5 Digital Priorities

for China Brand Managers in 2012

February 2012

1 Online Video

2 Mobile

3 E-Commerce

4 Social

5 Big Data

Extend TV ad campaigns into video

Time to make a commitment

An investment that will pay off

Closing the gap with consumers

Data-first marketing

325m online video users = critical mass

Nearly two-thirds of China netizens watch online video, and penetration rates among younger audiences (15-40) in tier 1 cities now equal TV (CNNIC, Nielsen)

Online video time surges, displacing TV

Time spent watching online video in China has nearly doubled in each of the past 2 years. Post-80s online video users decreased their TV viewing time by 63% after starting to watch video online (GroupM)

Online Video: Key Facts 1

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2

3 Online video ad spend nearly doubled

In 2011, China online video ad spend reached RMB 4.25b, nearly double the 2010 figure of RMB 2.15b (iResearch)

Time spent watching video is growing 4x faster than time spent online

Multi-screen viewership

Multi-screen viewership (TV + phone/tablet/PC) is becoming mainstream with 34% of Chinese consumers exposed to multiple media simultaneously (Ipsos)

Advertisers extending TVC reach with Video

Advertisers are rapidly increasing online video spending to extend TVC reach as studies show that those exposed to 15’ ads on both TV and video had 2x better recall than TV alone (Ipsos)

Online video ad costs in China can be up to 80% lower than TV per view (Miaozhen)

TV restrictions benefit video

New SARFT TV regulations on entertainment will likely push users, talent, and content from TV to video

Online Video: Key Trends 1

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Video + Social

Shared videos on Weibo and SNS account for over 20% of video traffic, and 70% of users recommend interesting video online (Sina, GroupM)

Online Video: Advice to marketers

Opportunities .Extending TV ad campaigns to video is the most cost

effective way to increase reach and improve ROI

.Mixed reach planning tools enable TV-video cross-platform optimization

.Leverage competition among video sites to push for deeper demographic info and audience-based ad buying

Challenges .Price inflation of 40% and limited inventory in tier-1 cities

.Demographic/location targeting and cross-site frequency capping are difficult to achieve

1 Extend TV ad campaigns into video

In 2012 smartphones will hit tipping point

By year-end 2012, expect the forecast 250m smartphones in China to drive the shift from WAP protocol to HTML5, and unleash a wave of innovation similar to the PC revolution (GroupM)

Mobile: Key Facts

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2 Mobile internet users hit 356m

China has nearly 1 billion mobile users, 1/3 of whom already use their phones to go online, and over 120m 3G users (MIIT, CNNIC)

iPad and tablets replacing PCs

Apple shipped 55m iPads globally in 2011, and PC shipments suffered a record decline in Q4 2011 (IDC, Gartner)

4 Users grow accustomed to mobile apps

90%of China mobile users use apps, 66% use search, 72% use video sharing, and 59% use maps and directions (Ipsos)

5 High ROI on mobile media buys in China

ROI on China mobile media buys is still much higher than PC Internet and the phone’s small screen = more attention to brands

Mobile search

Consumers use mobile search to find local information. 1 in 3 mobile searches is for local information, and 61% called and 59% visited (Google)

HTML5

The mobile web is rapidly shifting from WAP to HTML5, the new protocol for smartphones that brings functionality approaching that of the PC internet

LBS = Location, location, location

Mobile devices provide location information, a key advantage that will come to the fore in 2012. 42% of China mobile netizens already make use of LBS for convenience in their lives (Analysys)

Mobile: Key Trends

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Mobile as a cross-media bridge

Mobile is becoming an extension and bridge: 39% of mobile internet users access Weibo via mobile (CNNIC); QR codes connect print and outdoor to the mobille web; TV + mobile multi-screen viewership going mainstream

5

Mobile commerce

Consumers are making purchases while on the move. China m-commerce grew at over 400% in 2011, and T-Mall averaged 500,000 mobile transactions daily, with a daily peak of 1.7m (iResearch, Taobao)

E-publishing and tablets

The iTunes store features nearly 900 Chinese language magazines for download (iTunes) 6

Mobile: Advice to marketers 2

Opportunities .Rather than one-off mobile campaigns, brand managers should

consider a mobile element in every campaign

.Continue to create and promote apps to deliver in-depth product info and functional apps that bring convenience to users’ lives

.Develop and launch your HTML5 website to keep pace with the migration from WAP to smartphones

.QR codes form a great “scan-and-visit” bridge from the real world to mobile websites and coupons

Challenges .Mobile sector still lacks mature models in app development, scaled campaign execution, third-party tracking, as well as data and analysis

Time to make a commitment

B2C in China enters golden era

China’s B2C market is rapidly taking share from C2C stores as B2C players make huge investments, including T-mall, 360buy, Group Buy sites, traditional retailers, and manufacturers

Fast growing product categories

Fastest growing products sectors include travel, electronics, casual wear, and skin care (BCG)

E-Commerce in China on track to pass US by 2015

China’s e-commerce market will grow exponentially to RMB 2 trillion by 2015, possibly surpassing the US market. In 2011 Taobao daily transactions peaked at RMB 3.3b with peak sales of RMB100m in just 8 minutes (BCG, Taobao)

E-Commerce: Key Facts

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190m online shoppers

The number of online shoppers grew 21% in 2011 and represents 38% of internet users (CNNIC)

Online Payment

Consumers have opened 650m accounts on Taobao’s leading online payment service Alipay and in 2011 completed daily transactions worth RMB 4b, a 60% increase over 2010 and nearly double Paypal

