Doug Pearce is the Non-Executive Chairman of Omnicom Media Group, Greater China. Here he discusses the changing media landscape and particularly the increased complexity of media, especially in the rapidly growing China market where he has lived since 2000. Plus he reflects on the role of media auditing and media auditors in the digital media world.
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Transcription:
Darren:
Welcome to Managing Marketing. Today, I’m in Melbourne in the salubrious offices of OMD and having a chat with Doug Pearce who is the recently appointed Chairman of Omnicom Media Group for greater China and someone I’ve known for a long time, welcome Doug.
Doug:
Hi ya, Darren, how are ya? Good to be back in Melbourne.
Darren:
Yes, but the traffic here drives me crazy. It feels like it takes forever and yet there’s not lots of it, it’s just awfully slow. We’ll you’re based in Shanghai. How long have you been in Shanghai?
Doug:
I’ve been living there 15 years over two stints.
Darren:
It’s a long way to come because you are a Melbourne boy because we met when I did Copy School back in 1985 and you were one of the media leads at DDB wasn’t it?
Doug:
Correct.
Darren:
In the days when media and creative agencies were actually the same thing
Doug:
It was the most exciting time probably of my career in some ways because you dealt with the weird and wonderful creative people and you were fully involved in the whole process of creative development.
Darren:
Was that what made you jump then to Leo Burnett’s because you were very much the media guy and you went to Leo Burnett’s at the time that media and creative were splitting?
Doug:
No. Actually, I’ve always wanted to run things.
Darren:
A control freak?
Doug:
No, I just wanted to be the boss and I went from DDB, which had about 30 or 40 people in those days (was number 1) to Leo Burnett that had 4 people and was number 13. Obviously that was pre the important mergers and amalgamations and it went from the biggest to the smallest but it enabled me to become the media director at Leo Burnett’s in Melbourne.
Darren:
And was that what opened up the door for China? What was the attraction of China?
Doug:
China came a little bit after. I was at Burnett for about a year and the national media director job came up in Sydney, which gave me responsibility for the Melbourne, Sydney, Brisbane and Adelaide offices and also New Zealand. So I moved to Sydney for about a year and a half and then Burnett acquired Connaghan and May and they had an existing media director at the time so no real room for me.
So I went back to Melbourne to become general manager of Leo Burnett in Melbourne. It again put me in the account service space, which gave me a bit more insight into how agencies were working and client relationships. I did that for about 8 or 9 years and was wondering what the next step was and a guy called Steve Gatfield (Regional Head of Burnett) said would you be interested in China? It was 2000 and I said, ‘sure’.
Darren:
In many ways that was quite early to step into China. China’s become the hot market for a lot of people in advertising and media but in those days it would have still been a bit of the wild eastern frontier.
Doug:
It was. We had 35 people at Leo Burnett. I was the only ex-pat/ foreigner and we had the Coke business. I was thinking to myself; China opening up, chance for me to run an office, and Coca Cola—how good is that?
I basically said to Steve, ‘let me have a look at it, if I can live there then I’m in’. Unfortunately, there was a global decision made by Coke to consolidate the business back in IPG and we lost the business. Every market lost brand Coke and that was the end of my step.
I ended up coming back to run Starcom here—same family in 2003 and I was really only here for about 6 months before Jack Klues who was the global head of Starcom said, ‘you know what, Doug, we need you back in China much more than we need you in Melbourne’. After about a year and a half of saying ‘no’ I said, ‘o.k.’ so that put me back on the China track.
Darren:
And China—what was your first impression from those early days in China? What was it that struck you about the market?
Doug:
The size and the complexity of it and how everything was growing. Back in the early/mid 2000s it was a bit tougher but it’s really just been the sheer size and scale of things. And more lately just how important China is for most clients’ marketers. For many of them it’s their number 1 or 2 marketing world so you get a lot of tension. China became very important for winning global business for Omnicom.
Darren:
Of course, and there’s an animated infographic that shows from the 60s through to now, countries by GDP. It changes over time and you see in that period you’re talking about, 2000 to now the way China had absolutely rocketed up the top 10 to number 2 and is significantly challenging the U.S.
Doug:
Correct.
