The road to everywhere

The road to everywhere The ‘omni-journey’ of the Chinese consumer

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The journey to everywhere: charting the Chinese consumer’s omni-journey Chinese consumers are increasingly sophisticated in their use of mobile and social apps for their shopping and retail activities, and have begun to ‘mix’ offline and online experiences when they engage with media and brands. Thus, it should come as no surprise that this is having a tremendous impact on the strategies that brand owners use to reach out to these customers. Over the past two years, shifting dynamics in China’s broadcasting, Internet content and e-commerce industries have caused a massive conversion to mobile channels. This has extended the reach of firms attempting to build brand equity, but it has come at an escalating cost: the intensely versatile smartphones that are in the hands of over half a billion Chinese consumers have raised users’ expectations as to the quality and the continuity of the digital interaction they seek. Advertisers have to engage their audience constantly and consistently through a wide variety of social media and e-commerce channels in order to keep them informed and feeling valued. They also have to let additional voices into the conversation, as China’s consumers rely upon input from an evergrowing community of online commentators and collaborators. Brand owners that attempt to control the online conversation outright will alienate their audience; by contrast, those that find creative ways to harness the input of outside opinions and perspectives will be regarded as more valuable by China’s information-hungry consumers. As mobile devices have proliferated, making the reach of the Internet practically ubiquitous in China, this in turn has brought the implications of Big Data into sharp relief for the country’s advertising industry. Increasing volumes of digital interaction from hundreds of millions of consumers have created rich veins of insights into consumers’ preferences and perceptions, ripe for instant data mining. Big Data has also allowed brand owners in China to ‘connect the dots’ between the initial interaction consumers have with advertisements and content and their post-sale experiences. But while plentiful and accessible, not all Big Data is immediately useable, and firms in China are struggling to make the data deluge work for them. This is challenging because customer data exists across a number of channels that are growing just as fast as the data is proliferating. Multiple touchpoints, content providers and e-commerce sites all hold pieces of the customer insight puzzle, and with the coming of the Internet of Things, China’s Big Data picture will likely become more fragmented still. This Economist Corporate Network report argues that China’s Internet economy is still far from putting this all together. It also argues that brand owners that will be successful in the interim years before China’s Great Wall of Data becomes a seamless entity will be those that are consistently managing all their customer interactions across the entire brand experience process—from discovery to experience, from pre-sales to after-sales—with the same scrutiny. The Chinese consumer’s omnijourney is one in which multiple devices, platforms and participants are constantly engaged, blurring the lines between advertising and purchasing, between a firm’s brand values and the products © The Economist Corporate Network 2016

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and services themselves. Successful brand owners in China will be those that recognize that every interaction with customers is an interaction with an entire life-cycle, and that each interaction yields insights capable of enriching the next, making the omni-journey more valuable for brand owners, partners and consumers.

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© The Economist Corporate Network 2016


