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Apr 12, 2006
How To

Special Report Part II: Internet Marketing in China -- 100 Million Chinese Online & Counting

SUMMARY: Even though just 10% of China's population is online, that's still more than 100 million active Chinese Web users. Plus, they tend to be trendy young adults ages 18-30. In Part II of MarketingSherpa's China Report, discover how brands including McDonald's, Vidal Sassoon, Nike, Johnson & Johnson and Motorola are conducting online and integrated campaigns appealing to China's emerging online consumer class. Practical know-how, Web and email data, creative samples and useful hotlinks are included.
By Dianna Huff, Contributing Editor

“In the big Chinese cities, every street corner is Times Square. The sheer impact on the senses due to the number of people, the noise, the advertising, the excitement is unbelievable,” says Nigel Morris, CEO Isobar Worldwide, a network of digitial communications agencies. “Reaching these consumers –- who are young, affluent, and savvy -- isn’t for the faint of heart. To do it successfully, you have to be here. No substitute exists for obtaining first-hand knowledge of what is happening in China.”

Marketing to China’s consumers is akin to jumping into a speeding car and roaring off at 100 miles an hour. Make the wrong moves, and you’re history. Find the right partner, understand your local markets, and capture the attention of Chinese youth, and you’ll cross the finish line a winner. Here are some practical specifics.

Quick facts and figures on China's Web use

When it comes to the Internet, China ranks #2 globally with over 100 million Internet users – or just under 10% of the 1.3 billion population.

Indeed, Morgan Stanley, in its China Internet report, “Creating Consumer Value in Digital Value,” estimates China has more Internet users under the age of 30 (70 million or 71% of total Internet users) than any other nation in the world. “This is especially important,” the report states, because “the evolution of computing technology has shown that innovation is often most active in markets with the largest number of younger users.”

The Chinese access the Internet from home (68.5%), at work (38%), Internet cafes (25.3%) and via phones (2%), according to the China Internet Network Information Center (CNNIC). And what are they doing once they are online? The top 15 most frequently used services, according to the CNNIC’s 16th Statistical Survey Report on the Internet Development in China, July 2005, are as follows:

Email 91%; News 79%; Search engine 65%; Browsing 57%; Music 46%; Instant messaging 45%; BBS 41%; Film/TV 38%; School/classmate BBS 29%; File uploads/downloads 26%; Games 23%; Chatroom 21%; Shopping 20%; Personal Websites 17%; Banking 14%.

A word to the wise: Before beginning any marketing campaign, familiarize yourself with the local Internet players. Don’t assume that Google’s dominance transfers to China, because it doesn’t. The key local players include (links to all below):

o Baidu –The number one search engine in China according to Alexa, and Google’s main competitor. The NASDAQ-listed company went public nine months ago.

o Sina, NetEase, Sohu– Top tier portals (and NASDAQ-listed) that deliver online games, advertising and mobile value-added services (MVAS).

o China.com, Tom.com and Allyes.com – Recognized brands in China with niche markets. China.com, for example, serves Chinese professionals.

o QQ/Tencent – Also known as “2Q,” QQ delivers online messaging services.

o Alibaba – The company assumed responsibility for Yahoo! China in 2005 and runs the successful Chinese auction site (and eBay competitor) TaoBao and escrow payment service Alipay.

Demographic and psychographic background on Chinese internet users

“In China, consumers equal youth,” states Victoria Stull, President Market China, Inc., a company that specializes in research and marketing to the 18–30 Internet Cafe demographic. “These consumers are trendy, brand conscious, early adopters who are determined to spend money. However, just because they are spending money doesn’t mean they are necessarily earning it.”

Although wages in China are still low, the youth culture has relatively greater disposable income thanks to their parents. “In China today, parents earn, children spend,” Stull says. “The current parent culture developed their thrift habit under the Cultural Revolution. And, due to the ‘one family, one child’ policy, children are highly favored –- with the focus of the family’s spending happening through this child.”

Adult children -– married or not –- commonly live with their parents. Stull says this increases spending even more because you have a set of parents plus two sets of grandparents -– all of whom dote on the one child. The family often pays for the young adult’s living and education expenses, allowing their children to spend their salaries on entertainment and other consumer items.