Darren:
So, I imagine it’s not just scale and complexity but it also must be change. You’ve been in China in a time of unprecedented change.
Doug:
And growth. I would say, in 2011, 12, 13, probably 15, it just really had an open door and clients would come in and you had the opportunity to grow but it’s very tough now. And that’s really driven by the dominance of the big internet/digital players in China who are probably more dominant there than they are outside of China in terms of their scope and breadth.
Alibaba, for instance, has a platform like YouTube called YouKu where they make and broadcast the content; they have eCommerce they sell so it’s got a bit of YouKu, Google, and Amazon. They sell the product. They have a payment system. They own the delivery company so it’s really end to end.
Darren:
They’re very good at doing verticals aren’t they? They go right through the verticals. A lot of people criticise China as a nation that copies but I think that what we’ve seen, at least in the last decade or more, is that China is innovating, especially in this technology space.
Doug:
Without a doubt. That was kind of the history of China; see what’s going on around the world and try and replicate it there but now the innovation is really quite outstanding. I’m noticing it because in China I probably pay 80% of my daily activities on the phone through WeChat pay or Alipay.
And here I’ve got to get the credit card out and swipe it or tap and go (which is not bad) but the operating system particularly in retail is really out there.
Darren:
I know. I’ve got a WeChat account and when you’re in China it’s unbelievable. Even food vendors on the side of the road will have their QR code and you just scan it the number of times you’re buying something and it’s transacted instantly.
It’s almost like Australia and Western countries are being held back by the traditional financial institutions because this whole system has been built on basically two platforms: Alipay, WeChat pay and there are others.
Doug:
ApplePay is there but it’s pretty small.
Darren:
But it’s those two that have completely invented a whole infrastructure that taps into banks but doesn’t rely on them.
Doug:
They built an operating system so think of WeChat as an IOS and you can book a taxi, movies, I could transfer money to you (you’ve got a WeChat account). You can do all these amazing things—shop online—it’s really quite incredible what you can do. It’s really more like an operating system so people are turning to that every day of their lives and you’ve got 900 million users.
Darren:
I wonder how many Silicon Valley entrepreneurs look at that and go ‘oh my god, I wish I had put a payment platform into my social media’. Imagine if Zuckerberg had built Facebook on a payment platform how much more powerful that would be.
Doug:
Exactly. I saw an article, Eric Schmidt, Chairman of Google, saying the one thing they missed was a social media platform because if people are on it all the time doing their messaging then it’s natural they’re going to use that as their main payment.
Darren:
Of course, yeah.
Doug:
Having WeChat as a social messaging system and whole operating system is really powerful. People would use it, I would say, every 20 minutes doing something or watching content.
Darren:
Yeah, my wife uses it all the time and I would say she’s on it 24/7. You’d almost have to cleave the phone from her hand to actually get her off WeChat. And so this is incredibly powerful. How many are using the platform?
Doug:
About 900 million.
Darren:
Almost a billion people; it’s unbelievably powerful.
Doug:
And it’s now embracing other markets around the world too.
Darren:
Two years ago I was in Johannesburg and in the local shopping mall there was a big event for WeChat and they’d actually partnered with one of the local South African banks to talk about how you should download this and they were giving away money. So, it is going to become a global phenomenon.
Doug:
But getting back to the innovation of China; it’s clearly leading the way in a lot of things to do with AdTech and mobile phone marketing and that sort of thing—it’s really doing pretty well.
I mean the U.S Silicon Valley is absolutely awesome on this but there is some very good stuff coming out of China. There’s a CES in Shanghai now (probably 3 or 4) which gets something like 3.5 million visitors.
Darren:
So what has been the implication for running a media agency in a market like that, first of all the implications for staff? One of the things we saw around 2000 was lots of agencies would bring ex-pats, Westerners into China but now when you go into most agencies in China they’re all locals. You might have one or two ex-pats there.
Doug:
You probably get about 4 to 5% of the staff being ex-pats including people from Hong Kong, Taiwan, Singapore, and Malaysia who can speak and read Chinese. That’s probably about the balance but the future in China is really going to be more local client based because they’re huge and they spend money.
You could have a pitch for a top 10 advertiser that might require 150 people to be hired if you win that business and revenue along the lines of 18 to 22 million U.S dollars, which is huge. In fact, in some things it could be half the market of Melbourne.