Mobile over all At the heart of Chinese consumers’ interaction with the companies and brands they choose is an advertising market which is “at once more fluid, and more constrained, than those in more mature markets,” observes Calvin Chan, COO of marketing data analytics and measurement firm AdMaster, who notes that the relative youth of the market, coupled with the rapid adoption of Internet technology and media, “have made the online-offline mix in China more pronounced than in any other market in the world.” Chan notes that ubiquitous mobile Internet connectivity has placed the smartphone at the nexus of the Chinese consumer’s commercial and media experiences. Certainly, the smartphone has gained pride of place in China’s Internet experience: eMarketer estimated that there were more than 525m smartphones in Chinese consumers’ hands in 2015, representing 38% of the national population and more than twice the total number of PCs in Chinese households. The dense penetration of smartphones means that digital media channels are swiftly gravitating towards these smaller, more personal screens. A 2015 report by media consultancy Millward Brown found that the average Chinese consumer watched over four hours of video programming a day, some two-thirds of that over personal digital devices—and over an hour a day on smartphones themselves. Kristian Kender, a partner at the Beijing-based media advisory firm China Media Management Inc., estimates that 80% or more of video programming developed by Internet ‘broadcasters’ such as Youku Tudou is watched over mobile devices. Viewing programmes on PCs is rare, and “practically the only people watching programmed content on traditional televisions in China are young children or the elderly,” indicating the influence the smartphone has with China’s core consumer demographics. This has, Kender observes, caused a huge shift in the way programming is produced and distributed. “China’s Video On Demand (VOD) market has swung away from AVOD—Advertising-based VOD—towards SVOD—Subscription-based VOD—overnight,” as consumers, empowered by their smartphones and app culture, consume content on their own terms. More compelling content, in turn, has moved to SVOD platforms, meaning advertisers have had to shift their focus regarding television advertising in China: Kender observes that media’s ‘internetification’ has not only allowed for more targeted advertising, but also pushed brand owners to invest in premium sponsored programming of their own. “Professional content is fast moving behind paywalls in China”- meaning to SVOD services which subscribers pay for - “and ironically this is an opportunity for brand owners, because viewers behind the paywall have selected themselves,” in both providing details through their subscriptions and in their content choices that make them readily identifiable by advertisers. Brand owners are therefore increasingly looking at smartphone users as the focal point of these ‘self-selected’ marketing efforts, and thus are more valuable to them in building a relationship. “When we look at consumers who connect with us online, we notice that while most initial contact is made from PCs, they are largely consumers using terminals at work,” says Richard Sheng, Director of Branding at Ping An Insurance, but those initial interactions are usually not conclusive. Sheng went on to clarify that “the customers who actually interact with us more substantially (i.e. in ways which lead © The Economist Corporate Network 2016

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to sales) do so over their phones—and regardless of the outcome, we get much more useable data from them in the process.” The ‘digital conversation’ brand-owners have with their customers in China is increasingly distinct from those in other markets, and in large part this has to do with the role the mobile phone plays in that conversation. In the US, there are device distinctions within generations: in their 2015 Digital Shopping Report, the Interactive Advertising Bureau observes younger consumers (aged 18 to 34) in the US are those most likely to conduct any retail-related function over their mobile phone, although the most common function (used by 58% of those surveyed) is to locate stores or verify their opening hours. Much less common digital mobile functions are those that involve brand or product interaction, such as reading reviews, or actually making purchases (in which only 43% of 18-34-year-old Americans did over a phone, and only 28% did across all age groups in the US). In China, by contrast, there is not only much less distinction between the brand interaction and retail activities of different age groups, but there is a greater convergence across all the various types of brand interactions consumers have with their mobile phones. Ironically, less than half of smartphone users in China use their devices to find a store or check opening hours, according to a survey of over 1,000 consumers conducted by AdMaster in collaboration with the Economist Corporate Network. By contrast, some 53% of survey respondents read reviews and nearly 70% have made a purchase using their phones, and there is barely any deviance in experience levels between age groups. Two thirds of Chinese users surveyed also use their phones to browse for products, or to compare prices. That there is less of a demographic ‘digital divide’ amongst China’s smartphone users may not be so illuminating, as most Internet activity of all sorts in China is mediated through a mobile device, regardless of age. However, because the smartphone is predominantly used as a consumer’s primary Internet channel in China, it has become a seamless part of a Chinese consumer’s overall experience with brands and purchasing experiences. Other data points from the AdMaster-ECN survey bear this trend out: 60% of respondents say they actively use their smartphones for all pre-purchase and Chart 1: Do you use your smartphone for any of the following activities? Total Tier 1 cities Tier 2 cities Tier 3 cities

80 70 60 50 40 30 20 10 0 Make purchase

Check price

Browse for a product

Read reviews

Scan QR code

Scan coupons

Locate stores Get text offers

Check hours

Sources: Economist Corporate Network and AdMaster poll, January 2016

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Chart 2: How much time do you spend on your phone engaged in ‘shopping’ activities: searching/browsing, price comparing, discussing with others, and actually buying? Less than 1 hour per week

100

1 to two hours per week

Two to 5 hours a week

5 to 10 hrs/week

Over 10 hrs/week

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40

20

0 Total

Aged 16-25

Aged 26-35

Aged 35+


Chart 3: Of the time you spend on your phone on shopping activities, how much of that time is spent in stores, malls or commuting to ‘physical’ shopping venues? Less than 10%