Education has also expanded significantly. Five years ago only the wealthy were educated. Now with more people getting college degrees, the middle class is growing, and with these educated consumers comes the rise in computer usage. The current youth culture is the first group to grow up outside the oppression of the Cultural Revolution (1966 – 1976), during which time entertainment and freedom of expression were severely limited. In the last ten years, the Chinese have produced new movies, music and TV dramas.

The Internet, which isn’t state-owned, offers the Chinese an alternative source of information about the outside world. For example according to Morgan Stanley, SINA has a daily average of 30 million readers for its content, more than the combined total for all of China’s newspapers.

Xiaowei Chen, General Manager for China.com backs up this number. “We have 80 million page views per day,” she reports, “and 6.3 million visitors. Because we are primarily concerned with delivering content for business professionals, 85% of our users are college educated with the average age being 26.5 years.”

David Ketchum, Chairperson of the Asian Digital Marketing Association, told us you cannot underestimate the wealth and buying power of China’s growing middle and upper class. “In addition to building wealth,” he says, “the Chinese now have the opportunity to travel independently. Before the restrictions were lifted, the Chinese traveled in groups, with the ‘travel company’ being the Chinese government. Now a Chinese businessman may decide he wants to travel to Italy with his wife and child. Under new laws, he can apply for and receive a visa under the FIT status -– facilitated independent traveler.”

Hence, the global tourism industry, including brands such as American Airlines is now targeting local Chinese markets. In fact, China.com’s Chen states the portal is building “branded country portals” (i.e., China.Italy.com) for various merchandisers in other countries wanting to market products to Chinese consumers.

Web advertising in China

Web site advertising in China is sold on cost per placement versus cost per click, according to Jeff Unze, President Lucky Pacific. Basically, you are buying digital space similar to buying print space –- except you buy a spot by the hour, day, week or month.

Be aware that the portals will not give you performance guarantees and that you may or may not get traffic estimates.

Mostly this is because ad serving by impressions is a costly endeavor for sites with gargantuan traffic numbers and no proprietary ad serving system. Also, the market has yet to develop the sort of performance analysis that dominates US Internet media buying.

Just as with US portals, the top tiers will charge you a premium for your banner -- but it's one that advertisers such as McDonalds are happy to pay. Also consider co-branding, which transfers the portal’s brand equity to your brand. For example SINA has co-branded channels with companies such as Nike, L’Oreal and Johnson & Johnson (link to screenshots below).

Paid search advertising on Chinese search engines

Although Google offers PPC ads to its Chinese audience, you need to remember that Baidu is the top search engine and Yahoo! runs second. Google is in third place. So, definitely test buys on Google, but treat these as supplemental buys and focus your efforts on larger search engines (for now anyway).

According to Porter Erisman, VP International Marketing & Business Development Alibaba.com, search pay per click is still three-to-five years behind the US. On most local engines advertisers are charged a flat rate for thousands of keywords for a set period instead of an auctioned PPC format.

He advises advertisers to read the search engine contract’s fine print because sponsored links can sometimes be mixed in with organic results.

Erisman adds, “China, rather than imitating the US search model, is pioneering a whole new way to search. China’s search model is building on technology and community -– both of which are very important here in China. For example, we integrated instant messaging and chat rooms early on into Taobao because people need to know with whom they’re doing business."

“It’s really exciting doing business right now,” he says. “Everything is changing so fast. Now is a really good time to get into the whole search landscape -– because it’s literally the ground floor.”

Email marketing in China

According to Danny Levinson, Managing Partner for BDL Media Ltd, a China-based email list management company, Yahoo! and Hotmail claim to be the number one email providers in China. However, 126.com, Netease.com and Sohu.com are probably the top three local providers in reality.

Internet users generally have 1.6 email accounts, and according to the CNNIC, a whopping 80.3% use free personal accounts while just 12.1% get email at-work accounts. Users send approximately 3.7 emails per week and receive 5.2 per week (not including spam).

“With the rise of the Internet,” says Levinson, “companies think they can sell anywhere in the world. Which is true to a certain extent. I’m in China and ordered books through Amazon. But selling a product to the Chinese is a little different, depending on how the sale is transacted and how the product is delivered.”

Levinson emphasizes Morris’ point that you really need to set up a presence in China for either licensing, sales support, manufacturing, regulations or a combination of all of these. What does this have to do with email marketing?

