Global Economics

Blogging Down in China


What marketing executives would ignore a market with a customer base the size of Britain and Canada combined? Not many, if they wanted to keep their jobs. But that is exactly what many executives in China are doing when they ignore the power the mainland's 80 million active bloggers and online bulletin boards, or BBS, users can exert on their companies' bottom lines.

Even marketing heavyweights like Volkswagen and Häagen-Dazs and politically connected private-equity firms like the Carlyle Group have been no match for Chinese bloggers. These three outfits have all stumbled when faced with the fast-paced, unfettered growth of China's blogosphere, where discussion of product launches and marketing campaigns runs rampant. The popularity of really simple syndication or rich site summary feeds, known as RSS, which pushes content automatically to users, means good or bad news about your brand can expand exponentially in a matter of days.

Most bloggers in China fall within the coveted 18-to-25 age group. Although many economists argue that China overall has a high savings rate, it is China's 120 million-plus youth cohorts who are spending the bulk of their disposable incomes on leisure items like Estee Lauder cosmetics and Zara clothes as their parents, grandparents, and employers cover basic necessities like housing and food.

Even waitresses and construction workers who earn $100 a month are buying $300 Nokia (NOK) phones and $120 Nike (NKE) shoes. While many economists point to the rise of China's middle class, it is actually Chinese youths—who fall just outside the middle-class category—who are driving China's shift from investment-led to consumer-led growth.

YOUTH MARKET. Marketing executives for multinational firms in China need to get a better understanding of what motivates this segment of Chinese society and how it communicates. This age group likes to spend not only money but also time online and express itself more forcefully than its Mao-era-raised parents ever did.

They spend nearly 17.9 hours a week online playing computer games like Blizzard's World of Warcraft and exchanging their opinions on the nearly 120 million blogs. In comparison, Americans spend only 11.4 hours a week online. Chinese youth like to read blogs, because blogging seems somewhat counterculture and different from mainstream China. Jaded by traditional advertisers and media, more and more Chinese youth are using blogs as a key source of information.

The China Market Research Group (CMR) recently conducted interviews and found that bloggers feel empowered when they post. They like to read blogs and BBS to get unfettered and less-biased information on current events and on products. After celebrity blogs, which make up 44% of the total blog hits in China, news makes up 22% of all blog traffic.

The major portals in China recognize user demand for blogs and have heavily invested in the development of their blog capabilities, especially as their revenue from wireless services looks to be crimped by new regulations promulgated by China Mobile (CHL). (Disclosure: I own shares of China Mobile.) Sina (SINA) and Sohu (SOHU) just made major pushes in the blog space at the end of 2005 to catch up with early movers like Blogcn. MSN Spaces (MSFT) and QQ are the two stalwarts, too. They have converted their instant-messaging communities over to their blog services, capturing 21% and 15% of the market, respectively.

BLOGOSPHERE BACKLASH. Companies can no longer overlook blogs and the BBS as relevant forms of media. The Chinese government certainly does not. It employs 30,000 people—more than the total number of workers at the CIA—to ensure harmful content such as pornography is not spread to the Chinese population (see BusinessWeek.com, 1/23/06, "The Great Firewall of China").

Companies need to examine content and the way these opinions can affect their operations, harnessing them to gather and respond to consumer feedback with a speed that was impossible only one year ago. Businesses now are presented with a unique method to be proactive and cater to their target market's exact needs through creating user-created content (UCC) marketing campaigns.

Unfortunately, not all companies have realized the power of the blogosphere and learned to deal with the backlash that can erupt. Volkswagen and Häagen-Dazs stumbled with marketing campaigns and consequently dealt with bad publicity. The Carlyle Group has run into political hot water with a planned investment into China's largest producer of construction equipment.

People taking the subways in Shanghai this past June found themselves looking at a new ad campaign for Volkswagen's redesigned Polo compact. Roughly translated, the ad copy included such gibes as: "Get crushed in the subway or leave in your Polo and be the envy of others" and "While some people are stuck in a stuffy station waiting for the subway, others are pursuing their own desires by driving a new Polo."

HÄAGEN-DAZS IMAGE STAINED? The response to Volkswagen's campaign was fast and furious on BBS and blogs. One blogger posted: "Does riding a subway mean I have to face discrimination? Even New Yorkers ride the subway to work. Not having a car does not mean I can't have a life?"

Luckily, Volkswagen was closely watching the reactions of the online community and pulled the ad campaign within days of its start. Although it was costly to launch a new campaign in such a short period of time, it was an imperative measure as Volkswagen was offending the very people it is attempting to target.

Unfortunately, Häagen-Dazs probably tarnished its brand image some in China due to a lack of understanding of the blogosphere and how to manage bad press emanating from it.

Police raided what they suspected was an illicit factory producing fake Häagen-Dazs products in June, 2005. In fact, the factory was the real distributor of ice-cream cakes to all five Häagen-Dazs outlets in Shenzhen.

It was not licensed for food production and lacked credible sanitation standards. A toilet was located next to a food preparation area. Rumors went out immediately on blog forums that Häagen-Dazs ice cream was being made in the bathroom of a run-down apartment. Rumor became accepted fact, and the outcry on online forums caused considerable and longstanding damage to the Häagen-Dazs brand in China.

CARLYLE'S CONTROVERSY. Online users made comments such as: "This is so wrong of them, cheating their customers like this. I think people will be afraid to eat it now, which is good for my wallet" and "If a company has one branch that is corrupted, the other branches must have problems, as well. It's all an issue with the central management."

Häagen-Dazs issued an official apology well after consumers believed the rumors, but reacted too slowly and thus was unable to quell the online storm in the same way Volkswagen was able to. The online storm that hit Häagen-Dazs still affects its operations in China today as many people question the cleanliness of its restaurants.

The Carlyle Group has run into problems with protests (galvanized by blog postings in China) to a planned $375 million purchase of an 85% stake in Xugong Machinery, one of China's largest makers of cranes. The deal has been stuck in approval purgatory for a while as it would be one of the first times a foreign firm would gain a controlling stake in a state-owned company. Moreover, the Chinese government is wary of giving control of such a strategic asset to a firm so well-connected in Washington.

Recently, Xiang Wenbo, the head of one of Xugong's major competitors, Sany Corp., has been utilizing blogs to turn public opinion against Carlyle's planned purchase by playing on nationalist sentiment, blogging, "The deal is illegal" for selling the asset to foreigners.

ONLINE RALLY CRY. The story here is not that someone is opposed to the deal, but that Xiang has been able to create a backlash throughout China through the use of blogs. Prominent people have joined the debate, pressuring China's government not to allow the sale to take place. Most bloggers have agreed with Xiang, saying they think it is against the best interests of China for the sale to take place.

The controversy has moved from the blogosphere to traditional media with BusinessWeek and The Wall Street Journal picking up the story and getting a larger audience for Xiang's protests (see BusinessWeek.com, 6/29/06, "China: A Revolt Against Foreign Takeovers").

On the plus side, blogs can be used to benefit companies if proactive methods are implemented. The large number of consumers that use blogs can allow companies to get real-time information on what their consumers want throughout an entire country. Not only can analysis be done quickly, but also online focus groups, surveys, and blog analysis are more cost-effective than traditional focus groups, surveys, and one-on-one interviews where market-research firms need to travel to 10 cities.

Although blogs have a culture of being nontraditional and hip, they have become mainstream enough that companies need to realize and harness the power they have on the bottom line.


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