobile search-based advertising, and ways to insert clever ads into music, videos, books and games consumed on a phone or tablet. Let’s call this “Mobile Advertising 1.0.”

My experience is that this has been the common approach in China, but that the challenges involved in making it work across three carriers, a half-dozen operating systems, hundreds of devices, and thousands of apps have made it difficult to get economies of scale. This alone might, in fact, explain why we are yet at such low numbers. Would it be easier with one carrier, one phone, and one operating system? Indeed. But I suspect that is not the real problem.

Perhaps, instead, we are misunderstanding the channel, and need to rethink how we do things. Back in 2006, I was in the room when my friend and former client Ian Chapman-Banks explained to a Japanese reporter that the reason that mobile advertising was having so much trouble was that we had failed to understand the value proposition.

Mobile Ad 2.0

Ian’s point (and I am paraphrasing heavily here) was that advetising as we know it was based on reaching out to chunks of people with similar characteristics at a given point in time. Mobile, Ian noted, had the ability to enable us to deliver a specific message to a specific person at a specific location and specific time.

In other words, what was keeping mobile advertising from being effective was that we were not using what made it fundamentally better than mass media advertising. This is the first time in history that advertisers could reach a person of their choosing at the time and place of their choosing, and all advertisers seemed to worry about was where to stick the banner on a small mobile screen.

Mobile advertising would be effective, Ian implied, when we figured out a way to make these capabilities work for the advertiser. Clearly, we are still looking for that combination, yet given the speed with which mobile is evolving and the innate conservatism of the advertising industry, this should come as no surprise. The key was to experiment and to keep experimenting.

The Mobile Ad 2.0 argument, then, is that if we want to figure out how to make mobile work for the nearly 1 billion mobile users in China (not to mention the rest of the world,) we have to experiment. Ian, who at the time had a generous marketing budget at his disposal, had allocated 10% of it to what he called “R&D:” money to try new channels of advertising and marketing that would not be evaluated alongside traditional channels, but that were just there to make sure that when something new worked, the company would be ready to exploit it.

So we aren’t at Mobile Ad 2.0 yet, but if we stick with it, we will get there eventually.

Is there a Mobile Ad 3.0?

Late last year I wrote a post that summarized why there are a number of ways to approach social media, each of which is guided by the marketing or technology silo from which one has emerged: practitioners who come out of advertising see social media as an advertising medium; people who come out of direct marketing see it as a direct marketing channel; PR people see it as a means of delivering messages; and so on.

What is different with mobile is that, in part because the challenge in putting mobile to work is, at the moment, much more technically intensive, the companies, departments, and agencies playing in that field have been those with lots of money. In short, it has been the advertising people. For that reason, we tend to talk about mobile as an advertising platform.

That exposes an assumption that is not necessarily supported by the facts. Zooming out of our ad-focused myopia one step further, then, we have to ask this: does mobile marketing need to be advertising-based, or are we missing something?

It’s Mobile Marketing, Jim, But Not As We Know It

In addition to allowing us to target an individual based on habits, time, and location, mobile also allows us to engage that individual in a conversation at a specific time and place. Mobile market research is based on that premise, and some of the early results hae been promising. As long as market researchers do not bombard us to the point of insensitivity with intrusive polls, and provided that we make it worth someone’s while to respond (good information is never free), this is likely to be a fruitful channel for some time to come.

Mobile has great value for point-of-sale applications based on near-field technology that go beyond completion of a sale. I walk into a hotel, and I am already getting notes on Foursquare about specials in the coffee shop. That’s a good start: it would be better if those specials were relevant to my dietary needs (e.g., “hi, David! We have great vegetarian options for you today!”)

Or how about direct-response on demand? When driving from city to city, I could tell Google’s Waze app on my phone that I needed a Sinopec station, and it would tell me distance, directions, prices, and offer me a coupon for stopping in.

I could go on, but you get the point. If there is a Mobile 3.0, and I think there should be, the opportunity is to start from the targeted user’s wants, needs, location, situation, and time, and work backward to the advertiser. This demands an intermediary who can make the match, of course. That’s why I think services like Criteo are going to translate well into the mobile space, and, in the long run, so will Baidu and possibly Tencent. The real gold rush will be for those companies who have the mass of advertisers on the one hand and the mass of users on the other.

Hence, Baidu’s ongoing interest in mobile. IF there is a single Chinese company that should make mobile advertising 2.0 or 3.0 happen, Baidu is it.

No PR Playground

What I am still trying to figure out, though, is where public relations has room to play in mobile. I have heard a few ideas, but I don’t see anything compelling so far. Classic advertising and classic PR don’t yet have roles to play in mobile to the degree that advertising does with online and PR does with social.

Yet every time I sit down and watch another compelling mobile technology demonstration, I am reminded that the tools we are creating today will be hopelessly antiquated, irrelevant, or both in five years. At some point, we are going to figure out how to make a connection between a company and a mobile user work out well for everyone. But we aren’t there yet.

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Will Chinese Pay for Content?

Hutong Forward
An undisclosed location
in the American Midwest

1649 hrs. local

Happy shoppers

Happy shoppers (Photo credit: Phillie Casablanca)

A contentious debate about China in the media industry is whether or not Chinese will pay for content. Most intelligent observers would answer no: Early experiments selling music were not encouraging, and with search engine Baidu offering links to free downloads, and later a legitimate streaming service, China’s mostly-young internet users could be forgiven for thinking “what’s the point of paying?”

Indeed, piracy of music has been so rampant that many thoughtful commentators, including Eric Priest at the University of Oregon, have championed the use of “alternative compensation systems” that presume that nobody will pay for the content itself. Like, ever.

At the China 2.0 conference at Stanford last month, there was gloom in the room when the people funding content plays took the stage. Annabelle Yu Long, the CEO of Bertelsmann’s China Corporate Center and managing director of the music giant’s Asian investment arm, noted that China, with a quarter of the planet’s ears, represented only 2% of Bertelsmann’s business, and this after decades of effort. The rest of the money people on the stage – Jenny Lee of GGV Capital, Raymond Yang of WestSummit Capital, and David Chao of DCM – Chinese all, agreed with the simple proposition that the Chinese do not pay for content, ergo they would not ever pay for it. As it is, so shall it ever be.

