The World: Networks eye China's provincial mass audience

Publicis is the latest Western network to look beyond the major cities through its deal with Betterway, James Hamilton says.

China is the fourth-largest economy in the world; the fifth-largest advertising market. With a population of more than 1.4 billion and TV penetration of 93.4 per cent, uninitiated advertisers looking at the market could easily be forgiven for thinking that a TV campaign is the answer to their collective marketing prayers.

To a certain extent, they are right - for all the growth in internet penetration and mobile phone usage, China remains fundamentally a mass market. With its ability to cut through clutter and create strong brand identity almost overnight, TV is still unbeaten at breaking products into untamed markets.

Inevitably, however, there are buts and the Chinese market is gradually changing. To maintain their existing growth projections, Western consumer products and clients are being forced to forge paths inland, away from the relatively wealthy "tier one" cities of Shanghai, Guangzhou and Beijing and the brand-savvy consumers who live in them for whom 30-second TV ads work.

And as they push deeper into China, so their marketing methods are forced to change. Beyond the tier one cities, TV penetration drops, audiences become far less media-conscious and the retail infrastructure grows weaker.

Brands that want to exploit growth in more provincial regions rely on field marketing services companies to guide consumers with promotions, product demonstrations and events.

The Western advertising networks are no strangers to this phenomenon and have steadily been growing their marketing services offerings in China as they bid to maintain their double-digit growth rates.

Euro RSCG has a significant marketing services operation in the country, with offices in more than 40 cities. In March this year, Omnicom took a majority stake in Unisono Fieldmarketing, a marketing services operation that covers 25 cities and employs 2,000 field marketing operatives.

Not to be outdone, Publicis Groupe, the largest Western agency network in mainland China, has secured an 80 per cent stake in Betterway Marketing Solutions, one of the largest full-range marketing services agencies in the country.

The deal will see Publicis Groupe expand its presence in China to offices in 29 cities, although Betterway's reach is larger, with activities in more than 50 cities.

Betterway will sit alongside Publicis Dialog within the Publicis China network. And while the marketing services company's founders and co-chief executives, York Huang and Jenny Zhang, will remain only minority partners in the business, the Betterway name will stay on as a brand and may be used as a potential conflict shop.

"We're the biggest group in China at the moment and we want to make sure that stays the case," the Publicis China chief executive, Neil Hardwick, says. The network, he says, has been growing quickly in advertising through its Publicis, Saatchi & Saatchi and Leo Burnett operations. But until the Betterway deal was brokered, its marketing services set-up was limited to just 36 people. It now has a full-time staff of 400.

Such a base will be key if Publicis is to aggressively and successfully attack the burgeoning marketing services market in China. While exact figures are unavailable, the best estimate for the overall value of the Chinese advertising market is RMB 150 billion (£10.5 billion).

"That figure grew by 15 per cent last year and marketing services are growing faster than that, which is why it's such an attractive area," Huang says.

It is also a small area for the Western networks. Used to controlling 90 per cent of the above-the-line advertising market in the rest of the world, they handle just 12 per cent in China. In marketing services, this figure drops to less than 2 per cent. It is a niche that Publicis is determined to grow.

"In terms of advertising, we're looking to expand the volume of what we do for our international clients, but we're also looking to pick up key local clients," Hardwick says. "One of the ways we'll do the first is to offer more services to our existing international clients; key to the second is having a local partner that has better geographical coverage."

"Given the increasing demands of global advertisers in this market, where we already have a very strong base through our most important brands, our decision to go forward with Betterway will solidify the Publicis network's marketing activities, allowing us to become an even stronger entity in China," Maurice Levy, the Publicis Group chairman and chief executive, says.

"The market has become more mature in the tier one cities," Huang adds.

"But there is a huge opportunity beyond these cities in the provincial capitals. While the average income levels are not high, the population is there - a 1 per cent market share still means a lot."

Publicis' search for an agency that could help it expand beyond its three-city base has not been a short one. Huang began to talk to networks two years ago and Betterway's 55 per cent year-on-year growth since then will have done little to simplify the takeover negotiations.

Publicis could have opted for organic growth, but talent, Hardwick says, is difficult to find. "If we try to hire a moderately experienced 28-year-old, they effectively grew up in an era before advertising," he says.

Betterway was founded in 1998 by a group of professionals with backgrounds in multinational companies. Since then, the agency has grown quickly, to the extent that its client list now consists almost entirely of international businesses. Eight years' experience makes Huang and Zhang veterans by Chinese standards.

Nevertheless, both Betterway and Publicis still say they are feeling their way in the brave new Chinese ad world. "China's marketing as we're doing it now is an eight-year-old phenomenon at best," Hardwick says. "There is no law governing advertising or direct marketing. People could apply laws from 20 years ago to restrict what we do here. We're feeling our way very carefully."