Analysis: Where are ad dollars in Hong Kong coming from?

The city of Hong Kong has long established its prime positioning as the financial hub of Asia. However, in recent years, the once British-owned colony has made global headlines due to the political tensions it now faces with China. Just this week, The Wall Street Journal published an article questioning whether global companies feel the need to remain in Hong Kong.

While firms such as Sony Interactive Entertainment, L’Oreal and LVMH have in recent times chosen to either partially or fully relocated their staff out of the Hong Kong market, other companies such as Japanese discount chain Don Don Donki and sports retailer Decathlon decided to make Hong Kong their next point of investment.

In a conversation with MARKETING-INTERACTIVE, Greg Paull co-founder and principal of consultancy R3 Worldwide explained that despite the political news making global headlines, it isn’t all gloom and doom as growth sentiments in the market continue to be mixed.

Leading the growth charge in 2021 are industries such as pharmaceuticals, healthcare, CPG and technology and telecommunications. This trend mirrors 2020 where health was top of mind for a majority of consumers staying at home.

Paull added that ad spend from the finance and insurance brands are also seeing an increase as economies start to stabalise and consumers revisit their financial positions.

Expectedly, industries such as travel and hospitality are on life support having witnessed a monumental drop in marketing spend over the last year with the global travel restrictions kicking in. Amidst these trying times, and as consumers feel more comfortable purchasing online, Hong Kong’s luxury sector has also felt a significant hit.

(Read also: Report: Luxury spending to drop in Hong Kong and mainland China as difficulties mount)

Nonetheless, marketing spend for core industries that are closely intertwined with consumers daily lives, such as household and toiletries, banking and finance and retail (supermarkets), remain resilient. “ We have even seen major in-market launches from these industries during the height of COVID-19 such as the launch of retail giant Dairy Farm Group’s unified CRM platform and as well as its yuu Rewards Club, the biggest rewards club in Hong Kong,” said Clement Chung, CEO of PHD Hong Kong.

Interesting, one industry the agency saw growth emerge from unexpectedly was the pet-care industry which saw explosive year on year growth in marketing spend of 186% (May 20-21 versus 19-20), according to PHD data.

“One would expect that pets are considered a part of the non-essential category, borderline luxury even, given the living conditions of Hong Kong that are said to remain flat during COVID-19. We hypothesise that this growth could be partially due to an increase in Hongkongers’ disposable income as a result of travel and social distancing regulations,” Chung explained. As such, consumers are now spending more to pamper their beloved companions at home.

Simone Tam, CEO, dentsu International Hong Kong and Anna Chan, CEO, media service line, dentsu International Hong Kong added that what has been encouraging is to see the market recovering faster than expected. “We have seen clients moving forward with their campaigns early this year, and we even have clients and new business prospects from the travel and hospitality sector starting to engage us to prepare them in helping to launch campaign as early as Q3 2021.”

Tam and Chan added that dentsu, in general, sees brands with a sustainability element also adding to the ad spend dollars, along with the usual banking and insurance, fintech, eCommerce, health and wellness.

What’s the pitch situation like?

When it comes to pitching, agency leaders share that the volume is pretty much back to pre-pandemic levels, but the nature of the pitches being called has changed.

“We’re increasingly being asked to connect the dots between silos, activity and objectives within client organisations, and plot simple, actionable and ambitious plans,” said David Atkins, head of strategy at Wunderman Thompson Hong Kong. This is especially true in sectors such as hospitality, in which demand has not fully returned, Atkins explained. He added:

In this context, our formula for growth has been quite simple, work with ambitious clients who are not content with the pre-pandemic status quo, and partner with them to turn their ambition into reality.

While PHD has been more or less involved in a similar number of pitches this year compared to pre-pandemic years, what has changed, according to Chung, is the demand for more diverse agency capabilities and integrated solutions. For example, more clients are now actively asking for eCommece and data solutions to marry into their holistic marketing plans.

Dentsu on the other hand has seen an uptick in the number of pitches it has been involved in and says its largely because marketers want a fresh style of thinking, and new ways to prove marketing to be a growth engine.

“Clients have also seen how working with a handful of agencies across different parent groups can create silos and inefficiency for them. So many of the pitches we have been called for have been from clients asking for integrated offering,” Chan explained. Another visible trend dentsu has noticed is in clients reaching out for strategic input and advice. “This is such a positive change as we are now helping clients in creating value propositions that are more long term and purposeful,” Tam added.

Jan Cho, TBWA\Hong Kong's managing director added that the agency witnessed a lot more “low-cap project base pitches”, often more tactical and short-term. He added:

For us, it was important to distinguish between incremental and short-term revenue intake and instead win business which powers long term, sustainable and resilient growth.