Getting Beyond ASCAP’s Messages

But as the discussion at China 2.0 progressed, and the panelists exhausted their messages and began to share experiences, a more nuanced truth came out. After talking about music, ebooks, and even movies, one of the panelists summed up by saying that as Chinese users become more prosperous and as quality and convenience become more important, they are  proving themselves willing to pay for music, movies, and even ebooks.

Two days later and an hour away at the annual conference of the Hua Yuan Science and Technology Association (HYSTA), the discussion was more optimistic. Oliver Lu of AppAnnie showed a chart that compared app downloads in China over the past several years to app revenues. Interestingly, over the past three quarters, the rate of growth of revenues has passed – and nearly doubled – the rate of growth in downloads. Chinese are starting to pay for apps. The numbers are not huge – your average Chinese spends 1/12 of the average Japanese user on apps – but the trend is clearly pointing in a positive direction.

Play with Me, Pay for Me

The difference lies in a generational shift – as well as a cultural shift – in consumption and a presumption of value. My generation thinks of content in terms of music, video, movies, and books. China’s post-80s and post-90s generations, on the other hand, grew up eschewing those formats because those were the most tightly controlled and least interesting.

Instead, they grew up playing games, and that cohort is only just reaching the age where they can afford to pay good money for their interactive diversions. Over half – 53% – of the revenue of Tencent, China’s huge portal and social media player, comes from games, which are now a $6.3 billion business in China, more than search advertising and display advertising combined. Ten of the top ten downloaded mobile apps in China are games.

A Future that Pays

That’s great for game developers, you’ll think. But what about everyone else in the content business. But that is exactly a the point. Once you get Chinese used to paying for one form of content (games), the door can then open for them to start paying for other forms. Develop the habit, create a value around legal versus pirated downloads, and you are on your way.

Call me a pollyanna, but it genuinely seems too early for the content makers to write China off. Use models like Eric Priest’s in the meantime if you have to, but lay the long term groundwork so that when your audience has more money than time, you are ready to capitalize on a very different kind of Chinese content consumer.

Whom Can You Trust with your Social Media in China?

Hutong Forward
Counting the helicopters outside my window
1629 hrs. local

Note: Over the summer I taped a segment for Thoughtful China where I talked briefly about what agencies to use for social media. The response has been huge, so I wanted to expand on my point here, especially as so many people are in the later stages of planning their China marketing efforts to begin after Chinese New Year.

Yunnan 2009-02-04 08-10

Internet cafe in Yunnan (Photo credit: sweart)

Most companies in China have yet to realize out that making the best use of social media demands more than a twenty-something customer service person posting links to content on the corporate website. This is understandable: social media is a relatively recent phenomenon (compared to, say, print media, or even the web), and the art of using social media for business is evolving with blinding speed. That means that today’s smart social media strategy is obsolete tomorrow.

This has provoked the companies who want to stay ahead of the game to turn to outside agencies. Unfortunately, the solution is more confusing than the problem. Jockeying for relevance and revenues, nearly every kind of agency in the marketing business is cooking up products and services to help companies handle their Chinese social media programs. Social media absorbs so much of the Chinese public’s time and attention that agencies feel they either must create a social media offering or consign themselves to the junk pile of history. The one-upsmanship between agencies is earnest, and sometimes desperate.

Elephants and blind men, meet social media and agencies

That would be fine if the solutions proffered were similar. They’re not, because each type of agency sees social media through its own prism, and approaches the medium accordingly. Advertisers approach social media as another form of advertising, or as an appendage of offline campaigns. PR people approach it as a fast channel to reporters or as a way to bypass journalists altogether. Digital agencies approach social media as a way to drive hits to digital content lodged elsewhere. And social media specialists want us to believe that social media is so different that it demands a special mojo, and it should be left to them as experts.

Ultimately, the agency a company ends up choosing for social media management is usually a function of how the firm has organized its internal marketing function. If there is a social media team, the agency is likely to be a specialist social media house (after all, if you are a specialist in social media, how would it look if you hired an ad agency?) If, on the other hand, advertising covers social, the ad agency will get the nod. And so on.

(I won’t bother to talk about companies who hire agencies to scoop up masses of zombie followers or who astroturf social sites with fake laudatory posts: any firm engaging in that kind of behaviour is going to get its just desserts in the form of bad publicity and ultimately negative ROI).

Social Done Better

This approach is understandable, but it is bass-ackward. What social media does that is unique is provide a space where people, not brands, dominate the channel. It is a space that is not just about promulgating a message, but about listening, responding, and demonstrating that a brand can be a person, too.

The real ROI from social, therefor, comes from the conversations people have about a company and its products with minimal encouragement on the company’s part. In short, the he trick to winning in social media is to get other people talking about you and delivering your messages far more than you do about yourself in all other media, and the more influential those people are on the behaviour of others, the better.

For that reason, the agency that should be handling your social media in China should be:

  • A firm that is used to cultivating influencers over time
  • A firm that understands how to develop, deliver, sustain, and support powerful messages; and
  • A firm that knows how to monitor opinion, respond rapidly and appropriately in the face of a crisis or opportunity, whether that is a product problem or a corporate scandal.

To me, that’s not an agency full of creatives, of people who write apps, or of social media “experts.” It is, on the other hand, an agency filled with smart communicators. Find one of those, and you have found the agency to help you in China’s lava-fluid social media milieu.

Branding from the Ground Up

In the Hutong
Surrounded by snow
1721 hrs.

I am usually suspicious about “thought leadership” pieces on marketing that come out of the major management consultancies. These firms have proven strengths in organizational design, operations, production, logistics, and strategy, but when they venture into marketing they tend to stumble for a range of reasons that would fill a book.

