Mike’s Blog

Last week I attended the ad:tech conference in Shanghai, a gathering of practitioners in the online advertising domain. It was the first ad:tech I have been to and I am glad I went.

Everyone was sure the recession would result in overall ad budget cuts but unsure whether the allocation to online would increase enough or at all to offset the effect of the overall cut.

Apart from this gloom, the most interesting take-out for me was the stage of thinking among online proponents about why allocation to their medium is low and how to raise it during an economic winter.

Even in boom years, online advertising has in China generally struggled to capture more than 5% allocation of ad budget (or marketing budget – depends who you talk to). And it now faces the complication of a downturn which undoubtedly will result in budget caps or cuts among most clients.

In China, TV attracts about three-quarters of a typical advertiser’s spend. Yet online advertising is believed by all its proponents to deliver better ROI than TV. They believe this passionately, not just because it’s in their blood to believe it, but because they have numbers which prove it. By its nature, online is the most measurable of all media and provides an unmatchable degree of ROI accountability. We hear this from the online ad industry all the time and I’ve no contention with any of it.

But the ad:tech event helped crystallize for me a nagging gap between what they were saying and the reality that advertisers don’t buy much online (strong growth rates aside, small percentage allocations still amount to small dollar allocations, and it’s not just about online audience sizes).

Pondering this, it occurred to me that the other advertising medium which rightly pitches itself as providing measurable ROI is direct mail. But how much of P&G’s or Inbev’s or Lenovo’s marketing budget is spent on DM? Much less than they spend on the internet would be my guess. Why so little when the ROI on DM is also so measurable?

Why do advertisers just not accept this ROI argument?

I think it’s the measures (but I would think that, being a market researcher). The measures are good and are probably right but they are introspective: created and used solely to trade inventory for one type of medium. Ditto for all media – if they have any measurement standards, the metrics of one are normally not compatible with those of others. Even for the recently arrived internet, it’s got its own metrics. And what sets online and its second cousin direct mail apart from the other media is the sheer strength of those metrics. Compellingly solid, cause-effect measures which show advertisers “this many contacts with your message resulted in this many purchases” (a click to buy online being kind of like bringing a coupon to a store). But, vexingly, that’s why they have a 5% allocation problem.

Their greatest strength is a critical weakness.

Online and DM vendors love these measures because they are so sharp. Other media do not come close to being able to account so precisely for ROI, and online vendors think this makes their offering more attractive. And it should. We all understand that being able to measure something is necessary to improving it. But in spite of the superior measurability of online and DM, advertisers and media planners simply cannot, mentally or on their spreadsheets, make an apples-to-apples comparison between media types on the most salient of performance metrics.

Yes, you can get a “GRP” for online or outdoor, like we have for TV. But no, it’s still not a common measure because the GRPs are still different. The experience of encountering advertising in TV is not the same as encountering an ad on a billboard or on a website. So in the search for a common currency, GRPs are a red herring. In their gut, even if not on their spreadsheets, advertisers know these media aren’t the same. Advertisers (who at the CMO level are predominantly not from an online pedigree) look at the numbers from one online campaign after another and say “Yes, that looks like good ROI for that leg of the campaign, but just because we can’t measure ROI so precisely for TV, print or in-store promotions doesn’t mean those media are inferior”. Hence the stalemate.

Showing better measurability is not enough. The other media also have to be shown to be inferior on a set of shared metrics before the allocation situation can dramatically change in online’s favor.

If you’d like to know what All Media Count are doing to provide a common media currency, contact me: mike dot underhill at allmediacount dot com.

…Mike

We recently did some depth interviews with kids in a small city near Beijing, wanting to know about their media habits and the role of word of mouth in the brand communications they use. (Note: this is qualitative: touchy-feely and observational, so the comments below can be taken with a grain of salt, pending a later stage of quant research to measure these phenomena properly.)

I was struck by the importance of novelty and newness for these young consumers. If a kid learns something is new and unique, she or he does not need to be “sold” on it with repeated exposure to an ad message. Once an offering is noticed and seen to be new, the child will do the rest: Process the idea, seek out and trying the product (assuming it’s affordable), communicate these experiences to friends and thereby trigger even more WOM and, if the usage experience is positive, more trial.

And all that can happen from just one exposure.

I have always been skeptical of the notion that a specific number of exposures to an ad is necessary for it to work. Great ads get noticed and stimulate behaviour and feelings seemingly immediately. Really bad ads air, un-noticed or ineffective, for months. Three exposures is the most common number cited by media people but many would also say that more (or fewer) ad exposures may be necessary depending on the complexity of the message. That’s for adults.

With kids, this little germ of evidence suggests that the number of required exposures might be very few, perhaps even just one. And what a change that would make to the task of media planning. Imagine trying to create a campaign with just one exposure across as many touchpoints as necessary in order to get as close as possible to 100% reach of kids.