“We get calls from companies every week who want to market to China but don’t have a presence here. We turn down 99% of them because the product is illegal, the product being marketed has little if any Chinese-language backup support (which hurts us in the end because our users stop trusting our messages), or we’re being contacted by known spammers. Bottom line if you want to do email marketing to China? Worry first about setting up a presence here.”

For companies that have set up shop, the types of emails sent out vary by industry. KFC and Pizza Hut are testing viral ecoupons. However, coupons don’t really work the same way in China as they do in the US. Instead, individual stores will issue their own coupons that can be used only at specific locations. Airlines and hotels send out emails that are similar to those sent out in Europe and US and work well, according to Levinson.

In terms of formatting, Levinson advises you to include all your text in the body of the HTML and not as part of an image. Javascript is not permitted in email and any forms linking to external servers must use the GET command instead of POST.

You should run your subject lines by someone locally as certain words and punctuation will not be allowed. He also advises that you limit capitalized words -– no more than 5% of the total email should contain fully-capitalized words.

Chinese mobile phone usage is 3 times bigger than web use

With over 363 million mobile phone users according to CNNIC, the total number of Chinese mobile phone users is greater than the next three nations combined with the US posting 177 million mobile users, Japan 88 million and Germany 69 million.

In the US, phone service carriers struggle with a tapped market. According to Michael Weaver, Senior Product Planner for Microsoft Digital Advertising Solutions and founder of Third Screen Media, the US mobile market has 80% penetration, resulting in flat growth, decreasing sales and profit margins and “churn.”

In addition, the US seriously lags when it comes to cell phone technology. Think text messaging and ring tones are cool? The Chinese scoff at you. While we struggle with dropped calls in “dead zones,” they play games, post to their personal blogs, and access the Internet -– all from their phones. And, they text message constantly: in 2004, 652 text messages per phone were sent versus 139 sent per phone in the US (CNNIC).

So why have mobile phones taken off in China? Remember, the Chinese don’t have the legacy “landline” infrastructure of the US –- i.e., telephone poles and wires. Instead, they’ve gone straight to wireless.

And mobile phones are a cost effective alternative to PCs. A PC in China costs 3,204 – 4807 RMB ($400 - $600); broadband can cost 120 – 160 RMB ($15 - $20) per month. However, the average income in the top urban areas is roughly 1442 RMB per month ($180), estimates Morgan Stanley.

Mobile value added services (MVAS) have really taken off in China. Says Unze, “Products like fortune telling services are sold from 1 – 5 RMB. The services are billed directly to the person’s phone bill, and delivery isn’t an issue.” Portals like SINA and Tom.com sell MVAS content –- which includes text messaging, Instant Messaging, MSN’s Spaces, music, ring tones, games and news.

All of this means, consider integrating a mobile campaign with your online ads.

Landing pages and microsites for Chinese campaigns

You'll need to redesign completely for this market. (Link to samples below.)

The Chinese read from right to left and up and down, so you really can’t translate English and slap it up on a previously-templated page. Plus, Web design conventions are completely different in China. The Chinese like their sites to be packed with information, animation and color. And, you want to make sure you aren’t posting something that is a cultural no-no, such as the wrong colors or phrases.

Be sure to partner with a reputable local hosting company to ensure your target market can enjoy your landing page or microsite. The China Firewall, according to Unze, dictates that you should strongly consider hosting your site within Mainland China.

The Chinese government has been known to block sites hosted outside China for minor violations to their content code. Also, the thread connecting China to the rest of the Internet is thin -– approximately 136 Gbs is available for International access for over a hundred million Internet users (although market forces are slowly improving these numbers).

Chinese Ecommerce still in initial stages

Don't judge the success of your microsite or ad campaign by ecommerce sales alone just yet -- although signs are good for the future. According to Morgan Stanley, the CNNIC reported that 42% of online Chinese consumers used online payment in 2004, up from 16% in 2001.

Remember, the Chinese have only had access to credit cards for a few years. In China, ecommerce is tied to people’s mobile phone carriers or to prepaid point cards that people buy online through Shanda and Netease or at Internet cafes. SmartPay is an online payment startup that links users’ bank accounts to their mobile phone number.

And, while PayPal is making some inroads in China, it’s not used for international transactions the way it is in the US –- mostly because of the government’s restriction on RMB leaving the country. On auction sites like TaoBao, for example, a buyer may look for the product, email or IM the seller and then meet face-to-face to finalize the transaction.