I was doubly suspicious of the McKinsey Quarterly article “Building Brands in Emerging Markets” by Yuval Atsmon, Jean-Frederic Kuentz, and Jeongmin Seong because their approach lumps all emerging markets together.  But while the article has its shortcomings, there are nuggets of critical insights in the paper for businesses operating in China.

China is Different…

The authors correctly note that Chinese consumers generally rely more on word-of-mouth to guide their purchasing decisions than do their counterparts in most other countries, especially the U.S. The in-store experience is also more important here. Chinese are more accustomed to changing their decisions at the point-of-purchase rather than leave a store if they can’t get what they came in to buy. Indeed, many consumer marketers find that point-of-sale is the second largest chunk of their budgets (next to advertising) because they will lose at retail what they won in advertising.

Finally, it is increasingly important in China to eschew a purely national approach to marketing and target consumers with a more local approach. China is a patchwork of local habits, climates, dialects, diets, and sub-cultures, and we are reaching the stage in the nation’s development where marketers can no longer afford to ignore that.

…But the Difference is Changing…

Aside from its geographic overreach (“emerging markets” are not all the same) and its broad-brush approach to consumer goods, I have two major quibbles with the article. First, the authors offer a snapshot of consumer behavior but ignore trends that might undermine their points; and second, apart from geography they treat all Chinese consumers as an undifferentiated mass.

First, where people get their advice is changing. While the authors state that only 53% of China’s consumers find online recommendations credible, they leave out the fact that well over half of China’s consumers don’t have access to the Internet.  If you are a company (like, say, Coca-Cola) who needs to reach most or all of China’s 1.2 billion consumers, the Internet is about half as important as friends and family. Conversely if, like a growing number of companies, your target consumer is likely to be online – that is, if she is young, urban, educated, and has money to spend – the importance of the internet is sorely understated.

What is more, as credible online resources emerge, there is mounting evidence that the 560 million Chinese who can get online are giving outside sources greater credibility. As early as 2009, Sam Flemming’s CIC Data noted that over half of online consumers actively sought online feedback on a product prior to purchase, and that nearly 90% paid attention to online buzz on a product whether they sought it out or not. In that case, the Internet runs a close second to friends and family in the purchasing decision.

The importance of the retail shop in the purchase process is changing as well. I spoke with a senior marketing executive for a consumer electronics brand last week who told me that online sales – e-commerce – had suddenly become more important than in-store sales. A growing number of consumers was apparently hearing about the product from advertising, checking with family, checking online, going to the store to look and feel, and then going home and buying the product online. China’s online retail business has now passed an average of $40,000 per second and continues to grow. If the final point of sale is online, how does that change McKinsey’s equation? We don’t know: McKinsey ignores the internet.

…So let’s not Whitewash the Nuances

Finally, the authors ignore the importance of several demographic factors, most specifically age. Although it should be axiomatic, a growing body of research in China delves into how differently the increasingly prosperous older (55+) consumers behave than their under-30 counterparts. Friends and family are essential to the elderly, but for most purchasing decisions the youngsters are relying on peers and the Internet. Older consumers are more likely to purchase in a store, younger consumers are more likely than the grandparents to buy online.

Perhaps I’m being overly critical of the authors: these are, after all, nuances that would not fit into a 3,000 word article. But these oversights point to the problem with taking the management consulting approach to marketing. Grand strategies and broad generalizations may make for mind-tickling patter with clients, but as Ludwig Mies van der Rohe said, “God is in the details.” The day is long past when marketers can view Chinese consumers as an amorphous mass with uniform habits, and I would wager that applies in Brazil, India, and South Africa just as well.

The Coming Rise of Foxconn

Deutsch: Foxconn Logo

Deutsch: Foxconn Logo (Photo credit: Wikipedia)

The High-Speed Train “Harmony”
Enroute to Shanghai
1130 hrs.

The attention given to Foxconn over the past several years has largely concentrated on its role as Apple’s leading supplier in Asia. What we have missed in all of that juicy coverage, however, is the longer-term picture. While it is tempting to believe that Apple will always be strong, that it will always rely on offshore outsourcing for its production, and that Foxconn will be content to play Sancho Panza to its client brands, there are several factors that suggest otherwise. In fact, in as little as a decade from now, Foxconn may itself be a global brand.

Hon Hai Precision built its business as a supplier to the world’s computer and consumer electronics brands. Most of us still see the company a contract manufacturer, an assembler of devices and machines. Yet over the past seven years, the company has quietly added to its capabilities to the point where it is one step away from becoming a fully integrated brand-name electronics company.

Making Nice with Consumers

First, it added a name people outside of Asia could recognize as a brand – Foxconn. You could argue that the brand is tarnished, but the one thing it still has going for it is recognition. Think Oscar Wilde: the company has been talked about a lot, and despite the bad press (much of which has landed on Apple), the scale of the brand recognition alone – and the cost of building recognition for a new brand – might tempt the company to stick with it. If not, building a new brand would be a relatively modest investment for the $25 billion company.

Next, Foxconn began experimenting with selling to consumers with a line of branded high-performance computer components. Even though the target was small – gamers, pro-sumers and specialty computer builders – it gave the company a glimpse of what would be required in a wider consumer marketing program. As a part of this experiment, Foxconn then built the rudiments to of a customer support network, again, providing the company a gut-level understanding of what would be involved in supporting a global consumer effort.

Steel Goes In, Cars Come Out

Equally, if not more important, the company slowly built out a vertically-integrated manufacturing capability. The original thinking was to offer customers faster time-to-market while controlling for costs and capricious upstream suppliers – the latter a perpetual, frequently overlooked headache in China. The company began making its own cases, then its own electronic components. Next, it added product design and development and even the basics of a research capability. As of 2006, the company had over a dozen R&D centers worldwide, and 30,000 patents either granted or pending.

To control the variables in supply chain, it built in a logistics and supply chain management team that focused on keeping customer inventory costs low and prepared it to work with the largest retailers in the world, and built a channel sales organization to support the sale of its own branded components and as an extra spiff to smaller customers.