The concept of Brand Equity may also have a potentially different meaning in the world of kids marketing. The history of a brand seems to matter less to them. A totally unknown brand can come along and provided it is offering something kids have not seen before, lack of knowledge of the brand would not necessarily be a barrier to trial. This is in stark contrast to adults and in contrast to the way most multinationals think about their marketing, where brand equity, habits, historical values - all of them matter more to the adult customer and to the marketers themselves. Kids don’t seem to need the extra baggage.

Of course, historical experience / loyalty consciousness would relate partly to the involvement level for the category. Kids here will try new chocolate-flavored dry instant noodles (yes, they exist) from a unknown brand with hardly a second thought, but the same probably does not hold for sports shoes. So it will be interesting to explore this further, at what point for what kinds of products and at what age does the suspicion <---> trust dimension start to matter so much that it can obstruct a purchase impulse.

When talking to these kids (about snacks and drinks, by the way), brands they mention were skewed heavily toward local names. And if we compared that fact, assuming it is a fact at market level, with the amount of advertising weight that is invested respectively by local and MNC brands, we could see that locals brand spend much less, eschew mainstream media, innovate fast. Whereas brands like our foreign client have a slow innovation funnel, spend big on advertising and thoroughly exploit their previous accomplishments before innovating. Most MNC’s in China will add new flavor after new flavor to a brand, each time doing concept and taste tests with action standards and acceptance benchmarks, taking months and years in the process, while their local competitors seem to materialise new products out of thin air that taste better are cheaper and more fun to use.

Harvard Business Review Jul-Aug 2007 has a good article about enduring business success by Christian Stadler. Rule 1: Exploit before you explore. Sounds sensible, and it is, but I also see multinational clients that I work for in China adhering too faithfully to that advice, adhering to it for the wrong reasons (political fear, lack of imagination, prevalence of financially-focused decision makers) and experiencing flat or falling business performance because they just can’t keep up with the locals. Stadler’s conclusion is not suprising considering the data used for analysis: companies with 20 to 30 years of historical financial performance data. But the guys that are swiping market share from Siemens, Kraft, P&G, Unilever or Danone in China often have no financial history at all. That’s the whole point: they’re very fast. This is not a race for slow companies, so the characteristics that are associated with success in slow-moving markets (read that as North America and Europe up to the turn of the century) probably do not apply equally in China.

…Mike

This shop front door in Baoding, near Beijing, is a plastered with contact details from from aluminium door vendors. When that door breaks, the owner will not have to look very far for someone to sell him a replacement. The “ads”, while unsightly, are nevertheless unobtrusive and automatically archived (you can tell which are the most recent by how much grime is on them). And after a while you stop noticing the ads altogether - a bit like Google Adwords I thought.

B to B advertising on shopfront door in Baoding, China

Someone interested in Europe’s food industry has just asked me whether the “mistrust of Chinese milk brands has led Chinese food companies to ditch their local (Chinese) suppliers and instead to import European milk products?”

I think the in-bound effects of the melamine incident on China (eg. local food manufacturers importing more) will be negligible.  The industry here is very cost driven and Chinese consumers have not generally had a “look inside” mentality when it comes to food ingredients.  The melamine scandal will raise Chinese people’s consciousness of quality but, even in the middle of the scandal, China was still rated by the 900 respondents in our study of the scandal as the 3rd most positively viewed milk producing country, after Australia and New Zealand.   UK, Denmark & France were all rated lower than China, so even with the help of the scandal, it seems there’s not yet enough equity in the European “brand” to tip the scales in terms of consumer perceptions.

The other way round is potentially greater – the milk scandal, and emerging news about melamine in eggs too, could mean stricter food labeling in developed markets and that European / North American food makers will have to work harder to prove to their customers and their own authorities that their products are free of Chinese content.  Perversely, this scandal could cause just as much disruption outside China as it has inside China.

…Mike

One of the biggest changes to the milk market here will be consumer loyalty. 

Based on some research that we just did, milk consumers can be expected to care more about the brand they buy and will be more critical of the process that brings a brand’s milk to market.  Consumers will be less likely to switch brands - from an average of more than two a month to one, which is a huge shift in loyalty in a market such as this. 

Instead of being a primary marketing lever, low-balling on price will “cost” marketers more than just a few fen (Rmb cents) per litre.  Discounts will tend to remind milk consumers of the melamine incident and what some people in China’s dairy supply chain do to cut costs.   Price may still be used to stimulate demand among some low-income segments, but such tactics will also drive a thicker wedge between a brand and the - now much larger - group of consumers who do not feel it’s worth taking the risk. 

It will become harder for brands to get rid of their excess capacity by cutting price, they will need to better manage their supply chain and use non-price marketing tools, such as advertising, better packaging and more innovative product composition to re-build brand loyalty.  Overall, this will actually be good for the market because consumers care more. 

With two young kids of my own and a former loyalist of Mengniu milk, my heart goes out to the families of victims.  It’s so sad that it has taken a tragedy of this scale for us all - China’s milk drinkers - to be jolted out of our complacency.

…Mike