Angela Doland of Advertising Age has two recent articles that both deal with the strangely unstable yet temptingly lucrative Chinese market. One deals with the changing Chinese market and how foreign brands are dealing with those changes. The other deals with the potential growth of ad blocking software in the country. Both are very interesting and very much worth reading.
China has transformed itself over the past few decades into a economic powerhouse that churned out very high economic growth at a steady and predictable clip. This lead to many brands leaping into the country with both feet, hoping to gain access to a piece of a market with a 1.36 billion person potential. It was easy money for a while. And then, as is its wont, China quickly changed.
As Doland states, as China has gotten wealthier, Chinese consumers, especially the growing middle class, have become "the more mature market that multinationals have been waiting for all along. And yet for marketers, it hasn't been an easy adjustment." Simply being a foreign brand no longer carries the cache it used to.
For example, while Facebook and Google are still struggling to gain a foothold in China, the country has a native mobile app, WeChat, that does many of the things Google and Facebook do, and much more. And when WeChat has more than 650 million users, why would a tech-savvy Chinese shopper use anything else? And that isn't the only native brand greatly outpacing foreign competitors; Alibaba, as another example, continues to dominate shipping and delivery in a way U.S. companies like Amazon can only dream of.
Some of the difficulty that foreign brands in China are facing is due to the recent economic slowdown (although 6.9% growth for the third quarter of 2015 being considered a slowdown is a bit disconcerting to an American) but one shouldn't overestimate its significance. As Doland observes, some of the trouble foreign brands are facing is due to efforts to get national businesses thriving.
China's "Great Firewall," which cuts off a lot of potential for Facebook, Google, and Twitter, lets local search engines and tech companies develop without foreign competition. The government also batters companies like Microsoft with anti-monopolistic regulations, and otherwise tightly controls what foreign businesses are allowed to do.
This has led to several previously successful brands losing their way in China. Legacy brands like Proctor & Gamble and Nestlé aren't doing as well as they used to. Revlon left the country. Best Buy sold what stores it had in China and exited. KFC, once a hugely successful brand in China, is now competing with mobile apps that can provide more choices to consumers from places like local food shops and dining malls.
Marketing has also become more difficult as the quality of local products improve and Chinese ad agencies and marketers grow more mature and sophisticated. As stated, foreign brands aren't as cool as they used to be. Chinese marketers are emphasizing native Chinese products, and their improving quality, to get consumers to spend their new money on local brands.
In other words, foreign brands are having to compete in China just like they would have to compete in other, fully developed markets. That doesn't mean success in China is out of the question, it just means it ain't the walk in the park that it used to be. China, as a potential market, remains as temping as ever. But adjustments must be made to get that market right.
Along with the new problems foreign brands are facing in China comes one that should be very familiar to them, especially if they do any online advertising: Ad blocking software. Doland's second article concerns a study from Omnicom's PHD in China, which shows that 10%-12% of ads on PCs in China are blocked, with up to 3.5% of mobile ads being similarly blocked.
This is contrary to the previous belief that ad blockers were basically not in use in China. As Doland puts it "there hasn't been a lot of attention paid to ad blocking in China, leading many to assume it isn't a big issue yet." But attention might be being paid now. As small as those numbers might seem, one need only remember how fast ad blocking software caught on in the United States to see the potential risk to Chinese digital advertising.
We try very hard to block ads & clean the world for you. ;) pic.twitter.com/QTipDiIGMD- UC Browser (@UCBrowser) November 22, 2015
China is an interesting case with ad blocking software because many native browsers, like UC Browser from the Alibaba Group, have ad blocking capabilities built in. Though, unlike popular Western choices like AdBlock, the built in software is designed to stop more intrusive ads like pop-ups and keep a user's data private. But, just like many businesses that run on ad revenue in the West, a solution to this problem is likely to be native advertising, and integrating ads into content.
China, as a potential market, is tantalizing. But just unlike how the country has grown wildly yet steadily over the past decade, its future is now fraught with potential risk and stumbling blocks. Any business, brand, or marketer trying to make its way there should expect the unexpected, and be ready to react accordingly.