All told, Foxconn could probably start experimenting with selling its own branded consumer products in a matter of months once it made the decision to go ahead.

Gnawing on the Hand that Feeds

The perceptive reader will ask “why?” Why would Foxconn risk upsetting the Apple-cart, risking the custom of the very companies that put it where it is today? There are several answers to that question, none of which alone would be sufficient to make Foxconn take the leap. Taken together, however, they form a compelling case.

First is profit pressure. Foxconn is probably at the point in its development where it has squeezed as much as it can out of its costs, and costs are rising. Inputs aren’t getting cheaper, labor is getting more expensive, and the company faces a major investment in automation, not to mention the additional expenditures every time Apple or HP needs to offer something newer, cooler, and harder to make. Cost pressures on customers, even Apple, remain acute, so Foxconn is unlikely to see much relief from that front. The only way to turn the profit equation around is to start going around its weakest customers directly to retail.

Second, many of Foxconn’s customers – HP being a prime example – are facing headwinds of their own. The computer industry has matured, people aren’t replacing devices as often, and the field is starting to narrow to two or three industry leaders far ahead of everyone else. The opportunity to find a tempting niche and then burst in to exploit it will grow, especially as Lenovo starts to expand its market share. If Lenovo can do it, Gou will reason, so can we.

Even Apple is not immune to headwinds, and if there is one thing that must keep Gou awake at night, it is his growing dependence on this single customer and the decisions made by its leadership team. And if that company starts making strategic errors and the numbers begin to fall, Foxconn needs a Plan B. What is that Plan B? Samsung? Probably not.

Third, for all of the advantage of working from behind the screen, Foxconn’s fortunes are almost entirely beyond its control, resting in the hands of distant executives making decisions that are none of Foxconn’s business. Don’t underestimate the degree to which this frustrates not only Gou, but every Chinese contract manufacturer who ever dealt with an importer. Your can only grow as quickly or consistently as your customer lets you. Again, if the customers start blowing it, the urge to give up and go around them becomes overwhelming.

At the same time, Foxconn’s customers are arguably as locked in to Foxconn as they are to him. For reasons of speed (time to market) and scale (time to ramp up volume), customers don’t have many choices. Short of the most grievous provocation, few could afford to walk away from Foxconn.

How It Will Go Down

For all of these reasons, Foxconn’s move would have to come under circumstances where it could credibly say to its customers that it had no other choice.

There would need to be a trigger event, the three most likely being that a major customer either goes under, stumbles badly, or takes back production. At this point, Foxconn’s continued growth (if not its survival, if the stumbler is Apple), would be at risk, and Foxconn would need to respond.

Foxconn would likely use a production facility with idle capacity to produce products that it could credibly say did not threaten a current customer (say, Apple), and that possibly was aimed at weakening the grip of a rival on its market share. If Foxconn could make a case that it was going after Samsung or LG, for example, Apple’s objections would likely be few. Foxconn could even offer to forge an entirely new brand and build new factories so that the new venture was plausibly firewalled from customer business.

To be sure, the company needs to fix its reputation and build a global marketing capability. The former is underway in earnest: the company has hired PR counsel (not yours truly) to fix the reputation and to lay the foundations of a global branding and marketing effort. It has also built a worldwide sales force that could be expanded quickly to forge the relationships with retailers that it would need to get shelf space in stores.

But make no mistake that Foxconn’s breakout is both plausible and, given the history of business, inevitable. The timing will be soon – Terry Gou is no longer young, and he would want the transition to global brand to at least begin under his watch, and arguably it will either happen under Gou or it will never happen.

If Foxconn could pull it off, however, the company would have a shot at a long-term future free of dependency on other companies, and set up to compete against Samsung, Lenovo, Huawei, and – if it so wished – Apple.

Watch carefully. The shift will start small, but once underway we will watch the birth of a new global brand.

China and the Glocal Mix

Enroute LAX – HND
Looking forward to a day in Tokyo
1500 hrs.

There are two basic schools of thought on marketing best practices in China. One school, the Exceptionalists, holds that China is such a unique place that there is little or nothing of value to be learned from overseas experts, academics, or practitioners about the marketing crafts that is applicable here. Only practices that are home-grown and developed with long local experience and a deep understanding of the Chinese culture can ever hope to succeed.

The other school, the Integrationists, holds that China is basically like any other market, just not quite as far along in its development. You may not be able to pull the latest marketing books off of the shelves at Barnes & Noble in New York and apply the recommendations here, but China is pretty much like the U.S. was 10, 20, or 30 years ago. (One member of this school of thought actually said that Chinese advertising agencies bore spooky resemblance to the HBO Miniseries Mad Men.)

I have been to both schools, and I have wound up as what I would call an Experimentalist. I believe that effective marketing in China comes from a combination of global best practices and locally-specific, highly relevant tactics and techniques. Let’s call this the Glocal Mix.

Marketing Mixology

If that seems like a no-brainer, think again. The challenge is that there is no viable formula for how to strike this balance. Not only does the Glocal Mix vary from company to company and sometimes from product to product, but also the given Glocal Mix of a product changes over time as new tools are introduced, old ones lose effectiveness, and the media mix changes.

The most obvious issues with a global approach come in social media. Facebook pages are de riguer for companies around the world, but they don’t work in China for obvious reasons. Simply “localizing” the tactic by taking pages on social media site Renren.com will not garner comparable results, if for no other reason than differences in how people in China use social media, and how much those people have to spend. A year from now, however, this might not be the case.

Engaging bloggers is less effective in China than elsewhere as well, because with a few notable exceptions, blogs play a lesser role in shaping opinions than, say, online forums, QQ, or microblogs. Yet changes in China’s political landscape, and the growing willingness of China’s online “opinion platforms” to actively manage the conversations could well change that. When public discourse is controlled, private platforms get precedence, and it will be the voices who can master tools like WordPress.org who will retain their influence.

The Geek and the Chic

But for those industries where customers around the world share many of the same concerns, lifestyles, and habits (and indeed often directly influence each other), the Glocal Mix tends to be more global. Early adopters of technology and luxury products are prime examples.

