Are You Investing Your Budget Correctly in China?
Digital vs. Offline Advertising for Luxury Goods
The other day, I was in a meeting with one of my luxury clients and shared ad spend broken down by channel in China (see pictured below). They were shocked by the figures, because they couldn’t believe TV (13%) and Magazine (7%) have such low percentages in this market in terms of ad spend. Apparently, they have been spending so much more than the market average on offline advertising, as they distributed their budget based on world average rates instead of their market. I’m sure this is a problem with other clients too, as they focus on a global strategy rather than a market-led strategy that feeds into their larger picture.
The proportion of ad spend in digital in China was in-line with the US back in 2014, at around 27%. The China market the digital world underwent an incredible transformation in the past few years while the US digital ad spend changed at a slower rate. Ad spend in China more than doubled in 2017 compared to 2015 and has been forecasted to further increase by 20% YoY in 2018 as well as 2019.
The total advertising media spend in China is still only less than half the US, but digital Ad spend is catching up to the US to reach around 1.6 billion in 2019 which will contribute 68% of the total ad spend in China (US is only around 30% today). Although this is still lower than the US, China is recognized as the strongest market to advertise in digital for the luxury goods market
Marketers usually hold doubt over these types of statistics when the figure is not in line with global trends, especially when trying to muster the confidence to do something completely different with their marketing budget. However, other research such as the shopping behavior report has again affirmed this insight.
According to the BCG X Tencent Luxury Study in 2018, over 50% of first touch points for luxury websites were online and 70% of people do their research online before making their purchase.
Source: BCG X Tencent
There are huge limitations regarding tracking performance in China’s luxury industry as the majority of journeys to purchase are highly complex and involve online to offline and across different devices. Also, there isn’t a single player like Google who can cover email, search, display, social & maps in China and no platforms are willing to share their 1st party information with any other strong digital players. With this situation at hand, advertisers can’t accurately measure their return on investment into specific channels.
Many brands are solely following a traditional marketing strategy, which includes heavy investment +into offline, despite digital marketing dominating ubiquitously in China. Archaic low-tier fashion-brand tracking methods (voucher & discount codes etc) are not popular in this industry as luxury brands are not willing to position themselves as a price-cut business or giving away freebies.Following global trends and research figures can be tempting when you’re trying to ride the wave but high spend channels might not be the most effective channels for your business and industry in the current climate. The average industry trends might not be a suitable fit for your audience. The best use of an agency would be to use their specialist expertise to utlise an additional 20% of their budget on testing to discover new opportunities. Tracking, sampling measurements or any other method which can help you to evaluate the results, must be included in your testing plan.
Often, advertisers are brave enough to test new activities but struggle on their objectives and what they are ultimately trying to achieve. The huge downside when this falls through is that they are discouraged from making any further investment, as, in the majority of cases, brands fail to notice a return on investment. It becomes difficult to define if an activity as unsuccessful if it was not tracked properly to begin with. Opportunities to run new channels to improve brand awareness or conversions exist and here is an example of how is can be a success.
Luxury brand A launched a VIP appointment system online so people can either make a phone call or book via their official site. Potential customers could see limited edition products during the appointment in a VIP changing room and were served with a glass of champagne. This new service might not be able to attract all audiences, but a decent proportion enabling you to measure your activities through appointment data and in person interaction with customers.
Social, search, display, TV and magazine were all promoting this service and tracked it using different phone numbers per channel. Online bookings can also be tracked via leading clickstream providers (such as: Google analytics). Bookings can also be tracked with more granularity throughout every campaign in each channel by simply using different phone numbers. Phone tracking campaigns can easily help bridge and capture the transition when customers move from online to offline. It would be greatly useful to know where consumers can hear the brand’s voice in order to plan budgets wisely.
Aside from phone number tracking there are many unique methods available to each advertiser and through discussion we can discover what they are capable to offer to customers. Until new technologies are properly established to track ‘online-offline cross devices conversions’, you will have to rely on a mixture of old-fashioned and innovative techniques to ensure you are investing your budget correctly in your target market.
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