Darren:
It’s an enormous market but it’s also complex because people who think of China as a single market often fall into that trap don’t they and yet you’ve got the tier 1, 2, 3 and now people talk about tier 4 and 5.
Doug:
Yeah. You know I worked at Accenture for a number of years and really started their auditing and media benchmarking, pitch management and a little bit of ROI work around China and eventually APEC.
People from Europe would say, ‘please send me the CPM of China’. ‘Well can you send me the CPM of Europe?’ ‘Well we can’t do that.’ We have 400 TV markets. There’s a wonderful chart we often use when we have visitors to China that shows there are about 20 provinces that are actually bigger than European countries. So, there are provinces in China that are bigger than Norway, Sweden , Denmark, Croatia. All those markets are just like a little province of China. Chongqing has 32 million people.
Darren:
Well it has around 35 cities with more than 5 million people—Sydney and Melbourne are less than 5 million and you’ve got another 34 of those.
Doug:
And they’re becoming increasingly a more economically viable target for advertisers so the net household income in some of those provincial markets is pretty low but as the standard of living rises T2 and 3 are going to become very important to advertisers in China.
And also because the cost of advertising in Beijing or Shanghai, Guangzhou or Tianjin is now incredibly high, the established marketers have built their awareness, their product offering and they’re not getting the ROI from investing in some of those markets as they are from some of the newer ones.
Darren:
Going back to staff—what’s it like keeping your team up to date with the changes or them keeping you up to date with the changes?
Doug:
Obviously I’ve spent a lot of time keeping up with what’s going on in the market but we have a lot more training than we ever did before. But to take it back a step to when I first started in the business; we had in those days people who were planning and buying TV maybe for 20 or 30 years–a whole career.
And it didn’t change too much. We went from week commencing or fixed night or fixed programme and then in about ‘85 they brought in 63 half hours. But really the ratings changed from diaries to people meters but basically in the ‘70s, ‘80s, ‘90s some of those people could do the same job with very little change.
Darren:
When I started people used to joke that the TV plan was almost pre-set and you just had to hit the print button because every campaign was ‘well here’s TV and here’s the support media’. It’s not like that now.
Doug:
No, it will become totally media neutral. It will move towards audience buying, by 1,000. No matter whether it’s on a mobile device or search on Google or reading The Age or The Sydney Morning Herald or watching 7Now or iView or SBS on Demand, you’re just going to buy the audience and they don’t care too much whether it’s TV, print or radio.
So it will move eventually, once it becomes all automated, digital, programmatic, towards just buying an audience and of course it will become biddable. Price one day is different from the next.
Darren:
Real-time bidding will become the standard way of buying media rather than a small element to the side.
Doug:
Exactly.
Darren:
And that’s why we’ve seen the rise of programmatic because you can’t do real-time bidding without the software platform to be able to manage it for you.
Doug:
The biggest thing that has enabled us is to target the one. We always used to talk about what’s the cost per 1,000 but now you can almost talk about what’s the cost per 1 because you can define targets. In previous years you’d run TV campaigns for cars and traditionally the car market was about 12% of people in the market at any one time but now we can virtually target those 12%.
Same with the finance for a mortgage. We know that the first thing a pregnant lady does is look at folic acid so as soon as they tap on folic acid the analysts know there’s a pretty good chance that lady is pregnant.
Darren:
Or planning to be in the next few months.
Doug:
So she’s right in our sweet spot and so we will target ads designed for her—it’s straightforward for marketers.
Darren:
I just want to challenge that idea of targeting the one because I think digital was originally positioned that way but then I get the feeling that they moved it to be mass. It was like targeting one at mass because they realised that to really unlock a big share of a marketer’s budget they wanted mass.
Marketers are not interested in targeting one. They want that one and 9,999 just like them and then they go back to a CPM measure. CPM in the digital age is still holding on there.
Doug:
CPM or cost per impression or whatever will be our currency if you like but most marketers and finance people are under pressure to deliver results today. And what really matters the most is the performance outcome.
Darren:
Of course.
