China: Don't Hold Your Breath Waiting

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ad:tech returned to China during the breezy and tropical Shanghai month of October last week. The business of interactive marketing is quite the hot topic in the world's leading "capitunist" economy. Would you like to know what has changed since last year?

Absolutely nothing… and everything. There we quite a few more people at ad:tech Shanghai this year (more than double last year's attendance). As is often the case with anything Chinese, there is much more happening behind the curtain than in front of it.

Search is taking off-- but not for the reason you might think. Everyone is talking about mobile (as in SMS spam does not a business model make) and single screen convergence. There is also an air of cautious optimism about the future of the business as many reminisce unhappily about the dot com bubble of 1999.

Here's why there will never be a bubble in China
For the unindoctrinated, Shanghai is a beautiful city (when you can see it through the smog) that over 30 million people call home. The rest of China's billion potential buyers tend to get marketers excited even with the presence of a restrictive government.

Simply put, there can be no bubble because the financial infrastructure (or lack thereof) should never "artificially" inflate. The professional (trade, really) culture is such that no one -- and I mean no one -- trusts anyone else. Cash transactions (as in suitcases full of cash) are common in everything from media buying to multi-million dollar real estate deals. 

I may have said this before: westerners arrive on the scene in China with the exuberance of a teenage boy having recently discovered the opposite sex. That is, they sure are excited about being here, but they have no idea what they are getting themselves into.

What are people in China doing online?
They are watching video, playing games, and they aren't buying much of anything. Marketers love to "do the math" of counting the internet users and defining success potential by .01 percent of users potentially making a product purchase. This phenomenon is called "falling in love with the spreadsheet" and is the most common pitfall in attempting to do business in China.

It will be a long up hill battle to get Chinese consumers to spend more money online. The natural first step would be influencing offline purchase behavior (as does the current king of all-- traditional media) and waiting for the trust relationship (please do not hold your breath) to develop.

In Thursday's panel discussion about the changing Chinese consumer landscape, Neil Runcierman, chief executive officer of Communication Central Group, discussed the evolving Chinese consumer landscape in his presentation entitled, "Do the numbers add up?" Among the reality-shock-inducing statistics he introduced: 77 percent of Chinese families live on less than 25, 000 RMB per year-- that's just a little over $3,000 U.S.

When you consider the Chinese audience has far less disposable income that other markets while traditional media in China remains disproportionately higher than other markets, other problems begin to surface.

The brand and the beastly buyer
Yet another statistic about brand building hopefuls should have marketers stepping back a bit. According to Runcierman, a 10 percent price difference is enough to change the mind of a Chinese Consumer in the buying cycle. Here in the U.S., the price difference can be around three to four times that before a consumer will change his mind.

"There must be balance in representing the brand with a focus on engaging the people within the context of their everyday lives," Mike Amour, Chairman of the Grey Global's said in Tuesday morning's keynote discussion with Drew Ianni, newly-appointed ad:tech chair. "There is tremendous pressure to get in touch with consumers in today's environment, and product marketing is far more diverse."

Amour also suggested that if Asian brands want to compete, then they have to move beyond emphasizing functional excellence.

Next: Functional knock-off brands?