Technology early adopters are a part of a global subculture, so much so that buying habits and priorities are often more similar between, say, an early adopter in China and his Korean counterpart than between the Chinese early adopter and his less technically-oriented next-door neighbor. This phenomenon is not restricted to hardware: games tend to make the leap among global early adopters faster than they leak into the general populations of any country.

Luxury early adopters also share a global sub-culture. It would be trite and simplistic to think of this as the global “jet-set,” because the crossover in relationships is limited to the pinnacle consumers in the group, but the similarities in culture are notable: Hong Kong society types may not mix with their counterparts in Paris, Beverly Hills, or the Hamptons, but the toolkits to reach the women waiting for the next LV purse or the men waiting for the next Breitling watch are remarkably similar.

The challenge in selling to the global early adopters is the same for each group: finding the global mix early, and executing simultaneously worldwide.

Once the early adopters are on board, however, companies find that the tactics and approaches need to change in order to reach into the wider market. This is where local focus comes into the mix. Culturally specific, locally-relevant approaches become essential.

Meet the Glocal Team

Operationally, this means that rather than fighting over who owns the campaign design and strategy function among local and global marketing teams, the answer is more nuanced. For those companies, products, and campaigns that depend on an initial bump from early adopters or from markets where there is a high degree of cultural commonality across geographies, global marketing teams create the master plan and strategy, and local teams localize (in coordination with global) and then oversee execution.

For those products or campaigns that seek to leap into wider, even mass markets, the strategy, messages, creative, and execution all need to be developed in market, sharing as much commonality with the global campaign as possible, but not shackled to it. This is the point where considerable autonomy must be granted to local marketing teams.

The challenge for the CMO and his direct reports is to come up with a shared view of the nature of the global market. Is there a global sub-culture that would allow for a more global approach? Or is it necessary to reach a culturally distinct audience in each market, and thus decentralize campaign planning. Regardless of company, this is the essential step, and it can be the most difficult of all.

Being Experimental

Once that agreement is reached, however, focus should be off of massive annual marketing plans and onto highly flexible teams (including agencies) working from clear, measurable, and consistent objectives. Strategies should be in flux as the nature of the market changes and as competitors respond to campaigns.

The idea of committing to yearlong media buys and marketing commitments is passe, especially with both the media landscape and the global economy in a state of flux. Experimentation (in the form of rapid measure-analyze-strategize-execute cycles) takes precedence over research and commitments, and diverse toolkits made up of global and local approaches, tactics, and techniques become more valuable than Big Bang marketing.

This will all be brutally difficult for companies used to more traditional marketing practices. Those who can master it, however, will turn marketing from a cost center into a genuine competitive advantage.

Does the Internet Make Polling Redundant in China?

Hutong West
Planning a trip to In-n-Out
1410 hrs.

I have a friend who is in China trying to expand the business of a major global organization that conducts opinion polls. Not surprisingly, he is finding the effort a bit rough going.

Part of the problem is a question as to whether or not polls are a tool that could work in China, a matter I touched on in my rather wonkish recent piece about market research. Another is the political sensitivity of what the Chinese government calls “social research.” Having an organization not controlled by the government or the party conducting polls among the Chinese people about social and political issues is extremely sensitive. Indeed, until recently such research was supposed to be approved in advance by the National Bureau of Statistics. (I believe this still to be the case, but enforcement is spotty.)

But the other part of the problem is whether traditional polling is even necessary in China anymore. While a poll takes days or weeks to set up, conduct, analyze, and disseminate, China’s social media offers a realtime glimpse at the Chinese zeitgeist that would be adequate for many (if not most) purposes. Indeed, I’ve watched demonstrations of public opinion dashboards based on real-time online analysis, and the process of gathering that data is becoming increasingly automated. Right now, companies in the advertising, marketing, and PR industries are deep into this business, and it is probably only political caution that is keeping Baidu, Sina, and Tencent from openly offering realtime “mood of the public” analysis to anyone willing to pay for it.

The only real question, then, is how long it will take American politicians to replace organizations like Harris, Roper, and Gallup with less expensive, real-time tools? While I suspect polling will never go away, the industry is in for some disruption over the next four years. Election 2016 is bound to be much more about Twitter, Facebook, and Google Analytics than about the old polling organizations. I would bet that at least one, if not all three, of those organizations either launches new, commercial election products in the coming quadrennium, or they buy companies that already have them.

Disinformation Wants to be Free

Hutong West
Afternoon sunshine
1250 hrs.

One of the book projects for which I have been gathering string for years is a book on disinformation, so I have been following the issue of corporate disinformation and deception in China with great interest.

One of the core questions I have to deal with (both intellectually and as a professional) is whether corporate disinformation is ethical or permissible at any time. Despite Japanese maxims that business is the moral equivalent of war, there are some things that might be acceptable on the battlefield that are less tolerable in the marketplace. In a day of the internet and corporate transparency, I have yet to frame an ethical case for a company to deliberately misinform its publics.

So I was interested in how Agenda Beijing dealt with the issue in its interview with corporate espionage specialist Bruce Wimmer.

[Agenda Beijing:] Would you recommend companies to employ offensive tactics as well?

[Bruce Wimmer:] Yes.  Companies need to be able to detect and neutralize the attacks.  In boxing or martial arts that would mean not just deflecting the attack but countering with attacks that might neutralize the threat.  This could involve passing disinformation, legal actions and working with various government and law enforcement agencies.

I can see Wimmer’s point, and he is not alone in believing that there might be circumstances where passing deliberately incorrect information is acceptable. He wants to use it as a way to catch a thief, and I think it would be an excellent method to throw off competitors.

