October 7, 2005

Marketing 101 gets Shanghaied…

Filed under: Marketing — Administrator @ 11:32 am

Marketing in China, for a long time now, can be summed in two words “hypnotic marketing.” A classic example is Focus Media’s (NASDAQ: FMCN), a Shanghai based media company that has build a network of LCD screens in grade A and B office buildings, strategy of repeatedly playing the same package of commercials in 3 to 4 minute loops.

However, over the past year we’ve noticed a gradual shift away from hypnotic marketing in favor of, well, more creative (though not always better) marketing campaigns. Some of the more notable campaigns are listed below.

Case Study One: Free Eyelash Curling Iron
The Lead Up: Shanghai’s second largest consumer electronic franchise (e.g. Best Buy) put and advertisement in the daily paper announcing a promotion whereby for two hours on a specific day they would be giving away free eyelash curling irons to anyone who came to their store on Hauihai Zhong Lu (a major shopping street). On the day of the event, to the obvious surprise of the store’s management, customers began lining up 2 to 3 hours prior to the designated “give away” time. As the crowd thickened, people’s patience grew thin, and confrontations between customers broke out; and thus the police were called in to bring some order. Very quickly, to the store’s management realized their marketing campaign had a critical design flaw…

The Flaw: The campaign’s goal was to increase traffic and sales at that particular store, and while traffic did increase, sales fell dramatically…the program’s major design flaw was that customers didn’t have to buy anything to get the eyelash curling iron. All they had to do was show-up between 9am and 11am, stick their hand out, and grab a gift. Furthermore, customers didn’t even have to walk into the store as the gifts were distributed at the front door. The knock on affect was that the crowds blocked the entrance to the store preventing “paying customers” from entering the store. This campaign was such a disaster the store’s manager stopped it midway through which further angered the crowd…

Case Study Two: The Gucci bag and the Microwave
The Lead Up: Executives at Gucci’s Shanghai headquarters wanted to find some interesting ways to market their products to China’s up and coming middle class. One bright idea was to design a co-branding campaign with locally manufactured products, such as microwaves. So Gucci got together with a local manufacturer of home appliances and designed a campaign to give one Gucci bag away with every microwave sold.

The Flaw: The details are sketchy but my understanding is that Gucci sold the appliance manufacturer the bags at cost and in return the manufacturer put the microwaves on sale, hoping to generate additional demand. The campaign launched and was an overnight success, at least as far as the appliance manufacturer was concerned; microwave sales went up dramatically overnight as every woman in Shanghai desired the Gucci bag. However, things were not so rosy at Gucci, a company which spends hundreds of millions of dollars a year on positioning itself as a luxury goods design house (and not a microwave popcorn supplier); and thus when the head of Gucci Asia found out about the campaign the preverbal “shit hit the fan” and the campaign was abruptly suspended. Or was it…as Gucci was contractually bound to this relationship they encountered significant push back from both the appliance manufacturer and its customers…and so, Gucci bags and microwave popcorn continued to flow out the doors for sometime until divorce negotiations were concluded…

The takeaway is clear, marketing (and brand building) is still very much in its infancy in China…you think traffic in Beijing is bad…try finding a qualified marketing manager with interactive experience in loyalty programs (hint hint)?

October 6, 2005

Some clarity on what the heck Web 2.0 is would be nice…

Filed under: Web 2.0 — Administrator @ 6:21 pm

…Checkout Emily Chang’s eHub which is an updated list of Web 2.0 web applications, services, resources, blogs or sites with a focus on next generation web, social software, blogging, Ajax, Ruby on Rails, location mapping, open source, folksonomy, design and digital media sharing…

…and for those of you still trying to figure out what the heck Web 2.0 is all about, I’ve ripped Stephen Bryant’s (Publish.com) cheat sheet of Tim O’Reilly’s “What is Web 2.0,” principles and practices:

(1) Web 2.0 applications use customers and their data to reach out to the entire Web, not just the biggest centers of activity. In a sense, this is an extension of Searls’ and Weinberger’s World of Ends.

(2) Web 2.0 services get better the more people use them. Apps like Bittorrent turn users into servers, thereby amplifying download times. For a meatspace example, consider a grocery store that got bigger the more people walked through the front doors, or cars that drove better the more cars there were on the road.

(3) Web 2.0 apps experiment in trust. You have to trust your users; they will give you the keys to market dominance.

(4) Web 2.0 winners are the owners of data. O’Reilly points to mapping data companies NavTeq and TeleAtlas as the primary beneficiaries of MapQuest’s tools.

