Jenny Chan 陳詠欣
Nov 30, 2016

Volkswagen China's Paul Hu: Rethinking the meaning of media efficiency

As PHD takes over from MediaCom following a procurement-led pitch, Volkswagen China, like many brands, is grappling with how to make sure it gets the most out of its media spend.

Paul Hu
Paul Hu

The matter of media efficiency usually means defining the relative value of different media vehicles by their cost. Paul Hu (胡波), CMO and head of group sales and marketing at Volkswagen Group China, is one marketer who is taking a hard look at what media efficiency really means.

After Mediacom lost the vast bulk of Volkswagen’s global media account to PHD this June, after 18 years (a decision in which the China team had little say), MediaCom Worldwide chairman and CEO Stephen Allan complained publicly in a July interview with Campaign UK about the agency being treated like a "vendor" in the global pitch. 

The year-long pitch reportedly included a "blind" e-auction based on agencies offering estimated discounts against Volkswagen’s current media spend—a purely mathematical play that provoked Allan's sentiment.

Observers said the final decision was procurement-led, not marketing-led.

"Even by bidding practices, it was quite weird," one source close to the client told Campaign China. "It’s not about 'tell me how much your agency is going to cost, but how much you are going to save VW? It is impossible to be bidding blind on savings." 

However, it would be a mistake to assume Hu sees media in such simplistic, cost-based terms. "It was a very rigid pitching process, yes," Hu admitted. "But it’s not just a client-vendor relationship for us. We’re talking about a lot of money here for the agency to be just a vendor".
Media billings can be substantial. Almost all of the sub-brands of the Volkswagen Group (cars under the Audi, Bentley, Bugatti, Lamborghini, Porsche, Škoda and Volkswagen marques; motorcycles under the Ducati and Bugatti wheels; commercial vehicles under Scania and Man) are active in China, except Spanish manufacturer Seat that pulled out of the market two years ago due to import tariffs hurting the business.
"I totally understand that the pitch process makes it not too easy to compare the soft KPIs of media efficiency, maybe just the hard KPIs," Hu clarified. "We need to be KPI-driven, yes, but also need to understand that real efficiency is not just about giving them a simple target like 20 percent media cost savings." 
There are different hacks for efficiency, Hu said, not just in terms of dollar amounts, but in terms of precision. At the end of the day, the German car group relies on the media buying and planning expertise of the media agency. "So, our agency is closer to this," he said. "We have to push them to do the best customer profiling as we are talking about how to be more precise with such hyper-fragmentation in China. The number one priority for us is not only to be demographically precise but also geographically precise." 
Hu regards the incoming relationship with PHD as a process of learning from each other. "Everybody needs education," he said. "In my view as an advertiser, we need to provide more opportunities for the agency to learn about our business so they can feel equipped. If I put myself in the shoes of the media agency, I would want to gear up and understand the key drivers of the car business and what is changing among Chinese consumers." 
For example, five years ago, Volkswagen paid a lot of attention to driving foot traffic to its dealerships, as the belief was that such traffic translated to more cars being sold.
But foot traffic is not the most important indicator of sales, Hu has found. "People are now coming to the dealerships already informed of what car they want to buy," he said. "They have done their homework digitally and collected enough information to cut the deal immediately in person."
The task for PHD China is to understand these sales processes and buying motivations "a lot more", by investing "a lot more" in big data and programmatic technology, Hu said. 

Programmatic buying in China has bitten many an advertiser due to its black-box operational model, and indeed programmatic for Volkswagen in the past was "not as successful" as the brand would like it to be. "The media agency would have to teach us more and we need time to learn about the nitty gritty, like the accuracy of the data and compliance issues."

Volkswagen has done a lot of testing and learning from its past programmatic media campaigns, according to other industry sources. One key learning: It’s worth paying a bit more for the right inventory. For Volkswagen, the auto verticals like Autohome and Bitauto tend to be the better, less dubious ones.

Almost half of VW's budget is spent on digital media in China, so data is "everything", Hu pointed out. Data-driven technology capacity was one of the biggest criteria when Volkswagen selected PHD over Mediacom. PHD's emphasis on artificial intelligence aided the perception of it being a data-driven agency.

By 2018, according to Mark Bowling, head of strategy and communications planning at PHD China, marketing segmentation will be based on real-time knowledge instead of just intent. And by 2021, bidding for media will be about speed, not volume.

Hu himself is keen to see AI in action in media planning. The role of a media planner is now diminished with the advent of big data. "The planner is no longer regarded as the 'brains' of an agency, as he or she cannot extrapolate consumer insight based on instinct or limited research anymore," Hu reflected.

Earlier this month, this reporter attended VW's internal MarCom awards held in Guangzhou, meant to promote media efficiencies and a better return on investment among the 12 sub-brands of the Volkswagen Group throughout China. The awards started in late 2015, at the time the global media review was underway.

Contacted last week, Rupert McPetrie, CEO of Mediacom China, declined to comment on any aspect of the pitch, but praised Hu for setting up the internal MarCom awards. "It's a forward-looking inititiave for true media efficiency and less about cost efficiency. So it's pretty nice."

At this year's awards, the gold award for efficiency, out of 23 case submissions, went to SAIC Volkswagen's campaign for the Touran L, a model unveiled at the 2015 Guangzhou Auto Show. This brand chose a spokesperson, Deng Chao (邓超), who is very well known in the mainland, but didn't use him in a clichéd way, summarised Hu. Chao's portrayal as a cool ‘super daddy’ instead of the obvious 'father of a happy family' combined the perceived strengths of the car with the motivational aspirations of the Chinese male target group. 

Baidu searches for the Touran L was reportedly 62 percent higher than the industry average; WeChat views amounted to 457,921 on the car's launch day), social topics around the 'super daddy' theme gained 210 million impressions on Weibo.

According to the company, media cost per NPC (new potential customer) improved by 39 percent compared to the Gran Santana, another family sedan under SAIC-VW.

Hu joked at the awards presentation that the Touran L team, led by head of marketing communications Frank Tiemann and agency Toption, is so efficient that the group needs to cut its budget "again", presumably to provoke more creative ways of being efficient.


One may realise the winning campaign is still very much about saving money on media outlay.

During a chat at the awards, PHD's regional head of global clients and integrated growth, Kel Hook, suggested offering higher value-added services in data and analytics—beyond paid-for media.

"I'm trying to propose that the agency use, say, 15 percent of their retainer fees to buy data from the verticals or relevant sites, so that we can throw in optimisation via more insight from analytics," Hook said. "This gives the client higher value than just negotiations based on the cost of media spaces."

Hook hasn't pitched this to Hu yet, but eluded to getting "a lot of pushback from other clients, saying 'oh we haven't done that before'", and only one or two clients out of 10 being willing to experiment with these new allocations of budget. "But if we can deliver more than 100 percent of media impressions with 75 percent spent on media and 15 percent spent on data, why not?" he asked.

To that, Hu said he is open to the proposal as long as it makes business sense.

Currently, PHD is working on assembling a big-enough team in Beijing to service VW officially from the beginning of next year, in the midst of transition meetings with Mediacom.

Apart from figuring out the science of media efficiency, another obstacle that any large corporation like VW faces is how to "harmonise" the interests of various subsidiary brands under the group, or above the group [globally] for that matter.
"When it comes to media, there is a lot of art involved too," acknowledged Hu.
Campaign China

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