TaoBao buyers and sellers can also use AliPay, which is the online escrow service developed by Alibaba, the company who now owns Yahoo! China. With AliPay, sellers can collect money from buyers and hold it an escrow account until the seller gives the buyer the merchandise.

Chinese blogs mushrooming in growth

Blogs, according to Technorati's Marketing Director Derek Gordon, are exploding all over China particularly in the big coastal cities. “The Chinese blogs we see,” he says, “are primarily for social or career networking purposes, but there is an increasing use of blogs for both academic and business uses.”

The Chinese government, however, places significant control over what is posted. Gordon reports the government has been very heavy-handed with MSN’s Spaces (the largest blog hosting platform operating in China) and Google’s Blogger. That being said, Gordon thinks blogging is a great way for businesses in the US to establish a more intimate relationship with their customers –- assuming, of course, you can blog effectively in the local language.

Young Chinese adults throng to 120,000 internet cafes

“People in the US have the wrong idea about Internet cafes,” says Stull. “They think they’re used by poor people who lack a computer or Internet connection. Nothing could be further from the truth.”

Internet cafes in China are very social environments and some are so visually stimulating that one might compare them to casinos in the US for size, décor, and entertainment value. (Keep in mind that gambling is illegal in China and that Internet cafes adhere to these rules.) Frequented by youth ages 18 – 30, Internet cafes are the places where people go to meet each other and hang out. The larger cafes feature lots of glitz, “buzz,” and lines out the door.

A typical cafe holds 60 – 120 “seats” -– that is computers -–while the larger cafes can have 500 seats or more. Computer usage costs 2RMB to 6RMB per hour, which people pay with prepaid accounts at the cafe. Downloading movies or playing massive multiplayer games can cost extra; users pay for them with prepaid debit cards.

The Chinese government has recently cracked down on Internet cafes and has issued a host of regulations, including requiring a license to open, rules about how and when underage teens can play and a regulation stating cafes cannot stay open 24 hours a day (this was in response to the man who died from playing for days on end). To obtain a license, a cafe must open with at least 80 computers –- older cafes with fewer seats have been grandfathered in.

So how do you reach these cafe patrons? A game portal called GOQO (it means “real cool” in Chinese), powers the official start page for computers at more than 20,000 of them (link below). Portal advertisers have included McDonalds and Motorola.

Internet cafes are also great places for marketing campaign posters or “billboards” -- especially if your campaign ties into a game or Internet promotion. However, you’ll want to consider the logistics of this tactic carefully given China has over 120,000 individually owned and operated licensed cafes, so it can be difficult to tie dozens of cafes together under one campaign. And too, some cafe owners still don’t understand the value of charging for wall space and greatly inflate the cost.

Overall strategy & creative tips for interactive campaigns to China -- think colorful and intergrated

“To reach the Chinese,” states Morris, “you have to be here –- in China, that is. You have to see the road shows, the throngs of people and their mobile phones, the Internet cafes, everything. You need first-hand knowledge of how people interact with brands and how they receive advertising messages.”

“In China,” he adds, “you can’t do what works in the US. For example, you can’t run a campaign where consumers collect codes from product packaging and then turn them in for free downloadable music. For the Chinese, music is already free so this type of promotion won’t capture their interest at all.”

The key, says Morris, is building emotion into the brand and making the promotion revolve around the consumer, not your product. “You have to make the product exciting and unique. Marketing in China isn’t about having dancers on the street corner, it’s about letting your audience dance. You have to get them to interact with your brand. In China, passive marketing will not work. Period.”

Touching consumers at multiple media points is critical. If you’re introducing a product, you’ll need to tap into the Web, mobile advertising, road shows, games, and current events such as the World Cup in order to capture people’s interest.

Plus, you’ll also need to incorporate “traditional” tactics such as Internet cafe wall “billboards” (posters), and freebies such as drink mats for bars. Campaigns need to be integrated, slick, creative, and most important, interactive.

Two examples (link to samples below):

#1. Motorola's Internet cafe competition

Motorola recently hosted a three-city competition through the GOQO game platform. At the end of each round players could choose to answer questions about Motorola phones. By answering the questions players earned points or gadgets to help them in the next round of the game.

Final rounds were held in person in three large Internet cafes packed with crowds. The winners received their oversized checks on the spot.