(5) Web 2.0 means the end of the software release cycle. Internet software requires constant care and rapid development.

October 3, 2005

Broadband internet coming to mud hut near you…

Filed under: Marketing,Technology — Administrator @ 6:13 pm

This morning, as I was getting ready for work, I was watching CNBC when a commercial for Thailand based (and owned by the Thai Prime Minister) Shin Satellite’s IPSTAR interrupted a spicy report about how China and India are dooking it out over global oil rights….

My understanding of IPSTAR is that it will offer digital high-speed internet access using Internet Protocol (IP) to all of Asia – in short, broadband internet. It so happens that China is IPSTAR’s biggest market in the Asia-Pacific Region and has more than 25% of its capacity over China.

Back to the commercial…

…the first frame shows a little Chinese girl making dinner for her family, a bunch of farmers…the second frame shows the girl surprising her farming family with a pizza…the third frame shows the farmers trying to eat the pizza with chopsticks…and then some kind of voice over…

…in the fourth frame the camera pans back on the girl who is now standing back in her kitchen, rolling pizza dough with a big smile on her face…in the final frame the camera pans even further back and reveals that adjacent to the side of this kid’s hut is an IPSAT satellite dish…

After a good five minute laugh-athon I asked myself a couple questions: (1) Is IPSAT onto something here or are they “pissing against the wind” (at least in China)? and (2) Is the China market ready for this or is it too early?

I searched for a quick and dirty answer and came up with an experience that happened to me 12-years earlier. At the time (1993) I was studying Chinese at Nankai University, Tianjin, PRC and some classmates and I went on holiday to Inner Mongolia. We wanted to locate the famed Genghis Khan Mausoleum but instead we found a tiny village of mud huts and small horses. We spent the night huddled together (not for warmth but because the rug they gave us only covered 20% of the dirt floor) in a Mongolian style tent. Just as the last drop of formaldehyde infused beer was consumed we heard screeching, clapping and music. So a couple of us got up and meandered over to the hut bellowing this noise. We opened the flap, looked inside, and to our surprise we saw a massive boom box that would have put a smile on late great Jam Master Jay’s face…

Turning back to IPSTAR and wondering whether or not it will be successful in China (where only 40 million households make more than US$12,000 per annum)… I am left with the image of that “Boom Box” banging away in the Mongolian night 12-years ago…and my gut feel is that if these guys from Inner Mongolia were in the ad they would have figured out by now how to eat pizza with there hands but since the majority of peasant farmers are not from Inner Mongolia…I wouldn’t be long IPSAT…

In fact, I bet IPSAT’s China business will experience the same fate as satellite phones and Global Crossing did 4-years ago…last guy out the door don’t forget to shut off the lights. Reality check: How are these guys going to figure out how to hook up the cable box when they are sill using chopsticks to eat pizza…hell, I’m still trying to figure out how to adjust the clock on my VCR…

October 1, 2005

China’s overpaid start-up CEOs…

Filed under: Salaries — Administrator @ 2:53 pm

According to a recent survey by VentureSource, CEOs heading up start-up companies in the US make about $10,000 more a year than they did in 2004, and about $35,000 more than in 2003. Overall, the CEOs are earning $260,000 in total salary, bonus and commission compensation, based on an annualized median. I wonder how much revenue these companies are making? Judging from the size of these pay cheques I hope we are talking in the millions.

Anyhow, I thought it would be nice to have our own salary survey, and thus I called over a dozen vc’s in Shanghai/Beijing with China operations and asked them what their start-up’s were paying their top brass. It turned out the median pay cheque (ex-options) rang in at US$60,000 per year.

I’m not sure how to react to this?! Let’s assume only 40 million Chinese households (these guys are considered upper to upper-middle class) earn about US$12,000 per year, that means venture funded start-up CEOs are making 5x the top 3-5% of China’s urban population…that not a bad deal…so what if these China-based CEOs are only making 23% of what their US counterparts…

…but, the question is relative to their US counterparts…are China’s CEO getting under or over paid? Lets put their (China CEOs) salaries in US dollar terms equivalent to US$ using the “Big Mac Rule of Thumb”. In Shanghai, you can purchase a Big Mac for RMB10.41; if the U.S. price is US$2.90, then according to PPP, the exchange rate should be RMB3.59 per US$1 (woops, don’t tell US Trsy Sec Snow!)…but what it really means is we can slap on about 2.2x on the China based CEO…giving him a US$ equivalent (assuming he only buys Big Macs) of about US$130,000…

Takeaway: I think China’s CEOs are getting paid a bit too much…especially if you include options/equity/perks/etc…

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