But I am not sure if Wimmer has run into the problem I have discovered, which is that once information is passed, it cannot be contained. Even if you were surgical in delivery, ensuring that your intended audiences and nobody else received the initial transmission of that information, that audience would almost certainly pass the information onward. If the disinfo was credible enough to be believed by hackers or your competition, everyone would believe it. The competitor or hacker could pass it onto a credible third party source, who himself could say he got it from a credible source, then everyone would believe it was true. Some examples, neutered to protect the parties in question:

  • Using a proxy, one Chinese dairy allegedly passed on disinformation that the products of a competitor dairy were causing toddlers to grow breasts. The target audience, consumers, reacted perfectly, and the competitor’s sales took a hit. Unfortunately, that information also found its way to authorities, whom upon investigating discovered that the disinformation was false, and the credibility and business of the originating company took a hit;
  • A market leader in a high-tech gets wind that a competitor is planning on introducing a product using an innovative technology. The market leader passes word to that competitor that, in fact, the market leader already has such a product, and is about to launch it. The competitor stops development, but then announces it is doing so because it understands the market leader is planning such a move. The originating company is then left in a quandary: deny the move, and look like a market follower (the impression it had sought to avoid), or confirm it is pursuing the product despite its earlier decision to ignore the technology. (I can count at least three instances of this occurring, and one company that crashed and burned as a result);
  • Motivated by worrying scientific data, Congress is considering legislation that would affect the future of an industry. The industry pays for the development of studies that impugn the original data and the scientists who gathered it, then pass that information to Congressional staffs. The disinformation leaks and is publicly discredited, effectively discrediting the industry and any legitimate case it seeks to make against the legislation.

The lesson is simple and should not be forgotten: disinformation cannot be confined to a single target audience. Every time a company sets out to deceive (however pure the motive), that information will get out. No company or industry can withstand the hit to its credibility and public trust that such a campaign engenders. We are nearing the day when a nation cannot, either.

Brands Add Value

Back in the Hutong
Finally, blogging again
1657 hrs.

As the debate over if, when, and how China will begin to produce global brands continues, someone quipped today that China will start building brands only after it starts creating products people want to buy. That’s a fair point, but I don’t think it goes far enough. As Thys De Beer wrote last year:

In the 1920’s WK Kellogg said: “The purpose of business is not to make a profit. What a dreary and demeaning description. The purpose of business is to add value to people’s lives. The consequence of doing that well is that you make a handsome profit.

Debate that if you will, but I think that Kellogg’s statement reflects

an idea that has yet to germinate among Chinese executives, and that therein lies the core reason why China has yet to produce global brands.

SPAMming China Old-School

Spam 2

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In the Hutong
Settling back in
0916 hrs.

The San Francisco Chronicle is running a short, amusing piece by Bloomberg‘s Matt Boyle on how Hormel is planning on bringing SPAM, it’s canned pork product, to China. The twist: because of all of the other low-cost meat-product alternatives available in the market, they want to hawk SPAM as a “premium product.”

This is not as impossible as it sounds, but it will demand that Hormel completely rethink the way the product is packaged, priced, distributed, and marketed. To the company’s credit, they appear to understand that, having ostensibly changed the formulation of the product to “match Chinese tastes” and conducting a marketing program focused on in-store promotion and making SPAM part of a dining experience.

(I say “ostensibly” because I have worked with Western food companies in the past who had claimed to have reformulated their product for Chinese tastes, while in fact they did nothing of the kind, unless you count reducing portion size and substituting local ingredients as “reformulation.”)

There are a lot of reasons this might fail, starting with whether Hormel is ready to spend several years in the effort. The article mentioned that Hormel was driven to China by the drop in Japanese demand after the Tohuku earthquake, suggesting something less than the commitment to a long-term effort that this will require. Chinese might also shy from a canned product pitched as a premium, and local competitors could jump into the fray with more credible premium products. Worse, the article noted that marketing funds were limited, never a good sign when you are introducing a product that requires a change in habits if not a change in tastes.

If there is one reason to be optimistic about SPAM in China, however, it is China’s own issues with tainted food. If Hormel can explain to Chinese consumers why SPAM is not only of meaningfully higher quality but is also a safer product less prone to tainting or other issues, it will have a winner. Food safety is the real hot button in the industry today, and if Hormel can prove SPAM’s safety while selling the product experience, it can not only build a market for SPAM, it will also expand the market for its other products.

Otherwise, SPAM will follow a long procession of food brands that never quite made it here.

What China’s Online Companies Can Learn from the MySpace Implosion

This is icon for social networking website. Th...

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The Patio, Hutong West
Hawks screeching overhead
1215 hrs.

In what has to be one of the best almost-postmortems of an Internet company I have ever read, Bloomberg BusinessWeek’s Felix Gillette’s June article on “The Rise and Inglorious Fall of MySpace” offers a set of insights that apply far beyond the doors of the benighted (and recently sold at a 94% write-off) social network pioneer. I have extracted three lessons that I think are particularly germane for online companies in China.

Perception is Reality

Social networks are sufficiently new that they are still a little scary to your average consumer, less so than space tourism, perhaps, but more so than a trip to the grocery store. Fears about privacy, identity theft, stalkers, pedophiles, and a host of unseen and unimagined dangers lurks in the subconscious of even the most adventurous user. As willing as we are to flock to something new, we will take flight like spooked ducks if our sense of security is credibly threatened, leaving a once-hot network foundering. As Gillette notes:

One of the reasons social networks are so combustible is that they have proven to be particularly sensitive to public perception. In February 2006, Connecticut Attorney General Richard Blumenthal announced that he was launching an investigation into minors’ exposure to pornography on Myspace. The subsequent media frenzy helped establish the site’s reputation as a vortex of perversion. “If you have a teenager at home, odds are they’ve visited the blog site myspace.com,” Hannah Storm warned CBS News viewers in 2006. “And there are fears that this popular social networking website, and others like it, have become places where sexual predators easily prey on children.”

Researcher [Danah] Boyd of Microsoft believes that alarmist press ended up crippling the company. “The news coverage of teenage engagement on Myspace quickly turned to, ‘Oh my gosh, there are all these bad teenagers doing bad things and this is crazy!’ ” says Boyd. “Quickly, it turned into a big narrative about how this was a dangerous, dangerous place.”