#2. Vidal Sassoon's integrated Hong Kong campaign

Procter & Gamble ran an integrated campaign to reintroduce Vidal Sassoon into Hong Kong last year. The entire campaign created by the HyperFactory revolved around a cat-woman-type model. The heart of the campaign focused on a game consumers downloaded to their mobile phones. Each time the player advanced to the game’s next level, he/she uncovered key visuals of the creative execution as well as scoring points.

Scores were uploaded to a leader board in real time -– a new twist for mobile games of this type. “Generally, people play games and then they see their score at the end. This is the first time we had a live leader board where people could compare results with their friends,” reports The HyperFactory's Handley. Players invited their friends by inputting their mobile number via SMS -– an action that earned them bonus points in real time.

The campaign also included cat-suited women dancing outside of bars handing out free samples, branded drink mats, posters and table tents, exclusive ‘cat woman’ MSN Messenger emoticons, screen savers, banner ads, and a text-to-win competition with drink and food purchases.

Two quick tips working with China-based agencies and Internet media

Whether or not you have an office in China, you will need to find a local partner you trust who can help you navigate China’s advertising complexities, including working with the national and provincial governments, building “Gaunxi” or relationships and networks, and interpreting for you at business meetings. Here are two quick tips to help you work with your China-based partner.

Tip #1. Push for real results

Jeff Unze, President Lucky Pacific, a firm specializing in affiliate marketing in China, advises that you ensure any numbers you get are based on real ROI. “People in China will lead you to their friends, partners, etc., who will present you nebulous numbers,” he says.

He also adds that you need to hold your partner’s feet to the fire. “If you work with an ad agency in China, that agency is your local partner. You want to make sure they are turning over all the rocks for you. And, in China, people tend to be very conservative when making decisions because they don’t want to make a mistake.

“For example, when I worked at SINA, we approached the local office of Nike to talk about a sponsorship and tie-in with the World Cup -– it was a great opportunity for Nike because it was the first time China was in the World Cup and Nike wasn’t exactly a household name in China at the time.

“The local office was unresponsive to our offer -– because to them, it was an incredibly risky proposition compared to magazine or TV advertising -– so we ended up pitching the International VP of Marketing in Beavertown, Oregon, directly, who then contacted the Shanghai office. The deal went through the local office as a ‘face-saving’ measure and ended up being a successful multi-year sponsorship opportunity. And of course, Nike is now huge in China.

"The Chinese are very creative, natural marketers,” sums up Unze, “but to take advantage of this you need to reassure them they won’t be ‘punished’ for taking risks.”

Tip #2. Email and phone calls may not be returned

The Chinese prefer to do business face-to-face. If you send email to even a large site or portal inquiring about ad rates, don’t be surprised if no one returns your email. You’ll need a local agency or representative to make the initial call for you –- although, surprisingly, the Chinese will negotiate terms via IM, according to Unze.

Last but not least -- this is harder than you think

When marketing to Chinese consumers, Isobar’s Morris sums it up succinctly, “Don’t underestimate the Chinese and their sophistication. It is very difficult to make money in China -– so you have to market smart to achieve success.”

Useful links related to this article:

(Lots of) creative samples from China campaigns: http://www.marketingsherpa.com/cs/chinareport2/study.html

Part I of this Report: 'Marketing to China -- Overcoming the Top 5 Challenges' http://www.marketingsherpa.com/sample.cfm?contentID=3218

Top tier China-based mass portals: Baidu (#1 search engine) http://www.baidu.com Netease http://www.netease.com SINA page http://www.sina.com.cn/ Sohu page http://www.sohu.com

Additional important China-based portals: China.com http://www.china.com GOQO http://www.goqo.com Tom.com http://www.tom.com

More useful links:

Alibaba - Manages Yahoo! China, runs eBay competitor TaoBao and PayPal competitor Alipay: http://www.alibaba.com

Asian Digital Marketing Association http://www.asiadma.com

BDL Media Ltd. http://bdlmedia.com

http://www.cnnic.net.cn/en/index/index.htm


The HyperFactory http://www.thehyperfactory.com

Isobar Worldwide http://www.isobar.com

Lucky Pacific http://www.luckypacific.com

Market China, Inc. http://www.marketchinainc.com

QQ/Tencent (aka 2Q) http://www.tencent.com

Technorati http://www.technorati.com

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