A PwC report commissioned by Hong Kong Digital Marketing Association (HKDMA) explored the current state of play of the local marketing ecosystem, and confirmed what the players already knew but still couldn't change.
PwC conducted 20 qualitative interviews with digital publishers, platform owners, agencies and marketers, as well as measurement organisations. However the study included multiple interviewees from the same companies, and only two brand-side advertisers (see full list below).
Hong Kong is one of the most digitally enabled cities in the world with over 230 percent mobile penetration and 92 percent broadband penetration, with an average peak connection speed of 129.5 Mbps.
Despite these facts, digital advertising in Hong Kong is lagging behind both the global average and especiallybehind neighbouring China in terms of adoption rate, share of adspend and the sophistication of offerings.
"It is not necessarily the fault of the Hong Kong people for the market lagging behind in digital marketing, as they are smart and quick learners," said Elaine Lui, principal of strategy consulting at PwC. Hong Kong is in a similar situation as Singapore, where one ad on traditional media can already reach a large proportion of the target audience, Lui said.
It's important to note that in PwC's definition of digital advertising it allocates influencer and KOL marketing under social media spending instead of digital, so that excludes what may be the most expensive part of the marketing budget for some brands.
Among the problems the report highlighted:
1. The geographically concentrated market has limited the need for digital advertising in Hong Kong.
With a population of just over 7.3 million and an area of 2,754 square kilometres, it is relatively easy to reach consumers in Hong Kong and as such, traditional marketing has always been regarded as effective for brand messaging. In contrast, for geographically dispersed markets such as China, digital has an advantage in terms of its effectiveness and scale.
As such, Hong Kong’s marketers "have not felt so compelled" to try digital advertising and regard it as "more of a novel and gimmicky tool rather than a necessity", according to PwC.
Only small to medium companies (SMEs) in Hong Kong prefer digital marketing channels, due to their relative affordability when compared to TV and print.
2. A culture of ‘being obedient to your boss’, the fear of trying something new, and a mindset of complacency are fundamental barriers.
Reluctance to try something new, especially when the existing way of doing things has been working fine, has been a barrier in pushing digital marketing forward in Hong Kong, PwC observed. Traditionally in corporate Hong Kong, being obedient to the boss is often valued more than being creative and innovative.
These barriers have particularly significance in Hong Kong where local advertising spend is dominated by real estate and financial conglomerates (who may also have presence in many different sectors), whose top management and key decision-makers are still dominated by first generation (older) founders or executives, who are typically more sceptical about digital advertising.
Given that the Hong Kong advertising market performed well prior to 2014 (YoY growth of over 8 percent in both 2013 and 2014), and that advertising budgets rose in line with the booming retail market, existing marketing behaviours were not challenged. Indeed, this may have inadvertently led to a mindset of complacency.
Thus the market nature of Hong Kong means that digital may not be so suitable even for the big spenders, in particular the local conglomerates that "do not really have to work hard in thinking about innovation", Lui said.
Going forward, the second or third generation (younger) of management at such family-controlled conglomerates, or brands with a conglomerate mindset, may be more open to investing in digital marketing, she said.
3. Marketers are still confused with terminology and technology
Given the speed of development in digital marketing tools, coupled with the limited exposure and knowledge of Hong Kong’s marketing community to such tools, marketers often find it difficult to understand them. This limits their willingness to explore and adopt digital marketing initiatives.
PwC recommends that jargon be kept simple. For example, instead of saying “cost per footfall per impression”, simply say “cost per customer store visit”. Tech providers should focus on using easier-to-understand terminology and relating more to direct business impact to help advertisers see the value of digital marketing.
4. Lack of standardised measurement is a globally recognised challenge
Another complication, apart from the above, is the sheer number of media outlets in the digital world. They are not geographically bound. Many advertisers buy overseas internet inventory to target Hong Kong consumers. This means that there needs to be greater consistency as to how digital is measured across these many properties.
In Hong Kong, while traditional measurement metrics (e.g. GRP for TV viewership) are widely understood by all marketers, there has not been an agreed-upon common standard on measuring ad performance, despite the formation of the digital marketing association one year ago.
Because of some marketers' "deep-seated backgrounds" in traditional measurement, they sometimes use them to measure digital, which causes confusion and misalignment in communication. This has created an ongoing conundrum about the true value of digital marketing, said Lui.
5. Digital is still considered by many as separate and distinct
For both marketers and agencies in Hong Kong, the perception that digital is distinct from other forms of marketing is still common. Organisations still have separate ‘digital marketing departments’ even though these have been proven ineffective over the years, pointed out PwC.
The siloing of ‘digital’ as an isolated role or skill set within the organisation (both marketers and agencies) has led to a lack of alignment between overall marketing and sales goals, and a general lack of sophistication on planning and executing integrated marketing campaigns.
6. Remuneration schemes for agencies go against the grain of digital
Traditionally, agency remuneration is commission-based, where agencies get a percentage of the advertisers’ overall media spend. The rates for digital media are typically higher than for traditional campaigns given the level of complexity and effort required to deliver a digital marketing campaign.
One pertinent issue in Hong Kong is that the spending on traditional versus digital can be starkly different (termed the 'dollar versus cent economy' by some industry participants), and hence the commission model has an inherent risk of agencies leaning towards recommending traditional media, which is typically more expensive, and thus generating a higher amount of remuneration. Plainly put, the commission model is encouraging agencies to behave as service providers rather than business partners with aligned interests and priorities, according to PwC.
Reforming remuneration models based on time and overhead costs spent on projects, as well as on performance that links rewards to effectiveness of campaigns would motivate agencies to propose more optimal media solutions to clients, instead of maximising their own profit, according to PwC.
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PwC's interviewees:
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