This situation brings to mind an editorial that serial entrepreneur and Mahalo.com CEO Jason Calacanis wrote in 2008, suggesting that Internet startups didn’t need PR people, and that the CEO can and should be the PR guy for a company. I am inclined to agree with Calacanis to the point where the CEO is the chief spokesman for a company with media, bloggers, analysts and the general public, presuming of course that the CEO is not a reclusive nebbish who gets flop-sweat in front of reporters (and there are plenty of those.)

What the MySpace case suggests, however, is that somebody on staff or on retainer needs to be spending his or her days anticipating and addressing potential scares and other reputation busters, because waiting for such things to happen and then responding is already too late. As quickly as MySpace reacted, reaction was not enough, and in a world with five-minute news cycles it never will be. Besides, a CEO has far more things to worry about. And how IS Mahalo doing these days, Jason?

If It Does Not Look Broken, You Aren’t Looking Hard Enough

The old expression that “a rising tide raises all boats” has an unwritten corollary that applies to fast-growing businesses: “a rising tide covers all rocks.” High growth can mask a huge range of fundamental problems, and smart companies like Amazon go and dig them out even when they aren’t real problems. They understand that failure to do so will only mean problems later, when the growth slows, the tide goes out, and the rocks start sticking holes in the boat.

MySpace did not. As Shawn Gold, former head of the company’s marketing and content efforts, told Gillette, “when you’re growing at 300,000 users a day it’s hard to imagine that you’re doing anything wrong.”

In retrospect, that sounds almost delusional, but you have to be in one of these organizations to realize how dead easy it is to overlook or ignore critical problems. Hubris is as easy to catch as a cold when things are really good and you are being lionized by media and users alike, and even those immune to the hauteur virus are likely to be so wrapped up in just keeping the wheels on such a fast growing organization that they set “important but non-urgent” problems aside.

Companies have to build such organizational debugging into their culture and allow time and resources to address those issues. MySpace, by the admission of both Gold and its founders, were more seat-of-the-pants, and they paid for it.

Leaders Must Be Users

MySpace co-founder Chris DeWolfe made a point he felt was critical to the company’s long, slow slide to the middle of the social network pack:

“After we left, the guys that took over were never Myspace users,” says DeWolfe, who now runs a startup called MindJolt. “They didn’t have it in their DNA.” According to a source familiar with the sale, DeWolfe is also a finalist to buy the company. DeWolfe declined to comment.

This might be so much positioning, or even a bowl of sour grapes given the rough handling News Corporation dealt to the MySpace founders when they were shown the door. Let’s resist the temptation to get all ad-homenim for a moment and look at his point.

The owner or executive of a media company has to be in the audience, and for social media he or she has to be a participant. There is simply no other way to understand or manage the business. The idea of a newspaper executive who cannot read or a movie mogul who won’t watch films is ludicrous. It is the same for online companies, and especially social media.

This is particularly relevant for foreign companies setting up online businesses in China. You do not want to put someone in charge who is not a user, or, worse, who because of a language or cultural barrier is unable to be a user. The experience for these companies, not the content, is everything, and if you cannot evaluate the experience you have no business being in charge.

Don’t Go There

The history of social media and the Internet is sufficiently short that we should be squeezing as many lessons as we can out of every case. We will be analyzing the MySpace story for years, but Gillette gives us an excellent starting point. This is a superb article that should be mandatory reading for anyone putting their money into an online company, particularly in China, where we enjoy a surfeit of engineering talent and suffer from a dearth of capable managers.

The Advertising Sales Problem

Hutong West
Laying low
1824 hrs.

I have spent a lot of time at Internet industry conferences in Asia over the past year, meeting, speaking with, or hearing from companies seeking to start or grow internet or mobile businesses in China. One thing that amazes me about the current flock of China online hopefuls is how many of them plan to rely on advertising to pay the bills.

To their credit, most of them understood from their experience elsewhere that this was going to be a difficult task, and they were ready for the challenge. What most did not know is that there are a couple of reasons why running an ad-supported online business is going to be tougher in China than elsewhere.

Moneyball Advertising

First, it is common knowledge in the ad industry that many (if not most) of the advertising dollars spent in China are allocated based on habit, fear, ignorance, longstanding relationships, or corrupt practices like kickbacks and under-the-table payments. Even if you can prove that what you offer is the most efficient way to spend ad dollars since the Romans invented graffiti, do not expect a warm welcome. Most Chinese marketing managers are more concerned about creatively enhancing their personal income or avoiding potentially job-threatening risks than about demonstrating how much bang they’re getting for the buck.

Second, making an effective pitch to advertisers in China depends on doing three things really well:

– Identifying the precious few intelligent and creative marketing managers who care about efficiency and effectiveness above all else;
– Framing the sale in terms of what the advertiser needs, not what you want to sell; and
– Finding advertising sales managers who can do both of the above.

The last is the toughest one of all, and is the bottleneck restraining the faster development of online business in China.

The Ad Sales Manager Crisis

I have worked with online firms in China for over a decade, from foreign brands to local start-ups, and the one speed bump each of those companies hits is the problem of finding a good sales manager. Initially, the CEO serves as the chief salesperson, and most large advertisers and agencies won’t negotiate with anyone else. The boss winds up going on all but the coldest of sales calls.

Unfortunately, the CEO of a startup or high-growth Internet company has a lot of other things demanding his or her attention, like actually running the business. Given the importance of revenue, however, either those other things start to slip, or the CEO starts working 18 hour days for months on end. Not even the most enthusiastic CEO can last long with that kind of schedule.

The solution is to hire sales managers who are intelligent, experienced, and trustworthy enough for the company to grant them considerable latitude in framing the creative (and legal/ethical) deals, and who close business or do everything but the final handshake.

Unfortunately, good ad sales managers are rare and hard to find, and those willing to shift to the uncertainty of an internet startup are even rarer. What this means is that the internet business faces a bottleneck that is likely to last for years, and that the good ones will become the subject of virtual bidding wars, jumping to new jobs for higher pay and titles until they are out of reach to all but a fill well-funded startups.