5

Chinese are highly social buyers

Chinese consumers are highly social in the buying process, reading and writing reviews prolifically (BCG)

82% of buyers consider other buyers’ opinions and 90% of Sina Weibo users also visit e-commerce sites (Performics, comScore)

Taobao search second only to Baidu

Taobao now ranks second behind Baidu in ad revenue with 80% coming from SEM on its vertical search engine that covers 370m registered shoppers. Brand advertising is also rapidly increasing (Taobao, iResearch)

E-Commerce: Key Trends

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Growth in lower tiers

44% of women in tier 1 and 2 cities shop online versus 23% in tiers 3 and 4, but the number of female shoppers in tiers 3 and 4 is growing faster and on average they spend nearly as much (MEC)

E-commerce search

Comparison shopping via sites such as Taobao’s eTao will grow in importance if these vertical search engines are able to successfully integrate results across the various B2C sites

E-Commerce: Advice to marketers

Opportunities .Now is the time to establish an online store(s), if not already up and running

.New entrants should leverage Taobao expertise and traffic to gain experience

before launching independently

.Develop an e-commerce SEM strategy using vertical search sites like eTao

Challenges .Set and maintain a differentiation strategy for your online products and online pricing to minimize conflict with traditional channels

.E-commerce requires deep corporate-level commitment, and entails a long learning curve

3 An investment that will pay off

The tectonic transformation to Social

Social media, word-of-mouth, and “the feed” represent a fundamental shift in how content is curated and consumed and create a gold mine of consumer data for marketers to leverage

250m highly active Weibo users

China has 250m Weibo users, up from 63m in 2010; user numbers and activity rates are still increasing with 66% of Weibo users posting more than once per day (CNNIC, Nielsen)

Sina Weibo activity rates beat Twitter

Social: Key Facts

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SNS plateaus but new forms emerging

Non-Weibo SNS penetration rates showed a slight drop in 2011 with major SNS players like Renren moving into video and e-commerce. Social sites based on interest graphs and user ratings like Douban, Diandian, and Dianping are gaining traction, especially in tier-1 cities

Twitter

Sina

Registered users (Q4)

Users issue over 1 message per day

share information on daily lives

250m 300m 66% 41% 86% 64%

(Nielsen)

iWOM monitoring going mainstream

Brands are using tools to regularly monitor iWOM (brand buzz volume, competitive analysis, consumer sentiment) to better hear consumer voices and preempt PR crises

Weibo as China’s new portal

Traffic to traditional portal channels such as news, blogs/BBS, and email/IM is dropping as users access information and communicate through Weibo (CNNIC)

Display ad market shifts to social

Facebook, with its high growth and engagement rates, grabbed the top spot in the 2011 global display market and nearly 20% of the US display market as advertisers shift budget to social media

Social: Key Trends

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4 Government regulation of Weibo

Government may gradually exert increased control over Weibo in the form of real-name registration if the platform gets out of hand

Social: Advice to marketers 4

Opportunities .Leverage Weibo and SNS to listen to consumers, to

create “buzz marketing”, and to mitigate PR crises

.Sina Weibo will start selling ads in 2012, creating opportunities for brands to build a presence and

experiment with audience-based buying

.Other social platforms such as Tencent, Renren, Douban, and Dianping can complement a Weibo-

centric approach to social

Challenges .China social media sites have lagged behind Facebook in creating branding opportunities and behavioral targeting

.Social media marketing is labor intensive and requires a paradigm shift for brands to act as “friends”

.Scalable media buys and performance KPIs are still in early stages

Closing the gap with consumers

Data-first digital marketing

As all media (and retail) becomes digitized & connected, we will be able to connect the dots between channels/devices to deliver & measure a coherent brand story

Data-first media buys

Data management and analytics now drives how online media is bought, sold and strategized; comprehensive data analytics provides personalized dynamic targeting opportunities

Search leads the way

In the era of big data, search, an industry born on the internet, is the most data-centric and analytic digital marketing category. Data strategies inherent in search are increasingly informing all types of digital marketing

Big Data: Key Facts & Trends

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Big Data: Advice to marketers 5

Opportunities .China is becoming a more performance-based market

with advertisers insisting on the transparency, tracking, and analysis that underpins data-first marketing

.The shift to social media potentially opens up to marketers a vast trove of personal information

.Agencies are developing more sophisticated tools, demand-side platforms, and consumer databases to

improve targeting and ROI

Challenges .Comprehensive data capability requires skilled analysts and a new set of analytical and tactical tools

Data-first marketing

2011

China Digital Milestones at a Glance

Internet: China reached 513m internet users (CNNIC)

Netizens in first-tier cities spent more time online than watching TV in 2011 (CNRS)

Online Advertising:

China’s online ad market grew at 57% to reach RMB 51 billion in 2011 and online ad spending surpassed print advertising (iResearch, GroupM)

Social + Commerce:

90% of Sina Weibo users also visit e-commerce sites (comScore)

E-Commerce:

China had 38% growth in e-commerce traffic in 2011 vs 4% in the US (comScore)

E-Commerce transaction volume topped $100 billion as B2C comes to the fore (iResearch)

Weibo:

Weibo users jumped from 63m to 250m in 2011 with Sina Weibo momentum still rising (CNNIC)

Mobile:

China has 356m mobile internet users, over 120 million 3G users, and nearly 80 million smartphones (CNNIC, GroupM)

Online Video:

Hours spent watching online video nearly doubled; online video site revenue more than doubled in 2011 (comScore, iResearch)

Thank you For more information on this report: craig.watts@groupm.com