Advertising and marketing in China must join the online revolution

Many people outside China believe that few mainland Chinese use digital devices beyond the mobile phone and that those who do, for the most part, live in China’s big eastern cities. These perceptions may have been true two to three years ago, but Chinese now use digital devices extensively, even in less developed central and western areas. Many Chinese already use broadband Internet services, computers, and mobile phones and are gravitating to instant messaging and Web 2.0 activities, such as uploading songs and pictures, blogging, and other community-oriented activities. These trends hold true even in small cities in western China.

China’s enthusiastic adoption of digital devices and services will have implications that transcend the technology, media, and communications industries. In particular, the marketing and advertising disciplines will undergo a radical transformation that will affect how companies manage their brands and communicate with customers.

China’s digital revolution

To understand the sea change under way, the Boston Consulting Group (BCG) recently conducted extensive consumer research that was focused on urban China, which contains 45 percent of the country’s population and 75 percent of its Internet users. BCG interviewed 3,700 people from 12 cities in 11 PRC provinces. In the course of this research, three “generations” of digital users emerged:

  • Little emperors Members of this generation, aged 14 to 25, have grown up in a modernizing, market-oriented economy. They are familiar with opportunity and choice, and they readily embrace the Internet and mobile phones. They are also more demanding than older generations, question the authenticity and accuracy of online information, and exhibit moderate to low levels of trust and satisfaction.
  • Reform beneficiaries The next generation’s members, aged 26 to 35, witnessed tremendous change during their youth. Having benefited from the country’s reforms since 1978, this demographic optimistically looks for variety and new opportunities and values the ability to voice opinions online. It has embraced digital devices and services.
  • Frugal middle-agers The final generation of digital consumers, aged 36 to 50, grew up before the economic boom. People in this group recall living frugally and lacking choices in areas ranging from entertainment and consumer goods to jobs and housing. They have only partially embraced digital devices and services and want the Internet to provide practical solutions for their everyday lives—for example, by facilitating payment of bills or providing easy access to news.

Global companies that want to reach these three groups will need to understand their online behaviors and adjust their marketing and advertising campaigns accordingly. Trapped by traditional ways of thinking, many Western companies are spending heavily on television, billboard, and newspaper advertising in China, unaware that some Chinese consumers are spending less time engaged with those media. Some companies, such as Intel Corp. and Colgate-Palmolive Co., have figured out how to take advantage of— and get their messages across in—the online world.

A recent surge

China boasts the world’s most mobile phone and Internet users—616 million and 253 million, respectively—with both totals representing significant year-on-year increases. In 2007 alone, more than 86 million of China’s consumers started using a mobile phone, and close to 40 million started using the Internet. From 2004 to the end of 2007, the number of mainland Chinese Internet users increased at a compound annual growth rate (CAGR) of 22 percent. In 2007, an average of more than 100,000 new users each day acquired Internet service.

Today, Internet users in China average 2.7 hours online every day, up from 1.9 hours in 2004. (For comparison, Japanese Internet users averaged 1.2 hours online each day, South Koreans spent 2.0 hours online, and Germans spent 2.0 hours online.) They search for information, chat with friends, and listen to or download music and videos (see China Data). Collectively, they are online about 680 million hours a day.

To respond to growing consumer demand, online services are exploding. Instant messaging—the mainstay of Chinese Internet activity—surged from 31 million users in 2003 to 171 million in 2007, rising at a CAGR of 53.3 percent. Web 2.0 activities are taking off, and blogging has blossomed as well (see Blogs, Bulletin Boards, and Business). At the end of 2007, 49 million people had added their voices to China’s blogosphere. Other Chinese users are actively interacting on forums and social-networking sites.

Instant messaging is the dominant form of online communication in China. Nearly eight out of ten Internet users in urban China chat online, much more than in the United States, where e-mail rules. “I seldom use e-mail because not every one of my friends has an e-mail account,” said Yang Hao, a 16-year-old Beijing high-school student who enjoys instant messaging. “QQ is a lot more fun, instant, and interactive.” (QQ is an instant messenger software program, created by Tencent, Inc., that is commonly used in China.)

Chinese netizens are also deeply involved in peer-to-peer activities, such as sending and downloading music and videos within their communities. Peer-to-peer file transfers and file sharing constituted 60 percent of China’s Internet traffic.

Despite these large figures, the digital revolution in China is still in its infancy, and its overall penetration rates—the percentage of the population that engages in an online activity at least once a week—remain relatively low. Just 46.5 percent of China’s residents use mobile phones and 19 percent use the Internet. Even with rapid growth in recent years, China still has a long way to go before it reaches saturation.

Moreover, Chinese people tend to be much less comfortable with forms of digital activity beyond communication, especially those that involve commerce, demand large outlays of cash, or require their trust. E-commerce in China is years behind the West—only 25 percent of Chinese Internet users shop online, mostly at the Chinese site, and only 16 percent shop online more than 10 times a year. Even fewer take advantage of online banking services. Cash remains consumers’ dominant form of payment. Consumers distrust online transactions, because they fear that they will receive poor-quality goods, be cheated, or their identity will be compromised (see Figure 1). Still, the Internet is a popular place to research products, which consumers subsequently buy offline. “If I want to buy big-ticket items, I always check the price and performance on the Internet first, but I won’t shop online. I don’t trust Internet security,” said Sun Qian, a 28-year-old from Guilin, Guangxi.

