Marketers pay attention! Luxury brands pay attention! Tencent and Alibaba, two Chinese high-tech powerhouses, are moving into the digital marketing business. The entering of these to giants is giving a lot of opportunities and challenges for both industries and many sectors.
Tencent is owning Wechat, one of the most powerful social media and marketing platforms, and QQ. Last May 29th, the company, which has its headquarters in Shenzhen, launched a new digital marketing strategy. The purpose of this new system is to bring innovation and disruption directly to the digital marketing industry in China. According to a report by Chinese outlet Tencent Tech on June 1st, it means assisting brands to create better engagement with consumers and gain more growth. This new marketing system launched by Tencent marks another tech player in the country. The company expects to enter the space, even if it is already crowded with all types of players from top-ranked firms like Ogilvy & Mather and Burson-Marsteller to small and niche ones.
Alibaba Group is the Tencent’s major competitor and, last year, released a “uni marketing” system. In mid-2017, the group also released JingZhunong (京准通) which is a similar arm from digital sales platform JD.com.
Luxury is an important market in China. Consequently, luxury brand operating in China have to pay attention to this development of tech giants’ digital marketing arms. For a long while, in order to localize their marketing and branding efforts, luxury brand have worked with third-party digital agencies.
On May 15th, 2018, Bloomberg BusinessWeek published an article about this problematic. A Chinese advertising veteran said: “Attention marketers! Attention luxury brands! China’s high-tech powerhouses Tencent and Alibaba are moving into the digital marketing business. And that has huge implications, opportunities and challenges for both industries.” Another advantage is that they are also insiders.
Do the luxury brands need to re-evaluate their relationship with third-party digital marketing agencies?
The two biggest players, Tencent and Alibaba, say that they can offer:
The “WE+” marketing services of Tencent
On May 29th, Luan Na, the Vice President of Tencent’s Online Media Group said: “As a complete marketing ecosystem, WE+ will open Tencent’s data, content, technology, and marketing context to users.” According to the company, the WE+ marketing services can improve the precision of company’s marketing campaigns and influences consumers’ buying decisions. It is also expected to boost advertising revenue for Tencent. However, the general manager of strategic partnership and key account service at Tencent Online Media Group, Sophia Ong, told Campaign Asia on May 31st: “WE+ is not a threat to digital marketing agencies. Unlike us, agencies are in a client-facing role. We also believe that agencies are equipped with the intelligence, and most importantly the creativity, to help brands improve their business models”. According to the date intelligence firm eMarketer, in 2019 Tencent’s income from digital ads will climb to 16.6 percent of net mobile internet revenues, up from 12.4 percent in 2017.
The Uni marketing platform of Alibaba
Since at least mid-2017, Alibaba Group, which is the major competitor of Tencent, has been investing in and expanding its marketing service. It is called “uni marketing”. On online platforms, such as Taobao Marketplace and Tmall, in every step brands can keep track of users’ browsing, buying and paying behaviors and, then, customize storefront based on the data. According to Alibaba Group, it is a way for brand to improve customer loyalty and engagement. Uni marketing system is not only a plus for brands, it is also a plus for digital agencies in China. An Alibaba spokesperson said: “Uni marketing is a powerful tool for brands and agencies alike and we take a collaborative approach to enable these partners in our ecosystem. In fact, with the insights uni marketing provides about consumer living their lives with Alibaba, it gives agencies the opportunity to deliver more value to their clients than ever before.”
Alibaba created a public relations news sites called Alizila. According to this website, the uni marketing differentiates from existing marketing tools in the market. In July last year, during the Cannes Lions International Festival of Creativity in Cannes, France, Chris Tung, the Alibaba Chief Marketing Officer said: “By combining its massive data assets, businesses can identify, segment and build tailored content for the best results.” Alizila stated that Alibaba will open up to clients its “Brand Databank…an online dashboard that shows brands how many consumers are interested in their products and where they are in that product lifecycle.”
According to a report from eMarketer, in 2017 the company gained revenue of $16.36 million. Consequently, Alibaba is the dominant digital ad player with the biggest market revenue in China. Moreover, the e-commerce company is expected to reach $21.81 million of revenues in 2018 and reach $32.8 million in 2020.
Chinese digital agencies
Digital marketing agencies have faces may challenges in China, such as clients holding unrealistic expectations on ROI (Return on Investment), driving down agencies’ profit margins. Big consultancies and publishers are also creating agencies to compete for brands. Consequently, if a tech company starts to expand its marketing services and hopes to quickly monetize, Chinese digital agencies may have good reasons to worry about losing clients and profits. A marketing expert of a fashions business in China said: “Just speaking from the perspective of brands, we are users of marketing services, so when Alibaba and Tencent started to enter the industry, it is a good thing for brands. Now no matter digital agencies or tech companies, they have to work harder to compete for our attention.”
Even if some brands believed that the entrance of tech companies in the digital marketing arena could increase competition, many marketing plats are not too worried. “The fact that platforms are creating their own marketing teams could be a good thing. Agencies shouldn’t feel threatened. Their purpose won’t be to become advertising/marketing agencies, nor would they be able to without great expense.
The Shanghai-bas integrated marketing company, Activation Group, serving famous luxury brands, such as Louis Vuitton, Prade, Dior or Harry Winston, was similarly unconcerned. An Activation’s spokesperson said: “Currently, we have extensive cooperation with Tencent, Tmall, JD, etc.— and we are anticipating more good attempts in the future.”
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