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10% to 25%

25% to 50%

50% to 75%

75% or more

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Aged 16-25

Aged 26-35

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purchasing activities between one and five hours a week, and over 25% of respondents say they use their smartphones for five or more hours weekly. And, while they are not using their smartphones to locate a store as much as their US counterparts, Chinese consumers are using their phones prodigiously while in a store: 15% of survey respondents use their phone on retail-related activities most of the time they are in stores or malls, and nearly half of respondents are using their phone in stores 25% or more of the time they are doing bricks-and-mortar shopping. This means that brand owners are able to engage with consumers in data-rich ways throughout the entirety of their browsing experience. Moreover, the smartphone is increasingly used for payments in bricks-and-mortar shopping: only 7% of survey respondents say they never use their phone to pay for in-store purchases, compared to 20% that claim they do so most of the time. Tellingly, these in-store payment habits are fairly similar to © The Economist Corporate Network 2016

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ways Chinese consumers use their phones to purchase online: only 5% of Chinese smartphone users say they have never used their phones to buy online, while nearly a third say they do most of their online purchases through their devices. Chart 4: Do you use your phone to conclude purchases in stores (either through payment services, or stored values or discount coupons)?

Chart 5: How often do you use your phone to conclude purchases outside a physical store (either through payment services, or stored values or discount coupons)?

(% of respondents)

(% of respondents)

Never Only when I have a promotional discount

Always

Sometimes

7 46

19 8

Never Only when I have a promotional discount

Always

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6

Sometimes

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19 8 23

Most of the time

Most of the time





Converse and Control The massive increase in TV and media consumption in China through smartphones has certainly made digital avenues to consumers more impactful, and drawn consumers into closer, more informationrich conversations, where “customers benefit from the increase in available data” just as much as brand owners do, according to the marketing manager of an international hospitality group. But it also raises two distinct challenges for brand owners as a result. The ease with which consumers switch between channels “makes it difficult to follow consumers throughout their journey,” according to AdMaster’s Chan. This is somewhat counterintuitive: given the strong integration of online and offline experiences, and the fact that most are conducted with a single device, it should be simple for a brand to ‘follow’ their consumers across the various channels that they use in a single transaction. However, as ubiquitous as the reach of China’s Internet is, it is far from a uniform landscape. Zhang Zheng, General Manager of Nissan’s subsidiary Dongfeng Nissan Digital Marketing Company, notes that customer experience data still exists in many silos. “Purchase and after-sales information is in our hands, but social media information is embedded in their respective platforms, and the search and buy information from ‘BAT’ (the Chinese Internet acronym for its three main players: Baidu, Alibaba and Tencent) needs to be better coordinated.” The second challenge is one of ‘control’. The role the reviewer plays in the brand interaction experience of digitally-enabled consumers is an increasingly large distinction between the consumer landscape of China, and those in other markets. “In China, all consumer choices involve word of mouth,” says AdMaster’s Chan, observing that credible testimony from other consumers is fundamental to the online retail experience in China, because counterfeits and poor service are still an issue. As mentioned above, Chinese consumers list ‘reading reviews’ as one of their primary brand interaction activities, and research shows this is a powerful driver in the purchasing decision. Dr. Jifeng Luo, a professor at Antai College of Economics and Management who studies the impact that information technology has on economic activity, believes that online ‘word of mouth’ has the most influence in Chinese consumers’ purchasing decisions on e-commerce platforms. A recent research initiative which has looked at over 50,000 Taobao transactions with over 2,000 retailers examined the correlation between vendor advertisements, delivery times and service levels, found that “recommendations from other consumers were more influential than claims from vendors in determining online purchases—consumers trust other consumers.” AdMaster’s Vice President of Data Solutions, Ricky Yang, also sees this conversation as critically important: “The ‘final destination’ of firms in the brand equity process it to convert from conversation into sales, but consumers see the interaction prior to the sales process as being just as important—and consumers have become the owners of this part of the conversation.” Because consumers see social media interaction as so important to their understanding of brand values in China, “social media usage and e-commerce transactions have become highly correlated.”


