How Chinese Tech Builds Trust, Part III: Why Targeted Advertising Is Broken
Plus: The next-level marketing of beauty brands, China's luxury evolution, and Prada's artsy collaboration in Shanghai.
|Sep 3|| 4|
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In this weekly series, How Chinese Tech Builds Trust, CCI aims to demystify the fundamentals that drive Chinese e-commerce, explaining why critical practices have evolved the way they have and helping brands predict what comes next. From the triggers behind Baidu’s downfall to the rise of social commerce, we’ve got you covered. And if you missed previous installments, check them out here.
Something nobody really talks about: targeted advertising in China is ... terrible. Low performance. Low conversion. Expensive. Most people want nothing to do with it.
Once upon a time, there was traditional advertising: TV, print, outdoor. Targeting was minimal, and brand awareness was everything. It mainly succeeds at showing one thing: You’ve built a brand, and you have the war chest to prove it. A prime example is Super Bowl ads, which cost $5.6 million for a 30-second spot this year. Compared to high-conversion Facebook and Google ads, targeting in traditional advertising is just a little bit better than screaming into the void.
Facebook pundits joke (not really a joke) that the platform is creepy. In June, Mark Zuckerberg said “I am not a lizard,” referring to a zany conspiracy theory that he’s using Facebook to collect information on humans in order to become a human himself (bear with me here). The reason is this: spend any amount of time on Facebook and you start to feel watched. Ads are oddly specific and hyper-targeted. It can feel disturbing or even unreal, but that hyper-targeting works, converting to around $70 billion in very real revenue.
Advertising is essentially Facebook’s sole source of income. Whether or not he’s a lizard, Zuckerberg’s business model is basically: 1) collect data from humans, 2) sell data to other humans, and 3) profit. Apple’s iOS 14 privacy controls took a stance, leading Facebook to warn that "Apple's updates may render Audience Network so ineffective on iOS 14 that it may not make sense to offer it.” Translation: hyper-targeting is so essential to Facebook that it would rather not offer any ads than offer non-targeted ads.
And that is basically where China finds itself. What does that mean?
Tencent's Business Model
Alphabet (Google) and Facebook earn, respectively, 83% and 98% of their total revenue from advertising. They are adtech companies. Tencent is best known for WeChat, China’s biggest app, which has evolved from messaging into a do-it-all “super app” that is the envy of the American tech giants. Look more closely, and you’ll note that Tencent’s bread and butter is actually in gaming (35% of revenues) and fintech (25%). WeChat works to drive traffic to those services. Tencent’s flagship mobile game (Honor of Kings) goes hand in hand with WeChat, and so does its fintech service, WeChat Wallet. Tencent’s ad revenue (16%) is derived more from its streaming platform Tencent Video, not WeChat. This is not adtech.
Imagine you're targeting university students who like rain. On Facebook, you just plug those two interests into the ad service backend and boom — fifteen minutes and twenty bucks later you’ll find out what that target demographic has in common with Netflix’s Umbrella Academy and Seattle University.
On WeChat, ads are notoriously challenging, bureaucratic (sometimes requiring Chinese government approval), and low performance. Not to mention expensive, starting at around $8,000. Cost per follow (cost of acquiring a new follower) for WeChat pages generally starts at $2.87 (depending on who you ask), nearly triple the Facebook average of $1.07. WeChat also makes a point of showing no more than three ads, per user, per day. Imagine not seeing 30 ads within the first ten seconds of using Facebook or Google.
Hyper-targeted adtech single-handedly decimated traditional advertising. Its equivalent does not yet exist in China. Whereas Facebook allows you to target any interest imaginable, WeChat has just 18 categories and 122 sub-categories on offer. Good luck tracking down a niche audience — where would you even begin?
There Is No Alternative: Influencers, Livestreaming, Product Placement
In China, hyper-targeted advertising has been substituted with greater complexity, and there is never a straightforward answer to the question, "How do we reach our target audience?" Moreover, building an audience on most platforms requires pay-to-play marketing. Taobao store owners and Weibo influencers all know that the algorithms prioritize users who spend money. Without hyper-targeted advertising, digital spending can disappear into a black box of big budgets and low ROI. That doesn't mean it's impossible, but it’s harder and brands have to get creative. It also means that content is everything, with brand positioning through influencers playing a critical role.
An influencer basically builds up an audience with specific interests. Let's say you're a fishing brand getting into the Chinese market. Where can you advertise that will allow you to target for "fishing"? Correct me if I'm wrong, but if WeChat has just 122 subcategories, I doubt that's going to be one of them. Consumers don’t trust search. You might try native ads on Weibo, which is expensive, or Taobao, but the audience there is mostly female. Given the very limited targeting options, your best bet might be to search for a KOL (key opinion leader, i.e., influencer) in the fishing space. For example, the angling influencer known as Kexue, who netted $150,000 in sales from the revenue stream of his Douyin followers.