Doug:
So what you really want to do is have sales. I know clients who say, ‘well our brand has been around for 50, 60 years; everyone knows it. I’m going to spend more money because my target and KPI is 15% more growth of not brand awareness but sales.’ And the more we can link eCommerce into that whole through-the-line equation the more we’re going to know what brings a result and what doesn’t.
So, naturally clients will stick to that. We’ll always be adding to the top of the funnel. If the bottom of the funnel is the eCommerce side you’ve still got to have things coming in. So you still have to build the brand, an aspirational quality for people to desire that brand. If you don’t do that you’re dead. And that’s a big part of where agencies need to be working, in my view.
Darren:
Just to go back to what you mentioned before. You were running Accenture for how many years?
Doug:
Four years.
Darren:
I know there are quite a few services in there but the core of that was media benchmarking or media audit. And it seems to me that media auditing is great. You were talking about television in those days where it was the same day in and day out. What do you think the role is for media auditing now in the digital age of real-time bidding?
Doug:
Well, I think benchmarking will be a challenge because it is going to be movable—within degrees. It’s not going to go 20%,50% up, but with your basic parameters an audit can always compare one advertiser to another advertiser in the same category but it won’t be as defined as it used to be because it’s biddable; paid for on the day or not paid for on the day.
Darren:
Also to get enough data you’re usually casting target audiences quite broad aren’t you in an auditing model, either all people or grocery buyers? Whereas in the digital age, as you said, it’s much more about targeting the one and a million like them.
Doug:
The more transparent and accountable media becomes (obviously there are discussions about agencies) but it’s even in things like viewability of commercials, 3 seconds, 5 seconds or the whole lot. In China there is still a lot of ad fraud.
Darren:
The world has a lot of ad fraud.
Doug:
Yeah but I know China more than I know other markets, once that all gets cleaned up things will change. But the auditing benchmarking has always been a little bit of a sore point for me. Accenture didn’t start benchmarking until we had the proper robust system that I could actually say to clients and agencies, ‘we’ve built this and we’ve had proper guidelines’.
I remember the WFA had a guideline of you need a minimum of 4 buying points, 4 agencies and no one client could be more than 5% of the pool. So there’s 20 clients and you obviously needed a breadth of clients and when I used to talk to some of my competitors in that space in auditing I’d say, ‘how can you possibly have a robust pool?’ And also you have to do a whole year.
So, if you’re doing 2018 you don’t really have a pool until you’ve got all the data, which is mid-2019. Some people keep pitch rates so 4 agencies put in their pitch rates.
Darren:
Let’s just say they border on fantasy or at least fiction in some cases.
Doug:
They’re not deliverable. At Accenture we were very very clear on its actual rate and we didn’t have the pool in place until we could support it and actually be subject to audit ourselves. I made that decision that I wouldn’t do that and we got to 32, 34 clients in about 2 years. Really we built that up but we didn’t have it in every market pool. We’d say we don’t have that if we didn’t have the right number.
Darren:
I think it at least had a role in giving it a growth check on the relationship and way of working between advertiser and their agency and the media providers. But I just wonder now if it’s a bit too rear-view mirror because, as you said, it’s almost 12 months by the time you’ve got the data.
And do you really want to know what you should have paid 6 months ago when you’re about to go into the market investing another $100 million or whatever on data that’s now 6 months old.
Doug:
I’ve always thought there was a place for audits in our industry because at the end of the day we are the same people measuring it and spending it. It’s good to get an outside view, but what I really don’t like is people who think this is not right—it’s all got to be factual based. We can all learn from things.
We think we’re good at it but we may not be the best or some other people might have an advantage but any learning we can get helps the clients and it helps us. And I think that applies to virtually any industry; building a house or building a product you look at what your competitors are doing and use that information or learning to do a better job.
But I get very cross when I hear people say ‘well, I think it’s too expensive’—is it or isn’t it? That sort of language causes a lot of friction.
Darren:
Or even worse ‘I think it’s too expensive because the place I used to work at 2 years ago were paying less’, which is a sample of one. But it raises the point of the challenges some of the media agencies are facing. One of the easiest things in the world to do is raise the insecurities or concerns amongst an advertiser that they’re being overcharged isn’t it?
Doug:
Auditors have been around for a long time in the U.K. but around Asia, Australia for 20 years.