Fishing in a Bigger Barrel

Until the current crop of young ad salespeople has had a chance to mature, and unless some higher power starts air-dropping highly qualified ad sales managers over Beijing and Shanghai, companies are going to have to start addressing the problem more proactively, and more creatively.

Pulling experienced sales people from other industries might help, although like many industries the ad sales game demands some specific skills, knowledge, and familiarity with the sector that would require some intensive mentoring and a 9-12 month apprenticeship. That may be a better approach, however, than trying to turn a 25 year-old ad salesperson with 3 years of experience into a sales manager.

There is another pool of talent that is worth considering: mid-level Chinese advertising agency executives.

Here is a group of people who are used to thinking creatively, at least compared to most of their peers. They are not only accustomed to selling to advertisers, they are used to crafting campaigns for clients based on the specific needs of that individual rather than a lump of inventory that needs to be sold. Another plus is that they understand how advertising agencies think and operate, giving the organization insight to how to frame, time, and pitch campaigns to media and creative agencies.

There are plenty of these folks as well, and their availability is not necessarily a reflection on their abilities. Large agencies have become adept at hiring young people and putting them to work, but many are having trouble keeping people happy after about 7-10 years in the game. By this point in their careers, most advertising executives have been promoted to Account Executive, pushed up by a combination of title  inflation and two decades of double-digit growth in the advertising industry. Once they reach this stage, however, they plateau, constrained by the rapidly shrinking number of positions above them, and held back by their own fairly narrow scope of experience from taking enterprise leadership positions. At about this point, the really good ones are looking for other options, and it is time to snap them up.

Time for Creative H.R.

This is not a panacea: the ad sales manager problem is not going to disappear overnight simply because the industry goes searching in different quarters. The key takeaway is this: the lack of strong advertising sales managers is a hidden choke point in the growth trajectory of an online enterprise in China; the problem must be addressed proactively, and ideally in the earliest planning stages; and the best way to address it is with a creative approach to recruiting, development, and retention.

With apologies to the IT and product people, the ad sales manager is the second most important position in the online enterprise behind that of the CEO, and it demands as much attention and focus from H.R., from boards, and from investors. Failure to give this role due attention at the very least will mean lost revenue and an overstretched and burned-out CEO at a critical point in the development process. At the worst, it could become a key factor in the failure of the business.

When Marketing is Useless

In the Hutong
The Summer of Blogging Begins
1420 hrs.

Yesterday on Weibo I suggested that while some companies in China were either muffing their marketing by not putting enough time, money, and CEO attention into the function, there are actually some companies for whom marketing would be a waste of money. Naturally, somebody asked “oh yeah, like whom?”

In about five minutes, the Hutong Party Secretary and I came up with a baker’s dozen Chinese companies that I would argue don’t need to bother doing anything but taking care of product/service quality and paying their salespeople well.

Air China – The nation’s flag carrier is slowly raising its service standards to match the expectations of Asia’s spoiled-for-choice air travelers. In the meantime, relationships, a growing lock on key hubs in China, and rapid market growth help ensure its planes remain full.

Capital Car (Shouqi) – As a customer I’ve never had any complaints about Shouqi’s service, whether in buses, vans, or taxis, but I also recognize that it owes its success at least as much to its semi-protected status as its management.

China Aviation Oil – The exclusive or preferred supplier of jet fuel at China’s busiest airports, CAO needs traders, salespeople, and guys who can pump fuel into jets. They don’t need marketers.

China Minmetals – China’s minerals conglomerate, pumping mined materials into China’s economic furnace. Procurement determines success, not marketing.

China National Railroad – Except for high-speed rail (for now), CNR manages to fill most of its trains despite zero marketing and a ticket purchasing system that harkens back half a century.

China Ocean Shipping Corporation (COSCO) – China’s state-owned and dominant steamship company. Not only does it not need marketing, it needs to keep those sorts of costs as low as possible as it fights the likes of Japan’s Mitsui OSK, Taiwan’s Evergreen, Hong Kong’s OOCL, and Singapore’s NOL in the commoditized Transpacific ocean freight business.

China Ceroils (COFCO) – If you don’t know this company, think of Archer-Daniels Midland backed by the power of the Chinese central government. Some of its processed food subsidiaries and real estate companies may need marketing, but the parent company surely does not.

Gehua Cable – Beijing’s dominant cable television service provider. Decent customer service, fair collection of channels, and no need for a marketing department.

Sinopec, Petrochina, CNOOC – Lining China’s filling highways with service stations and convenience stores, the problem for China’s oil giants is securing enough fuel to sell and getting the government to let them do so at profit-making prices, not pulling cars into their service courts.

State Cigarette Monopoly – When you have a corner on an addictive product, people will find you. Don’t bother with marketing.

State Grid Corporation - A power transmission monopoly. Your local utility buys from State Grid, or the town goes dark.

Tong Ren Tang Pharmacies – A Beijing institution, the familiar red and yellow signs mix traditional Chinese medicine, over-the-counter remedies, first aid supplies, and inconsistent service into an apparently successful business. The company could use an attitude overhaul at the counter and some better merchandising, but marketing is probably unnecessary.

By now you will have noticed that these companies share one or more of the following characteristics:

  1. They are either monopolies or near-monopolies in their areas.
  2. They are the dominant players in their markets, either by government decree or acquiescence.
  3. They offer reasonable enough products or services at reasonable enough terms and conditions that customers are not running away screaming.

Obviously, not every company can afford to rely entirely on their sales force to win business, and my bet is that at some point all of the companies listed above will need to get serious about marketing.

But there is a lesson hidden in these cases, extreme as they are. As marketers we too often make the self-interested assumption that our companies or clients need marketing. Maybe they do. It would serve us well, though, to question that assumption when taking on a new job, a new client or a new campaign, or even argue the opposite (“this company doesn’t need a marketing program.”)

At the very least, we will find that doing so frees us to toss the baggage that comes with our craft, get away from the “one of each” check-the-box approach to market, and get on with only doing the things that actually sell more stuff.