Inflation Nips Ad Growth In China

Topline ad growth may be relatively stable, but rising inflation is making its impact felt in China, with some of the market’s biggest brands tightening the reins on media spend.

Although the trajectory across major categories remains positive for the year so far, gross budgets from China’s biggest spending category, toiletries, notably shrank year-on-year in May, including a 10% cut to TV, while the outlay from food brands, another top five category by spend, was relatively flat.

Encouraged by the government to keep retail prices low, FMCG companies are grappling with both media inflation as well as rising costs for raw materials, explains Zhao Yihe, VP of market research at Chinese ad agency Charm Communications, with further cooling on marketing investment expected in the future.

“We predict that advertising spending by traditional FMCG industries, such as cosmetics and toiletries, food, beverages and pharmaceuticals, will continue to slow down,” Zhao says.

Rising prosperity is stimulating increased growth in other sectors however, including finance, home appliances, furniture and alcohol, prompting increased use of a broader range of media beyond TV. High-end consumer products direct a sizable portion of their budgets to magazines, newspapers and online, although TV, most affected by changes in FMCG marketing, also remains the most important medium for consumer durables as well.

Other categories set to spend more include: health, covering health products, clinics and hospitals as well as food and drink with health benefits; and clothing, spending 25% more year-on-year for the first six months of 2011, in part driven by a rise in online retailers that use traditional as well as digital media to promote themselves.

Advertisers shift to program-based buys

Some brands are also experimenting with new strategies to maximize the impact of their marketing investment on TV, shifting focus from ratings-based buys to program-based buys to amplify their marketing message. Tentpole variety and reality shows are especially popular, as they offer additional sponsorship and product placement opportunities as well as the potential for brands to exploit program extensions into mobile and digital media.

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This strategy is being employed by household appliances company Midea, which has tie-ups for various products with a number of shows on Hunan TV, including Just Right, a new interactive dating show built on the success of Hunan’s previous dating success Take Me Out (which Midea also sponsors), as well as Incredibly Reliable, The Encyclopedia Says and A Brave & Wise Rush to the End. Mobile phone brands such as BBK, OPPO and Gionee have also forged similar partnerships with a range of provincial broadcasters, including Hunan, Jiangsu, Zhejiang, Tianjin and Shanghai Oriental.

“The goal is to quickly focus target consumers’ attention on the brand, through the use of premium media resources, and rapidly improve brand influence,” Zhao says. Program sponsorship also allows brands to reach new audiences online, he adds. “The click rate of online videos for many variety shows is very high.”

This is an edited extract from content published in the Q2 2011 edition of The Asia Media Journal. The latest issue of The Asia Media Journal is available in full here.