Outside of China, targeted ads work because of Facebook. Inside China, not so much.
As a result, marketing budgets go to KOLs or influencers, branded content, and brand-building efforts. There is (barely) an alternative.
How to get rich in China:
Be an influencer with a very targeted niche audience. Get in touch with brands. Boom.
Create a model for targeted advertising in China.
Beyond influencers, livestreaming, and product placement, what other marketing strategies show the greatest potential for growth?
With Apple starting to block Facebook ads, do you think Google might do the same? Could brand marketers turn to the Chinese model of non-hyper-targeted advertising in the future?
- by Tanya Van Gastel, CCI Team
Mentioned in today's newsletter: Apple, Chanel, Dior, Facebook, Fliggy, Google, Guerlain, Helena Rubinstein, MAC Cosmetics, Mango TV, Prada, Taobao, Tencent Video, Thanmelin, Tmall, Tom Ford, Weibo, YSL.
Trending Brands on Chinese Reality Shows: Beauty Makes Its Mark
- Ginger Ooi, CCI Team
With audiences that trend towards the young and female, Chinese reality shows offer many opportunities for beauty brands to reach target consumers, whether through niche programming that appeals specifically to the Gen Z and millennial female demographic, or via more mainstream pop culture shows that can help boost brand awareness with a broader reach.
Youku’s team dance competition “Street Dance of China” (这就是街舞) has been a breakout hit, drawing a large viewership along with critical acclaim since its debut in 2018. The third season kicked off in July with a new lineup of four celebrity captains, among them brand favorites Wang Yibo and Lay Zhang.
MAC Cosmetics is a sponsor of the series, and while its presence on the show is subtle, one can see that female contestants in particular are made up in a more dramatic fashion than in previous seasons. The brand has also tied in to buzz around the show by timing its announcement of Zhang as its newest global ambassador to the season premiere, and partnered with “Street Dance” to host a themed pop-up store in Chengdu where fans could purchase “Street Dance” merchandise along with the same products used by Zhang on the show.
The partnership is the latest of MAC’s content-focused efforts to appeal to a younger generation of Chinese consumers on their own terms, following two years of successful co-branded makeup partnerships with Tencent’s popular video game Honor of Kings (王者荣耀), which also included the creation of virtual musical groups. This year a virtual boy band called “Infinite Kings” (无限王者团) was launched with characters are inspired by historical figures such as poet Li Bai and political strategist Zhuge Liang and paired with beauty boxes containing a lipstick, eyeshadow palette, and highlighter.
Tencent Video’s “Middle Me 30+” (女人30+) has drawn more attention in its second season as it fits into the breakout trend of the summer for content focused on “older” women sparked by the hit reality show “Sisters Who Make Waves” (乘风破浪的姐姐) and drama “Nothing But Thirty” (三十而已). The inspirational documentary/talk show hybrid stars Selina of supergroup S.H.E and other celebrities sharing their stories of hardships that they’ve encountered in their careers and personal lives, from self-love to aging to marriage.
Helena Rubinstein is the title sponsor of the show, a rare instance in which an international beauty brand has taken such a prominent role on a Chinese series. The brand also worked with Tmall for a recent Super Brand Day promotion that tied into its sponsorship of “Middle Me 30+,” with a livestream on Taobao Live giving fans an opportunity to win featured products.
Mango TV’s idol group-forming show “Sisters Who Make Waves” has been a big boon for title sponsor Thanmelin, a C-beauty skincare brand that rose up via WeChat marketing, with a new spin on the idol group competition that features established celebrities ranging in age from 30 to 52. Avid fans have sought to emulate the looks seen on contestants, even where brands involved were not sponsors, searching out particular brands of lipstick and specific shades worn and generating buzz on social media for products from Guerlain, Chanel, Tom Ford, YSL, and Dior.
Summer is the prime season for Chinese television, and another C-beauty label, Gichancy, focused its marketing on sunscreen products with its sponsorship of Zhejiang TV’s celebrity challenge show “Keep Running” (奔跑吧). Gichancy incorporated the show’s theme, which sees its stars competing outdoors in scorching hot conditions, and promoted its products with the slogan, “life and beauty have no limits.” Gichancy also appeared as a sponsor for Tencent Video’s idol competition “Chuang 2020” (创造营2020, formerly known as “Produce 101” and “Produce Camp”). The latest season’s celebrity mentors included idols Lu Han and Huang Zitao, and Gichancy sponsored daily vlogs from contestants and gave fans a chance to win Gichancy products.
