R3 and SCOPEN Biennial Study Shows Marketing Industry is Stabilizing and Consolidating in China.
March 2016, Shanghai – According to the sixth wave of R3 and SCOPEN’s Agency Scope Study, China marketers are demanding integration and digital capabilities from their agency partners. R3 recently met with more than 400 senior marketers in China to understand the process, perception and performance of the agencies they work with. This wave’s report covers more than 250 multinational and local companies, with over 700 client-agency relationships analyzed. The push towards integration and digital are just two of the several trends identified through the study, with changes occurring in several other areas, including the rise of in-house marketing teams and shifting remuneration models.
The complexity of the Chinese market is also driving marketers to develop relationships with fewer, more trusted agency partners, and to stay with those partners for longer. “The shift towards integrated agencies is not surprising,” said Sabrina Lee, Managing Director of R3 China. “This is in line with a global trend, but is even more prevalent in China where the fragmented market drives the preference for an integrated solution.”
“We are seeing a global trend now,” said Cesar Vacchiano, Founding Partner and CEO of SCOPEN. “Marketers want to work with more integrated agencies (64% in China), even though the biggest weakness and challenge for agencies in China is strengthening their digital capabilities. It is going to be very interesting to see the race towards reinforcing digital offerings in order to provide the integration that clients are demanding.”
Digital Accounts For 25% of Marketing Spends
Marketers’ desire for digital capabilities is no doubt fuel in part by a massive increase in the percentage of marketing budgets spent on digital media in China, which is now 25.4%, up from just 18.6% in 2014. It’s not only digital agencies under pressure to improve their offerings; marketers expect advertising and marketing services agencies to have these capabilities as well. For example, nearly 85% of marketers claimed that digital capabilities are very important or important when selecting an advertising agency.
Marketers Consolidating & Lengthening Agency Partnerships
“In the latest wave of the study, we can see that marketers are consolidating their accounts with fewer agency partners, just 6.4 partners this year compared to 8.2 in 2014,” said Ms. Lee. “This is a positive sign not only of the gradual stabilization of marketer-agency relationships, but also that agencies themselves are strengthening their product offerings and making some headway in resolving marketers’ demands for greater integration,” she added.
In line with this trend of stabilization, average client-agency relationships are up from just over 3 years in 2014 to 3.8 years in this wave. Relationships are still of shorter duration compared to the global benchmark and China still has some way to go to reach global levels of stability.
Agencies Biggest Competition is In-House Marketing Teams
Agencies now increasingly have to compete with in-house marketing teams, who are consistently involved in leading and directing key disciplines especially: strategic development, below the line, digital strategy and data analytics.
87.1% of respondents say strategic planning is led in-house, up from 73.2% in 2014. 64.7% of sales promotion is led in-house, as is 53% digital strategy, 62.9% of data analytics and 43.5% of social media strategy. In contrast, creative and advertising planning, as well as media tends to stay within the hands of agency partners.
Remuneration Models are Shifting
“Agency remuneration models represent another area where we see a change in this wave of the study,” said Ms. Lee. “For example, 72.2% of advertising agencies are remunerated by fee/retainer, up from 55.8% in 2014 and just 40.5% in 2012,” she added.
Fees are now used to remunerate 53.4% of marketing services agencies, 58% of digital agencies, and 63.4% of media agencies. Interestingly, 25.2% of Media Agency remuneration is still commission based in China.
Incentive payments still lag in China when compared to other survey markets, and when they are paid, they range from 8.7% to 11.5% of annual remuneration. Fees / Retainers are increasingly the standard method of agency remuneration based on clearly defined scope of work.
Coke Leads the Way in Peer Votes
“As the industry matures in China, marketers are putting more and more emphasis on creativity and innovation when looking for an agency partner,” asserted Ms. Lee. In the same vein, all marketers were also asked to vote on best campaigns and most respected marketing companies in China – with Coca-Cola once again leading the way.
“Coke has pushed hard to be a leader in digital and integration, and its clear other marketers are noticing,” said Ms. Lee. Nike and Apple rounded out the top three, with the launch of the iPhone 6 no doubt playing a role in propelling Apple from 7th place in the 2014 study to 3rd place in this round.
About the Study
Agency Scope is an in-depth, face to face study, covering over 400 senior marketers and 700 agency relationships.
The China Agency Scope is now in its sixth wave, with previous research conducted in 2006, 2008, 2010, 2012 and 2014. The study’s aim is to understand the latest marketer-agency engagement trends, and perception and performance of advertising, digital, media and marketing services agencies in China.
In-depth face-to-face interviews were conducted with senior Chinese marketing decision makers from China’s top marketing companies, providing comprehensive data and insights to help agency networks and marketers forecast and benchmark their businesses. The study is conducted every two years in China, making it the most robust independent tracking measure of Chinese agencies and their client relationships.
About R3
R3 is a leader in global, regional and local consulting on Best Practice in marketing effectiveness and efficiencies. We work with nine of the world’s top twenty marketers including Coca-Cola, Unilever, AB InBev, MasterCard, Mercedes Benz, Johnson & Johnson, Samsung and Kimberly Clark. For more information, visit www.rthree.com, or contact Erin Singleton at [email protected] or +86 21 6210 2310 (China) or +1 646 416 8088 (US).
About SCOPEN
SCOPEN (formerly Grupo Consultores) is Europe and Latin America’s largest client-agency consultancy, founded in 1990 and employing a variety of consulting services to marketers, agencies and media owners. For over 25 years we have helped to identify and connect the game changers that innovate and transform business in 12 markets. For more information, visit www.scopen.com or write to [email protected].