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Big data: How to swim, and not sink Big data is a reality in China, and most firms realise that if they are to get the most value out of their increasing multi-channel interactions with their customers and partners, they need to extract insight and create efficiencies from the ‘raw’ customer information they obtain from these increasing channels. That said, the growing volumes of data also create additional challenges for brand owners, the most immediate being to manage the data deluge in operationally efficient ways. Even firms that traditionally acquire lots of data over the course of their customers’ lifecycles have not yet fully come to grips with Big Data’s implications in China. “Automakers have always had a lot of data, but until recently we haven’t had Big Data,” says Nissan’s Zhang, who explains that thanks to the “4S” car dealership model (the dominant channel for auto sales in China; 4S stands for ‘sales, spare parts, services and survey’) “the auto sales sector in China has had the capability for years to collect and analyse copious amounts of after-sale data. Now, Internet advertising has allowed Nissan to connect these insights to pre-sales data. By understanding how customers interact with their brand before they buy cars, and linking these insights to post-sales auto usage, Nissan has been able to identify gaps in selling points, and gain clarity on the features on which their customers compare brands with competitive offers. Advertising has provided us with that last clue, and now the advertising cycle is more closely tied to the commercial cycle.” This blending of the brand experience with the sales transaction is altering the nature of the customer relationship, which is changing from a discrete series of customer touchpoints to a continuous dialogue. “In the mobile Internet era, there really is little difference between an advertisement, and the product itself,” says Ping An’s Sheng. He points out that these blurred lines keep the firm on its toes: “Ping An’s core brand value is that we provide professional service that makes our clients’ lives easier. Now, not only do we have the ability to deliver this service in ways which ‘prove’ this, but we are able to measure the extent to which we are doing it right.” Big Data analytics have offered China’s brand owners unprecedented immediacy, and this significantly changes the way they gather information on customers and access its impact. Where once firms laboured to test theories around the effectiveness of their efforts to engage customers, the cause and effect of campaigns can now be realized and understood quickly online, thanks to the newlyvisible links between media consumption, brand interaction and actual sales. This immediacy is also driven by another important factor: the direct input of data from Chinese consumers themselves, both in terms of their social media interactions, and their engagement on e-commerce platforms. And this, in turn, as AdMaster’s Ricky Yang notes, has in the last two to three years “caused a doubling of data volumes that the average Chinese firm has had to manage, and the velocity with which it comes to them. This makes data storage and management issues critical.” Specifically, Big Data creates an ongoing urgency for firms to integrate customer data into a single view. This is becoming easier to do with tools which can track cookies and other digital fingerprints over the customer’s life-cycle. However, Yang also notes that China’s growing Internet-centric commercial landscape is 8



complicated by so-called ‘dirty data’—duplicate or incomplete records, fake information created by ‘bots, and other misaligned pieces of information, which he reckons can be 20% to 40% of the average Chinese firm’s records in its data warehouse. Ironically, one way firms can deal with Big Data’s enormity is to embrace it: to leverage the multiple sources of data, and try to find value within the data discovery process for all its participants. Nissan’s Chebaba auto sales portal is being used by the automaker as a collaborative platform: the carmaker works with other financial service providers to market car loans, and provides avenues for their customers to search for such services independently. When brand owners open up their digital channels to third parties, they “create a three-way win,” says Nissan’s Zhang. He notes that the increasing digitalisation of the brand relationship between firms and customers in China changes marketing strategies and time-to- market phenomenally, but not the basic premise of marketing and advertising: “the task is still to connect to customers in ways that create value. When a media platform does not allow a brand owner to deliver valuable content to its customers, it will die.” That said, Zhang does not believe any media channels have actually died in China, revealing that even such old-school marketing methods as direct mailing through the post are still very effective in China’s Tier 3 and Tier 4 cities. Industry spending figures bear this out: PwC, in its 2015 ‘China Entertainment and Media Outlook’ report estimated that by 2012, Internet advertising (mobile and ‘wired’) spending had overtaken print publishing, and by 2014, the $16.6bn spent on online media advertising had outstripped the revenues China’s print industry took in from advertising and circulation combined. Even so, print advertising is not collapsing: reasonable circulation growth, particularly in smaller cities, should contribute 6.5% annual growth to the print advertising industry in China over the next five years. Thus, there are still vast amounts of customer interaction data that remain to be digitised, and brand owners should not overlook ‘traditional’ methods of engagement in the years ahead, however much the pressures to use Big Data grow. Chart 6: Advertising and circulation revenue in China, 2010-2019 Newspaper advertising, LHS

