Helping Build Chinese Brands
Tom Doctoroff, chief executive officer of Greater China for U.S. advertising agency J. Walter Thompson, is one of the most seasoned veterans of China's fast growing advertising industry. He has been in the country since 1998, and has guided the expansion of JWT as one of the few scaled ad shops on the mainland capable of offering world-class marketing services of all kinds. Its clients there range from multinationals like Nokia (NOK) to Chinese giants like Lenovo to local up-and-comers like athletic shoemaker Anta Sports Products (2020.BE). Tom distilled his experiences in his book, Billions: Selling to the Next Chinese Consumer, and he recently paused in his frantic schedule to reflect on the meaning of brands and advertising in the Chinese context.
How big is the Chinese ad market?
No one knows for sure, what with all the discounting. But billings are said to be $15 billion to $20 billion. Some 80% of the industry is made up of local agencies of all shapes and sizes, from glorified printing shops to media brokerages to real ad shops. The market is polarized between agencies trying to build a price premium for a brand and commoditized players competing on price. This is a market where brand building is of paramount importance. Yet the constant threat of lower prices means only a select few see the importance of brand equity and thus have the willingness to sustain a price premium.
Have Chinese companies changed their attitudes about the importance of brands?
Some changes have certainly occurred. One stems from the recent waves of IPOs of Chinese companies. When these companies sell shares they suddenly see intangibles like brand equity valued on their publicly available balance sheets. That's a strong motivator. Chinese entrepreneurs also realize that billionaires in the U.S. have companies with strong brands. And the importance of brand equity is hard to ignore when you have an IPO abroad in the U.S. or elsewhere. Corporate governance has also improved at mainland companies listed in Hong Kong. The idea of governance has percolated down to the core structures of these companies, which feel much more pressure to enhance shareholder value. Having a strong brand is part of enhancing shareholder value.
What kind of Chinese companies do branding well?
The most exciting development is the emergence of midsize brands. You have these behemoth companies that are totally byzantine. But the midsize companies are led by visionaries who want to lead their companies to the top of the mountain. Most of the large companies use the big shops for propaganda purposes.
Are the tools needed for brand building in China the same as those in the U.S. and elsewhere?
The rules are universal. There are differences in how they're applied in China, though. The Chinese have to learn to engage consumers with core propositions that can be sustained. And in China the challenges are about decision-making. There's a Chinese saying: "It's windy and cold at the top." The self-preservation impulses are very big and when mandates are issued they are done in code. That's different from the West where the CEO forges forward.
Are there any Chinese companies that are getting it right?
The experience of Anta, the athletic shoemaker is enough to keep you in China. The CEO is a 36-year old who inherited the business from his father. He is a visionary who recruited a spectacular No. 2. They're building the first Chinese mass market sports brand that harmonizes all the marketing functions. We're building the marketing up over the next 18 months until the Beijing Olympics, but we're staying on message as well.
For more on emerging Chinese brands, visit BusinessWeek's slide show.