CCI Take: Luxury Brands Face a Different Economic Crisis — and China — From 2009
- Avery Booker, CCI COO
By 2016, mainland Chinese consumers were propping up the bottom lines of major luxury houses worldwide, even after the once-dominant North American, Japanese, South Korean, and European consumers returned to the market in the first years of the 2010s. By 2018, Chinese consumers were spending an estimated RMB 770 billion ($112.7 billion) on personal luxury goods and making 149.7 million overseas trips.
Meanwhile, Chinese overseas travel—- once stereotypically characterized by tour groups unloading from buses for rapid-fire shopping sprees at Parisian department stores or New Jersey outlet malls — shifted at the high end, as affluent, independent travelers sought new experiences (and luxury goods) in locales off the beaten path. Trending younger (27 to 37-year-olds accounted for 31% of outbound Chinese travelers), these tourists placed less emphasis on travel purely for shopping and looked for more personalized experiences, using apps such as Alibaba’s Fliggy to plan trips and make purchases ahead of time, allowing them to replace hours that would otherwise be spent browsing boutiques with more time to explore new cities.
It’s a different luxury market — and China has a very different luxury consumer — now than in 2009, meaning the luxury industry has major cause for concern.
Brand Film Pick: Director Jia Zhangke Explores His Other Creative Sides in Prada Collaboration
- Sky Canaves, CCI Editorial Director
Prada’s recent project with director Jia Zhangke was a bold move beyond straightforward branded film into a multidisciplinary installation at Prada Rong Zhai in Shanghai, a meticulously restored cultural space that was built in 1918 as a residence for industrialist Rong Zongjing, who was known as the “King of Flour.”
The partnership between the Italian fashion house and Jia was the latest installment of Prada Mode, a globetrotting social club launched in 2018 that made stops in Miami, Hong Kong, London, and Paris before a temporary pause due to the coronavirus pandemic. For just two days (August 31 and September 1), the mansion was filled with screens displaying videos and images created by Jia.
Inspired by Rong Zhai’s original ties to the flour industry, Jia used the occasion to explore the meanings of the Chinese word for flour, mian, and its various connotations and extensions, such as “eating noodles” (chi mian), “surfaces” (biao mian), and “meetings” (hui mian). In addition to the debut of a new short film by the director, daily screenings, and the series of videos and interviews on display throughout the venue, the event incorporated talks with leading cultural figures, demonstrations of noodle-making, and nightly disco parties with actor Huang Jue serving as DJ.
Jia told WWD that he has worked on photography and installation projects before, but had never previously exhibited them in a systematic manner. The collaboration with Prada allowed him to think about how to tie together Rong Zhai’s history with works from his archives: “I chose the theme of tattoos from my several photographic works because tattoos are carved on people’s skin surface to show someone’s emotion or life status,” Jia said. “I have also chosen ‘disco,’ which expresses inner emotions and the idea of ‘meetings,’ which are also represented by the films that tell the stories from old Shanghainese.”
News in English
Douyin is making a big move to ban links to third-party e-commerce platforms such as Taobao, Tmall, and JD.com ahead of this year’s November 11 Singles Day shopping festival, as it aims to boost its own sales channels as well as those of its new partner Suning. SCMP
Meanwhile, rival Kuaishou announced some ambitious goals: Over the next year, the company wants to incubate 100,000 businesses that can hit $146,000 in annual sales, train 10,000 e-commerce livestreamers and host more than a million sales broadcasts, while also establishing more than 100 industrial bases around China. Caixin
For more on Kuaishou’s demographics, user preferences, and trends in e-commerce and livestreaming, check out this translation of the company’s recent content report covering the first half of 2020. ChoZan
Virtual influencers have become a hot commodity for brands in China, where young consumers are more open to a mix of content from sources such as gaming and animation with real-world forms of entertainment. Parklu
Chinese shoppers are splurging on luxury goods, autos, and products that support a healthy lifestyle, but are less willing to spend on socializing at restaurants, bars, and nightclubs. Bloomberg
A trio of southwestern Chinese cities are among the country’s leading hot spots for luxury sales growth, along with two heartland metropolises and the island holiday destination of Sanya. WWD
Disney’s long-anticipated live-action “Mulan” remake will be released in Chinese theaters on September 11, a week after its streaming debut on Disney+ in the U.S. and in cinemas in other Asian markets. The Hollywood Reporter
Tencent Video executive Kaichen Li shares insights on the company’s Southeast Asia expansion strategy via WeTV and the recently acquired streamer iFlix. Worldscreen
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