Newspaper circulation, LHS

Internet advertising, RHS

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

0 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: PwC China entertainment and media outlook, 2015-2019


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Again, as channels converge, and the Chinese consumer’s brand interaction skips effortlessly across multiple channels, the notion of what an ad is continues to be less clear, and those engaged in building brand awareness are challenged with constantly reviewing, if not reinventing, the channels with which they engage their audience. Nissan’s Zhang notes that one successful extension of their online relationship with customers has been to facilitate phone-to-phone ‘hongbao’ cash transfers during the Lunar New Year period; over 32m customers and prospects engaged with this service in 2016. Regardless of the form these interactions take, it is important for brand owners to realise that the essential nature of their tasks remain the same. “The communication between brands and consumers has changed a lot in China,” observes Maggie Wang, Vice President of Commercial Strategy and Innovation at AdMaster, “but the ‘ROI’ still remains the same: brand owners are measuring recognition, loyalty and intent to buy.” While she concedes that it is still difficult to effectively measure the impact of social media dialogue, “what is known is that active—and creative—participation in this process is something that all brands must continue to maintain.”

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The road to everywhere While it is clear that full-scale digital media convergence is in the future, and brand owners will still need to work hard to unify the various pools of customer data that are growing around them, it is also apparent that there are immediate, compelling strategies that firms are employing now to understand the Chinese consumer better. Most of these strategies recognize the power of the smartphone in the ‘digital conversation’ brand owners have with their customers, but they are not confined to the mobile channel. Brand owners in China who will successfully manage their relationships with their customers through these growing ‘omni-channels’ will deploy the following strategies: Apps are where it’s at. Mobile apps have become an important tool in the brand-owners’ arsenal, for two reasons. As engagement and interactivity define Chinese consumers’ expectations and habits when they relate with brands, apps provide a natural two-way channel for consumers to feel engaged with the brand, while the brand holder itself has more control of the conversation through this dedicated channel. Apps are particularly useful for brands when consumers are gathering product and service information—and of course, should they actually conclude a purchase. But there is also a more pragmatic reason for investment in apps: cost containment. Realising the big content shift to mobile channels over the last few years, mobile operators and Internet players have been steadily upping their advertising fees, with up to 30% year-on-year increases in some cases. Apps allow interactivity with customer based on the brand owners’ own terms, and hence serve as a hedge against rising mobile ad rates. A Walled Garden, with many gates. Advertisers are using the ease and speed of digital channels to be more creative and iterative with their campaigns, and also more collaborative as well. Brand owners are increasingly willing to share (or rent) audiences and customer bases they have cultivated online to other firms, even where there is little apparent synergy. One of Ping An’s most successful campaigns recently came through collaboration with condom retailer Durex. Ping An was looking to introduce some introductory financial planning products to a younger audience, which it found through Durex’s social media presence. Through this strategy, the insurance company successfully acquired tens of thousands of new customers quickly and cost-effectively. Nissan’s Chebaba portal also serves this function: creating more value for customers, while getting more usage out of the data and insight that has been generated around and by its customers. Social-ites. Brand owners have known for many years that it is crucial for them to be actively engaged in social media conversations with their customers. It is also important to be seen as responsive in these forums, as Chinese consumers have exacting expectations of interaction and response time. This is true even for B2B brand owners. “Our customers do a lot of research through WeChat and other social media platforms, and we find that we have to maintain a constant presence on these forums—interacting with reviewers and distributors as much as customers themselves,” says a brand manager of an industrial components manufacturer. © The Economist Corporate Network 2016

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Big Data meets Big Content. As mentioned, a growing way that brand holders are trying to increase the value they bring to customer interactions is through taking a more direct role in content development: building apps, sponsoring and/or creating their own specialised video and Internet content. Closely managing the lifecycle of such content is already beginning to yield insight: CMMI’s Kender observes that through data mining viewership of content aimed at young mothers, “Alibaba has been able to tell when they shift from buying just diapers and when they start adding things for themselves, like cosmetics, into their check-out baskets.” He observes that now, the e-commerce site is looking to create a virtuous cycle of data and content: “Alibaba will use data to understand what specific audiences want to watch, and use viewership data from that programming to understand the brands with which the audience wants to engage.”

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While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report.

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