Independent Ad Agencies' China Dilemma, Part 2: Attitude, but No Clients

These agencies often treat being picky about clients as part of the creative hot shop culture.

Without its founding figure on the ground, a creative hot shop's spirit is hard to reproduce in China, and that is one reason independent ad agencies struggle here. Another is that so many of them are choosy, even willful, about clients.

In mature overseas markets, brands and agencies tend to form stable relationships that last for years. In China, many advertisers are still growing up, and a fast-changing society keeps them constantly anxious. R3, a global consultancy whose core business is matching brands with the right agencies, found in its 2014 China Marketing Trends report that client-agency relationships in China are the shortest of any market it studied, shorter even than in emerging markets such as India and Brazil: 3.1 years on average, against 6.6 years in Brazil. The report covers 971 agency relationships.

"A client may do very good work in overseas markets, but does the person who comes to run marketing in China think in the same mature way? All I can say is, sometimes yes, sometimes not necessarily," Li Zhaoguang, partner at the China office of Leagas Delaney (LD), told QDaily. Li is Malaysian. He came to China in 1997 and once led the creative department at Ogilvy Shanghai as executive creative director.

His first client after joining LD Shanghai was Toblerone, and the project served mostly to show LD's commitment to this market. It did not go smoothly. Before Li arrived, the existing team had already produced three print ads for Toblerone. "Any agency could have made those," Li said. Unhappy with the work, which he bluntly called terrible, he went to the client, apologized, and asked for two more weeks, hoping the next proposal would feel completely fresh. Once the new proposal was done, LD reimbursed every cost the client had incurred.

The interactive, integrated campaign LD rebuilt for Toblerone: making "thank you" more heartfelt

Even in its hardest stretch, 2013 to 2014, LD walked away from two clients of its own accord. "One of them found its product extremely hard to sell in China, so it cut its global marketing budget. The other we simply could not work with. They thought everything was the agency's fault."

That pickiness comes straight from founder Tim Delaney. "Tim himself is very selective about clients. Our clients are our partners; they don't see us as just an ad agency or a vendor. In China, too, this is our culture, something we hold on to. If we enter a pitch, present to a client three times, and still don't feel that partnership, we walk away. That means our business won't grow wildly. What matters is picking, in each market, the clients who can grow with us," Li said. "We run an ad agency that genuinely insists on doing top-quality work, and in China that is really not easy. This road is four or five times harder than the others."

A former W+K employee said the agency disliked the yes-sir style of client service at the 4A agencies, and was blunt with clients in turn: it would, for example, tell a client on the phone to sort out its thinking before coming back to discuss the brief. To local companies, or to international firms working in China, that is not how a hired agency is supposed to behave.

"Honestly, I think W+K just had too much attitude. Clients felt that we, the supplier, had too much of a temper," the former employee said.

Even local independent creative agencies do this. Tianyukong, founded in November 2013 and marketed as an "upgraded 4A," says its clients are mostly big, brand-savvy accounts won from the 4As, including Siemens, Philips, Wyeth, Tencent and Baidu. "A lot of clients want to work with us, and we screen them. As a rule, a client first pays us a creative deposit, mainly as a sign that they recognize and trust our creative people. For some projects we charge as much as 200,000 yuan up front, and even then we give them at most two rounds of proposals. That is rare among Chinese agencies," founder Yang Yexin told QDaily. He claimed the company's revenue reached 20 million yuan last year.

"Overseas, we find a long-term strategy, a style, a concept and a creative form, and a brand keeps using it for years. That doesn't work in China, especially for brands riding the crest of a wave, because they don't know whether they'll still be alive tomorrow. They may be doing very well today and be replaced by another platform next year. Chinese consumers also like novelty, so many Chinese brands may do one campaign one way and the next one completely differently. That's perfectly normal in China," said Huang Feng, China creative director of Fred & Farid (FF). As a local creative, he understands Chinese conditions better: "China changes too fast. You have to keep pace and keep charging forward like a war chariot, whereas France moves relatively slowly."

International brands make up three-quarters of FF's 30-plus clients and local brands one-quarter. Long-standing clients include Avène, Diesel, Porsche, Champagne G.H. Mumm, Lily and Sennheiser; recent wins include CCTV, YSL, Lacoste, Jaeger-LeCoultre, Time Vallée, Bosideng, Enzo Jewellery, Bonpoint, Tencent and Metersbonwe.