Darren:
Ebiquity?
Doug:
Yeah, they’re in China too but I think we’ve probably reached the bottom level of pricing and any fat that was available in the TV or digital pricing has all been removed. And it’s like anything; in the first year you might be able to save 10%, the next year it might be 7 or the next 5 but I think we’re at that stage where most of the money that can be saved has been saved.
And TV stations aren’t doing well; they’re not going to lower their price 20% just because another agency gets it.
Darren:
Even though there’s a lot of pressure on them sometimes to do that but they have a fixed cost. There’s a cost of running a TV station.
Doug:
Correct, and in Australia you can move money around; 7, 9, 10 and the various subsidies but in China you tend to buy the one market and the one TV station. They’re not going to lower the price just because agency B gets the business. If they’ve got to bring in 100 million of revenue and I sell it to you for 90 I’m out of a job.
Darren:
That made me think of another misnomer about the Chinese market because people are inclined to think ‘oh, television, it’s CCTV and it’s all government owned’ and that seems to flow on to be it’s all government controlled. But media is a lot more diverse isn’t it?
Doug:
Digital is not. Obviously, there is government influence in content but the ownership is private and listed on the stock market. So digital media, when that came in, was able to be owned independently.
Darren:
What about out of home and some of the other media as well?
Doug:
Well as you know I’ve transitioned out of this CEO role I’ve had for 7 years at Omnicom Media Group and I’m remaining a non-executive chairman but at the same time I’m working now in programmatic outdoor and building a new network, which we’re pretty excited about.
Darren:
That sounds really interesting; how much can you share?
Doug:
We had a bit of a false start but we’ve got a different business model but basically we have camera measurement, digital measurement so we’ll track the number of people, whether they’re male or female, young or old, in a mood, happy. Shop owners like their people to be happy. So we’ll actually be able to put a measure on all of outdoor.
We’re not talking big billboards; obviously you can’t do that but street level furniture and shopping malls and things like that we will know which are the good sides and which are the bad sides.
Darren:
So bringing greater accountability.
Doug:
Absolutely. Accountability, transparency, real-time data—we’re going to supply the clients or the agencies with the data. It’ll be a platform that agencies can buy through, work through DSPs and theoretically if there is a big outdoor advertiser we can allow them to use the platform as well.
Darren:
So that means if your digital poster is delivered into the shopping mall at 10.00am in one of the big shopping malls in Shanghai on a Monday morning and there’s no one…
Doug:
You won’t pay for it.
Darren:
So it will actually work that way?
Doug:
Yeah. And if there are more males in front of it we’ll serve a male ad; more females, we’ll serve a female ad. It comes from a library. It’s not exactly instant obviously because of the censorship requirements and the need to verify that the advertising is correct so that should be stored in a library first.
So, it’s not like consumer generated content where you can just upload it. In China that just doesn’t happen.
Darren:
That sounds like a quantum leap for outdoor.
Doug:
Game changing.
Darren:
It’s a subject that the outdoor industry has really struggled with: proving efficacy.
Doug:
And the beauty for marketers and advertisers is that you will be able to pick which sites you prefer based on traffic counts. Whereas now most outdoor media or street level media is bought in packages of 20 or 30 of which 10 might be great and 10 might be not so good. And we’ll put a value on all of those so it will become really accountable, transparent, and it’s never really had that before.
Darren:
So you’ll actually be able to upload different creative for day parts and audiences and have that delivered in real time.
Doug:
Yeah, multiple creative variations.
Darren:
That’s brilliant, very exciting.
Doug:
It is and I’m at the stage where I’m wanting to really build something. I’ve had a fantastic career. I couldn’t have hoped for anything better. But it’s not over yet. I started as a media guy, went on to run a creative agency, a consulting company, then I went back to run media agencies and now I’m becoming a semi media or platform owner.
It’s great, I’ve done everything except be a client in a long career. I’m so blessed and fortunate to be able to do that and taking that step to move to China in 2000 was kind of brave but it’s been a wonderful life and work experience and I’ve worked with great people and had great mentors along the way and China is still very much a land of opportunity.
And our industry is so exciting. There are many people questioning where it’s going to go but it’s just different and we’ve got to move on from the legacy we’ve had and really embrace the new opportunities and zoom ahead.