While all agencies continue to run on a tight bandwidth because of the challenges faced, Cho explained that it was “business critical” for his agency to go past the “seductive low hanging fruit”, and be laser focused in chasing the right revenue for the long-term future and success of the agency.

Meanwhile R3 data shared with MARKETING-INTERACTIVE indicated that creative new business in Hong Kong grew by 116% year-on-year for the period from January to April 2021. Meanwhile, media new business declined 14.7% for the same period. Commenting on the findings, Paull explained while pitches can often indicate a vibrancy of the market, it can also be a sign of marketers searching harder for growth, pressure testing every part of their agency ecosystem and trying to find fresh ways to compete.

So then, what clients really asking for?

With current consumer behaviour setting the tone for the future, marketers are now adapting their engagement strategies, looking for new partners, and changing their media mix, explained Paull.

“Aside from digital transformation, marketers know that fundamentally marketing structures and operations need to change. The paradigm has shifted quickly, and it is becoming apparent that you can't work with legacy models and be effective in eCommerce, social, content, influencer, and video marketing,” he said.

Seconding the sentiment, dentsu’s Tam and Chan shared that according to the agency's global CMO survey analysing 1,361 CMOs and their plans for navigating a new kind of recovery, the number one issue CMOs say they are facing is in understanding which consumer behaviour will change permanently, and which will fall away in the post COVID-19 environment.

According to the dentsu study, CMOs are under tremendous pressure to deliver quicker and more tangible results.  

"This requires their agency partners to be more consumer centric than ever and also be agile especially given the uncertainties of the market,” said Tam. To cater to the changing needs, dentsu has been actively been on a road to simplify its business structure, and organise offerings around client needs.

Meanwhile, Wunderman Thompson's Atkins added that across all industries, brands and marketers in Hong Kong are doubling-down on their long term ambitions; they’re looking beyond the next campaign or short-term cost saving, and instead considering how to lay the foundations for long term business and brand growth. He added:

As a relatively small market, focus on marketing science to guide such decision making has previously been modest. But we’re now finding a much greater focus on marketing effectiveness and the role of data in informing long term brand and communications planning.

Finding growth areas

At the end of the day, change is at the heart of the agency business. When asked his formula for finding new areas of growth, PHD's Chung shares:

Growth needs to be anchored in where change was and will be.

“Advertisers and agencies that don’t pivot to meet the demands of the new normal will be left to bite the dust,” he said, adding that more and more, advertisers are looking for agency partners to help them navigate this challenging business environment.

Fueled by its vision to "Make the Leap", PHD Hong Kong embraced this change through accelerating many of its capabilities and hiring a new breed of talent with the skillsets to lead change. Chung also shared some of the key changes PHD has witnessed, and future developments it predicts revolve around:

• New normal consumer behaviours have brought about a surge in popularity in categories such as food delivery and new retail. PHD predicts this trend will likely continue.
• In light of government development plans and a closer working relationship with China, developments such as those pertaining to the Greater Bay Area will be a key area of growth.
• The changing demographic make-up of Hong Kong has also led to a high demand for overseas property and immigration services.

Meanwhile, TBWA\Hong Kong has taken a change in its stride by establishing expertise in consulting, in-house filmmaking, and design. In the wake of the pandemic, the agency pivoted these capabilities and assembled a new service suite, calling it the “Brave Bear Pack”. Custom-built services such as COVID planning, remote content solutions and experience design were launched:

1.  COVID-19 planning: A data-led consulting service to identify demand and white space amid the rapidly changing audience behaviour
2.  Remote content: Solutions such as live broadcast, remote live shoot, webinars
3.  Experience design:  A design-led planning solution to increase conversion and customer adhesiveness. 

“In this new normal for marketing, the expectation is of agencies to be more strategic, agile, cost-efficient, and have the ability to create great work, which is measurable and justifiable. Generally speaking, clients want a strategic partner, not a well-oiled machine who reliably delivers banners and artwork without flaws,” Cho said, adding:

Without Brave Bear Pack, we would have missed 90% of our new business income last year.

Dentsu’s Tam and Chan added that for the agency, the growth comes through conversations with clients that now go way beyond agency or pitch briefs and delve much deeper into business insights, trends, technology, and market opportunities. As such, there is a clear vision for the company to integrate creative, media and data to bring maximum impact and actual efficiency for our clients.

“This is where we believe dentsu can add unmatched value to clients as we have all the media research and data insights made available to the creative agencies and all the consumer research and strategy and creativity resource made available to media agencies,” said Chan.