In fact, these agencies may find international brands somewhat easier to serve, since those clients think about brands in a more mature way. Local clients, though, bring a different kind of challenge and value in the home market. Zheng Yiping, chairman and chief creative officer of Publicis China, also sees a clear difference between the two. "Global clients give a lot of room for creativity, because they believe in marketing, while Chinese clients tend to believe in sales," she told QDaily. "Simply put, sales means selling cheap, and marketing means adding value to the product so it sells for more. Chinese brands mostly work on distribution channels and drive purchases through sales. China does have some good brands, but they haven't reached the level of international ones." In her view, the key to succeeding in this market is "having more than 50% local clients and very good local talent."

There are some encouraging signs too. KBS+ (Kirshenbaum Bond Senecal + Partners), which set up in China in March this year, believes Chinese companies are growing more sophisticated about advertising and now choose agencies by their own needs rather than by an agency's reputation. That is one reason it chose this moment to enter China; the more immediate reason was to serve its largest global client, TE Connectivity. It plans to approach more local clients. "In our early days in the Chinese market, global clients are still our starting point here," Douglas Lin, CEO of KBS+ China, told QDaily. "Beyond them, we hope to build up local clients here and help them expand overseas."

KBS+ was founded in 1987 and is headquartered in New York, and was among the first wave of American ad agencies. Its motto is "Do things that matter," and it intends to look for clients who share it.

Anomaly also came to China in response to a changing market. Its founders opened the Shanghai office because they felt China in 2013 resembled the United States in 2004. "China's economy had always done well, but it really has slowed down. I remember that the clearest sign in 2012-2013 was the reversal in the sporting goods industry. After the Olympics the whole industry was at its peak and everyone was opening stores like crazy. Then they found it didn't help much, and inventory became hard to clear; Li-Ning was the clearest example. It reflected China's economy shifting from crude, high-speed growth, when, from an advertising point of view, running ads on CCTV was a sure way to make money, to slower growth. So advertisers are scared too. The formula that used to bring them success no longer works, and they don't know what to do. That creates demand," Li Wei, partner at Anomaly Shanghai, told QDaily.

Anomaly's Shanghai office

Anomaly recently won the business of Infiniti, a fast-growing car brand, and took Johnnie Walker away from BBH. "The Man Who Walked Around the World," the film BBH made for Johnnie Walker in 2008, is a classic: more than six minutes long, it is shot in a single unbroken take of a man who never stops walking. In China, Yulu, the series of short web films BBH made for Johnnie Walker in 2011, set off a "micro-film" craze in marketing. But that once-celebrated creative hot shop has now been overtaken by a newer independent agency.

"It's actually hard for us to win a client over in an hour or two. But clients' thinking really has changed, and they happened to see us at the right moment. I don't think clients necessarily care about classic creative work from the past anymore, because the team is different now and the market has changed," Li Wei said.

Still, Anomaly, FF and KBS+, which all entered China after 2010, differ subtly from earlier creative hot shops such as W+K, LD and BBH. To suit conditions here, they changed their approach, or chose a different positioning, from the start.

When FF first arrived, Huang Feng found it hard to build a name quickly. FF Paris concentrates more on traditional advertising, but China has moved past the age of traditional advertising, and a few spots run in heavy bursts on television can no longer make a brand known fast. "In the mobile internet era, campaigns are generally small and polished. For the year and a half before we entered China, we focused all our effort on this, because we knew the future of advertising belongs to the internet. We started in China from zero and threw out everything we had done in Paris. FF Shanghai is positioned as an interactive creative agency, and almost all our work over these two years has been built around polish and interactivity."

Not long ago FF Shanghai designed a mobile game for Air France: passengers play in the short wait before boarding and win an upgrade if they win the game. It was well received, and QDaily reported on it. For Porsche's return to the 24 Hours of Le Mans, FF also created the "Porsche 24 Hour Social Race," a contest fought on two big social platforms, Twitter abroad and Weibo at home. The rule: the more posts, the faster the online team's car went. The campaign just earned FF a corporate communications honoree award at the Webbys, the Oscars of the internet.