Market opportunities

The digital market in China is larger than most might expect. Excluding voice telephony and traditional broadcast television, the size of the market in 2007 was close to ¥580 billion ($77 billion) (see Figure 2). Two-thirds of revenues come from the sale of digital devices, including mobile phones, digital televisions, and computers. By 2015, revenues are expected to exceed ¥1.8 trillion ($264 billion).

Online advertising-related revenues are only ¥10 billion ($1.5 billion), but are rising strongly. From 2002 to 2005, online ad revenue increased at a CAGR of 79 percent, compared with 15 percent and 11 percent for television and newspapers, respectively. Most online-advertising spending is allocated to large, local portals, such as and, and China’s top search engine, Baidu.

The relatively underdeveloped e-commerce market may lead companies to dismiss the need for a digital strategy. That conclusion is shortsighted. Consumers routinely visit blogs and bulletin boards to learn about products. Their opinions are shaped in forums that advertising and marketing managers may not even know exist.

A roadmap to the future

The following activities and principles will help marketing and advertising executives to address the opportunities presented by China’s new digital generations.

Be visible online

Many companies’ average customer in China spends nearly three hours online each day. To be successful, companies need a rich and attractive web presence to raise awareness of their business, brand, and products. Remarkably, many companies in China still do not showcase themselves online properly. If they have a website, they do not update it frequently or adequately. Corporate budgets for web development are generally limited, and business leaders remain skeptical about the effectiveness of, and consequently the need for, a strong online presence. Most companies have not yet built up the required capabilities to exploit this medium effectively. Nonetheless, some companies have demonstrated the value of a superior web presence.

Goodbaby Child Products Co., Ltd., a leader in China’s baby care products market, has become a visible presence in the daily life of young Chinese mothers through its website, which offers blogs, information about baby care and development, and a doctor referral section. Like many other companies, Goodbaby uses its website to gather consumer intelligence. By closely tracking online activity—including online sales data, webpages visited for different products, forum discussion content, and consumer questions and suggestions—companies can develop a better understanding of how consumer preferences vary by region or city, allowing them to develop successful segmentation strategies.

Take advantage of your customers’ exposure to new influencers

Several websites have demonstrated tremendous power and influence to shape consumers’ opinions. China has its own social networking sites, such as Wealink and Linkist, where users can create and join groups according to their interests. Numerous forums and blogs also sway consumer behavior. To earn the trust of China’s digital consumers, companies must court the influence brokers who network, are vocal, or have gained a following online.

As a first step, companies need to be aware of the “online chatter” (see Blogs, Bulletin Boards, and Business). Only then can they join the conversation by, for example, sending press releases to popular bloggers or setting up company or product-specific discussion boards and blogs. Several companies operating in China have suffered negative business consequences by failing to act swiftly enough in response to small ripples of dissatisfaction that began online and spread to the sales counter. In early 2007, a leading global consumer company had to remove a product from the market after questions about the brand’s quality arose. Although customers’ complaints originally surfaced online, the company did not detect the degree of customers’ dissatisfaction early or accurately enough. Under mounting pressure, the company had little choice but to retreat.

Advertise your brand and build trust online

Branding is a critical activity for companies in China. BCG research suggests that brands are more relevant for Chinese consumers than for their counterparts in Europe or the United States. Given the reluctance that Chinese consumers display toward online transactions and commerce, the power of brands and their ability to convey trustworthiness is especially important online. Many companies, however, continue to target consumers through television and outdoor advertising.

Colgate-Palmolive Co. embraced China’s online environment to interact with young consumers—the target market for Max Fresh toothpaste. The campaign featured popular Taiwan singer Jay Chou as its spokesperson. To take advantage of user-generated online content among young Chinese consumers, the campaign allowed users to edit the commercial. A website visitor could change scene sequence, background music, and lyrics, and then forward their new version to friends. This campaign created online buzz among young people and attracted more than 1.5 million unique visitors in two months.

Draw on the creativity of the online generation

The rapid development of Web 2.0 capabilities in China allows companies to develop two-way communications with consumers, who can contribute to a company’s marketing and brand-building activities. Companies can test advertising messages online and even allow product enthusiasts to drive viral marketing campaigns. For example, Intel China launched a competition inviting Chinese consumers to create a video advertisement. About 700 people submitted advertisements, and 100,000 voted to select the best entry. The campaign drew roughly 4 million unique visitors.

Adapt to China’s distinct landscape

Executives must approach China as a unique market. The nation has followed its own path in embracing the digital age. Companies that take time to understand how Chinese consumers spend their time using digital technologies will be able to effectively market and communicate to them. The rest will be bystanders in the revolution.

[author] Michael Meyer is principal of the Boston Consulting Group’s (BCG) Beijing office. David C. Michael is senior partner, managing director, and chair of BCG in Greater China. Christoph Nettesheim is senior partner and managing director of BCG’s Beijing office. [/author]

Posted by Michael Meyer, David C. Michael, and Christoph Nettesheim