Marketers in China have stepped down from using 14 agencies in 2012 to eight on average in 2013 to execute marketing work. Related to this, the length of time marketers engage agencies has increased 15 per cent over the past two years, reaching 3.2 years.
While still the world’s shortest agency-relationship terms on average—trailing behind 6.1 years in the UK and 6.6 years in Brazil—the reduction in partners does indicate a move towards a more stable and mature marketplace. The number of marketers who pay agencies on a project fee or commission has dropped 28 per cent, observed Sabrina Lee, GM of R3 China. Nevertheless, marketers are still under tremendous pressure, she added, “So changing agencies is sometimes to be expected”.
Titled The China Agency Scope, R3’s study is in its fifth wave. Conducted every two years since 2006, the 2014 study interviewed 425 senior marketers face-to-face on 944 agency relationships with more than 250 multinational and local agencies in China.
Longer-term relationships provide a marked advantage to agencies, which are better able to allocate resources behind brand-building and strategy, Lee said.
Longer tenures also give agencies more confidence to invest in China, which in turn, gives marketers confidence to build strategic partnerships, said Greg Paull, principal at R3. "Agencies should get the message that they need to think about the next three years and not the next three months when pitching for new business," he said. Marketers are now looking for long-term relationships and want agencies who can provide more than just the next campaign.
Marketers have also become more established in their agency recruitment methods. The role of procurement has become more ingrained, with 64 per cent of companies getting the department involved—an increase over 2012 and 2010, reported R3. But more importantly, marketers have accepted the need to work collaboratively with procurement teams to resolve agency compensation, with 46 per cent claiming to do so today, a massive increase from the past.
“Procurement now has a strong seat at the table in China, and the best agencies are helping educate and work with them for mutual benefit,” said Lee.
Agency payment terms are evolving in tandem. “More relationships are becoming fee-based and annual, and more are being linked to performance incentives,” said Lee.
Media and financial audits, once new to China, have become more commonplace. In a separate part of the study talking to 30 of China’s procurement leaders, 93 per cent mentioned the need for ongoing media audits of agencies and 63 per cent mentioned they would be conducting financial audits.
“The government’s drive for transparency and austerity is also being felt by the marketing sector, with more and more companies adopting the best practice of having independent specialists help validate their performance,” Lee added.
In another sign of market maturity, digital is taking a growing share of the marketing budget, at 18 per cent, up 35 per cent from two years ago. “With the explosion in social and mobile over recent years, there’s been a major investment in bought, owned and earned online,” said Lee. “Many marketers have also taken the last two years to review and appoint specialist agencies to help them in the process.”
The industry in general and by MNC marketers in particular drive this evolution, observed Paull. When asked to vote on the best campaigns and most respected marketing companies in China, marketers chose Coca-Cola and JiaDuoBao, followed by Nike, BMW and Wrigley.
“Coke has pushed hard to be a leader in digital and integration, and it's clear other marketers are noticing,” said Lee. “And what JiaDuoBao did in rebranding and with Voice of China is one for the marketing textbooks."