KBS+ treats digital as the core of its Shanghai office and builds integrated marketing on top of it. Its two top executives, China CEO Douglas Lin and chief creative officer Jonathan Ip, were previously managing director of TBWA's Digital Arts Network for Greater China and head of digital and interactive creative at Saatchi & Saatchi, respectively. "Our structure isn't quite the same as earlier creative hot shops, and we hire differently," Lin told QDaily. "We have PR, social, events and technical staff, so the model is different. Everyone talks about integration, but few have the ability to deliver it, and clients can feel the gaps between the parts. We think integration rests on interaction, and digital is at the heart of interaction."

Tianyukong told QDaily that its services even include writing PR copy for clients' new-media channels.

Li Wei said plainly that Anomaly was never set up just to make ads. It does not call itself a creative hot shop but a "new model" marketing company, so its competitors are not firms like W+K or BBH. "On Budweiser's 'Ma Dao Cheng Gong' campaign, for example, we worked with eight agencies. Our role was like a director who writes the script and then casts actors. So we collaborate with the other agencies, because they know we won't steal their business."

Whether any of these positionings will keep these companies in China for the long run is still unknown. For now, compared with LD's ups and downs, FF Shanghai has had a better start. Its first-year revenue in China was zero, and FF was quite satisfied with that, since it had to pay for construction and fit-out, computers, desks, chairs and other basics. Huang Feng did not disclose the second year's revenue, but said: "Measured against the French company's first and second years, Shanghai is doing very well." (Fred said the French office still earned much more last year.) He went on: "Business keeps getting easier for us. We have no dedicated new-business team, and we already have as many clients coming to us as we can handle." FF has since opened a Beijing office, mainly to serve CCTV and the Starlight Place mall.

Judging from our interview with LD, though, it too faces no pressure from its UK headquarters over revenue or size. Tim Delaney once told Li Zhaoguang that among independent agencies LD is a size smaller than the rest. That is why the UK company has only 70 people after 35 years, and the long-running German office only 60. "Three years old is still very young for a company, and perhaps in the fourth year revenue will take off. That's how we see it. That's how it went in Germany," Li said of the Shanghai office. "Tim's view is that a young company will make mistakes and try things along the way. Tim is unusual: he doesn't need your numbers to be spectacular, but if the work is bad he'll be unhappy. He thinks that if you don't lose money and your work is very good, a 5% profit margin is enough."

According to Li Zhaoguang, LD has come out of its slump and entered a fairly steady period of growth. As headcount grew, it moved from a French-style villa on Gaoyou Road in Shanghai to an office building on Anfu Road. Its current clients include ZESPRI New Zealand kiwifruit, Vanke, wine brand Penfolds, Tencent, Costa Coffee, footwear brand ECCO and the 528 Art Village project in Chengdu, Sichuan, and for most of them LD is the lead agency. "In 2015, 85% of our clients are on monthly retainers. Lots of clients come to us for one-off projects, and we think hard about whether to take them." Its problem now is not business but people: "To win business you have to find the right people, and that is actually the harder part."

After moving to its roomier office, LD laid down a patch of "lawn" as its brainstorming area

LD's past work and its philosophy hang on the office walls

KBS+, the newcomer, seems set on steady progress and is in no hurry to grow; it plans to go from 8 people now to 20 by the end of this year. "What matters more is keeping our culture," Douglas Lin said. "There's a lot of new business in this industry, and people are always pitching, pitching and pitching again. That's bad for company culture and for clients, it drives a lot of people out of companies, and it doesn't help us do better work. We want to pitch as little as possible and grow steadily without losing our culture."

Li Wei said Anomaly ran into problems when it first approached brands. "First, they didn't understand us. They assumed we were 4A people who had left to start a small company and make quick money. Only once we had work to show did they start to understand us. Many of them began with a let's-try-it-and-see attitude."

"But if a client comes to us and the first thing they say is that they want to shoot a TV commercial, we definitely won't take it. Not because we can't do it, but because the conversation starts from the wrong place: we want to help them solve a business challenge, and they want us to shoot a TV spot. So we like clients who come to Anomaly with a problem rather than a firm opinion. We like talking things through with clients, so that our partnership creates more value."