Darren:
So with that level and diversity of experience and in your role as non-executive chairman what would you see as the really key issues for transformation for agencies? What is it that agencies need to do? In the past they’ve missed some big opportunities. You’ve often said they missed the whole growth of digital in the late 90s early 2000s but what is the thing agencies need to do?
Doug:
I think they still have a huge role to play. We’ve got the big giants. I believe in the U.S now Google, Facebook, Amazon take around 70% of the dollars. So instead of dealing with multiple players in multiple markets we’re basically dealing with 3 global players.
And just getting back to our little outdoor platform; you’ll be able to buy outdoor advertising in China (eventually—2 to 3 years down the track) through the Google platform anywhere around the world. That’s something I think we’ll be able to do.
A client or an agency can do it or an individual can buy their own media. Agencies have got to play a neutral role. So in China if you’ve got an arrangement with Tencent or Alibaba the other one gets a little upset about that. And I’m sure for Google, Amazon, and Facebook it’s all about share of advertising volume.
So we can play the neutral game. We can also do a lot of strategic work. It’s not all about performance and selling; it’s about building the brands. I think there’s tremendous opportunities for agencies there. Obviously, it’s the interpretation of data. Everyone talks big data but I’m not really sure how many people are really using big data yet.
I think that’s the agency’s role, to really understand the target market, how they use media today, the format and the most cost effective way to deliver that message in an environment that’s going to engage. And for me it’s all about topical, shareable, short-from content, that is what’s going to engage the target audience in the future.
Darren:
Just on the data. There is a group of agencies who have got hearts and sciences in the U.S.
Doug:
And a few other markets.
Darren:
But they grew up in the U.S and expanded; there is MDC Media Partners and others that are definitely transforming into being very much a big data-led media agency. So they’re using data to actually inform selection of media choices and not just in the digital space.
In the traditional media, if you could call it traditional—even television and radio are digital but in those broadcast media as well as in the digital one on one area to actually drive customer engagement and business performance.
Doug:
But you’re still going to need to understand that market and you’re still going to have a strategy, not just in how you communicate but an investment strategy as well. Agencies can play that role moving forward. But there have got to be different ways of remuneration obviously, more to a fee-based structure, more to a pay for the service you want.
A lot of clients want to save money, which is fair enough. Everyone’s entitled to trim costs. But if you want really good talented people you really do need to pay for it.
Darren:
Well if you move to a performance-focused model, not just short-term sales but long-term growth that would get you away from a cost-based model wouldn’t it?
Doug:
It would. I’ve had lots of conversations with media, clients and colleagues about that and I think that’s a bit hard to do because a media agency and to some extent a creative agency doesn’t have full control over what’s being broadcast or the message or the pricing. So to have a total performance thing is a bit tough.
Darren:
But it would be the ultimate proof.
Doug:
Have you done any performance?
Darren:
Most of the time performance-based is driving down costs and we won’t do that. They’ll give us a percentage of savings and we’ve always refused to do that because the easiest thing in the world would be to cut your costs.
Doug:
We don’t work like that either.
Darren:
We know a few that do though.
Doug:
I’m sure there are. But the whole concept of having skin in the game is now really important. If a client grows then we should grow; that demonstrates true partnership, which is really important.
But I think getting to a fully performance-based deal is tough because they’ll either want to have a say in the creative message that you use, or want to understand the pricing that you’ve got in the marketplace. I want to understand the time you’re going to launch the thing, how different your product is—all those things agencies don’t have too much say in.
Darren:
But they make a contribution because at the moment they’re just seen as a service provider. If they’re going to move out of just being a service provider they need to start getting some skin in the game.
Doug:
And we need to be more than a service provider and I would like to think that our clients over the years would say that we’re very close to their business, know lots of things and make a huge contribution and add value to it and they’re prepared to pay for that.
Darren:
I’ve just noticed the time, Doug. We’ve got to wind it up but all the best with that outdoor. It sounds like a fascinating innovation—hope it goes well for you.
Ideal for marketers, advertisers, media and commercial communications professionals, Managing Marketing is a podcast hosted by Darren Woolley. Find all the episodes here