From revolution to evolution
Editor's note: Theo Downes-Le Guin is senior consultant and David Ying Hon Ho is international research specialist at Livonia, Mich.-based research firm Market Strategies International.
When Wu Gangmin approached the Commerce Bureau in the early 1980s to register China’s first commercial market research firm, officials were confused. Wu recalls their response: “What the heck is that?” At the time, “market” had one meaning: the place you go to buy meats and vegetables. Government officials couldn’t understand why anyone would need to research something so familiar and commonplace as a market.
His anecdote illustrates how quickly the industry has evolved. Wu eventually acquired the license and his company, Guangzhou Market Research (GMR), went on to shape research’s early days in China.
By now, most of us are inured to the remarkable pace of growth in China. Even in this heady context, however, marketing research stands out. Three decades ago, Chinese academics were just beginning to talk about the Western discipline of marketing. Today, marketing research is an established industry employing tens of thousands and facing a host of challenges and opportunities.
Recent interviews with three long-time industry leaders illuminate this fascinating period in Chinese marketing research. In addition to Wu Gangmin, now CEO of United Research China, we spoke with Chen Jin, CEO (Greater China) of Consumer Search Group and former Chinese CEO of Research International, and Tian Zhi, vice president of Ipsos China and founder of Guangdong General Market Research. Wu and Chen also serve as current presidents of the Chinese Market Research Association (CMRA).
Evolution of the industry
China’s dynastic history lends itself to periodization and marketing research follows this pattern too. Tian lays out three possible ways to look at the evolution of the industry: geographically, methodologically and as an adjunct to political and economic reforms.
The geographic model refers to the beginnings of marketing research in major coastal cities and especially Guangzhou (Canton), where Procter & Gamble has its Chinese headquarters. Over time, researchers, infrastructure and research needs moved beyond the big three cities (Guangzhou, Beijing and Shanghai) to encompass second- and third-tier cities as well.
A methodological view parallels, in highly compressed form, MR’s evolution in the U.S. and Europe. For the early phase, marketing research in both China and Western markets was highly dependent on door-to-door research using sampling frames derived (in the best case) from government mapping projects. Projects were cobbled together by senior staff working with squads of fresh interviewers and data collection and even data processing were heavily dependent on paper-and-pencil. In the U.S., this period lasted from roughly 1935 to the mid-1980s when CATI became the dominant methodology. The same period in China lasted from the 1980s to the start of the new millennium. The subsequent 12 years has seen rapid adoption of CATI and online survey approaches in China, though face-to-face research remains common when compared to any Western market.
Perhaps the intuitive periodization for Westerners, however, mirrors the massive political and economic changes of Deng Xiaoping’s second wave of reforms. As Tian describes, the beginning of marketing research in the 1980s benefitted from Deng’s reforms because both demand and supply for marketing research emerged for the first time ever. Demand was led by multinationals allowed to operate in China and followed by forward-thinking domestic companies and joint ventures. Prior to that, “…marketing research did not exist in China. When foreign companies entered China, they initially conducted research via Hong Kong,” says Tian.
The Tiananmen Square massacre in 1989 cast a rapid chill over market reforms and the nascent research industry was frozen until Deng – who, despite having formally retired, retained supreme political power behind the scenes – made his famous “Southern tour” that reconfirmed support for reforms. “Then,” Tian says, “marketing research surged.”
Tian describes the third and current phase of Chinese MR as starting in the late 1990s, when regulations on foreign ownership were relaxed and the economic takeoff of coastal urban China began. Non-Chinese marketing research companies swept in to merge with and acquire local firms that, until that point, had been the only option. Anyone in marketing research for a decade or more in any market worldwide has been touched by this phase, as WPP, Kantar and other major agency employers have actively developed their presence in China.
Methodological roots
Regardless of which model we choose to understand recent history, the influence of academic and government agencies, and of a handful of major clients, has been substantial in China. Again, this closely parallels the U.S., where the methodological roots of marketing research are closely aligned with certain universities as well as obvious (Bureau of the Census) and less obvious (OSS) government agencies.
Just like Elmo Roper and George Gallup in the U.S., China’s early MR talents combined entrepreneurial zeal with strong theoretical training and ties to academia. These early leaders in turn tended to practice research on behalf of the few clients – with P&G a notable power then and now – willing to take risks on and fund novel research methods. Despite these parallel influences, however, an evolution that took over 75 years in the U.S. took just 25 in China.
Many multinational fast-moving consumer goods (FMCGs) companies such as Unilever, Group Danone and Philips entered China and funded research starting in the 1980s. But the influence of P&G on marketing research’s development cannot be overemphasized. All three of the executives we interviewed started their careers in no small part thanks to P&G’s early patronage of government and academic agencies that incubated early firms like GMR. P&G also sought to bring international standards for data collection and data reduction to this new market. Says Wu, “[P&G] brought professionalism not only to our company but to all of China in terms of research methodology, ideas and marketing concepts ... the well-trained marketing researchers all came out of it. Their veteran employees radiated out and brought expertise to different companies and different parts of China.”
Has the development of marketing research in China simply followed economic reforms? Or is there something in Chinese culture that allowed marketing research to take hold so rapidly? Chinese – like Americans – often attribute their success to some form of national exceptionalism. Wu points out that “the concept of doing research before taking actions did exist in ... Chinese culture and history” due in part to Mao’s famous quotation that “Without researching, nobody has the right to a voice.” But the utility of social science to Mao was naturally filtered through Marxist theory: The goal of research is to understand how to change society and further revolutionary causes. As with so much in China today, it seems doubtful that Mao would find modern marketing research a satisfying by-product of his leadership.
On the other hand, it is easy to see that China’s history of building strong networks of relationships to exert influence and accomplish tasks (guanxi) goes a long way to explain how marketing research has progressed so quickly. Before the industry existed as such, only relationship-building with government officials could allow researchers to secure permits to conduct studies and form companies. Even meticulous relationship management wasn’t always enough. Says Tian, “There were indeed a few episodes when we were taken to the police stations for negotiations.”
Once established as a respectable industry, however, this complex system of government, business, local and international relationships has allowed domestic agencies to fluidly form and recombine with each other and eventually with global players. Despite the political threats implicit in an industry whose history lies in measuring public opinion and needs, marketing research seems to have moved past the seeming contradiction of offering capitalistic science in a communist country with relative aplomb.
Leapfrog competitor
Thanks to the influence of Western FMCGs and academic literature, China defined most of its marketing research systems around the best practices and traditions of global MR. So in many ways, China should function as a leapfrog competitor – one that has learned from the mistakes of its predecessors, is not burdened by aging capital investments and can thus move quickly to adopt the newest and best technologies where appropriate.
In reality, however, marketing research in China more often looks like low- to middle-quality Western research circa 1985. To be sure, excellent research is done to international standards in China – mostly on behalf of those same FMCGs that designed the industry to their specifications 20 years ago. But quality, authenticity and innovation have always been and remain a major challenge for the Chinese marketing research community. For example, focus groups have been adopted with great zeal in China, despite the fact that many of the qualities that characterize the worst qualitative research in the West (inappropriate use of the method, ill-trained moderators, scamming participants) are rampant in China.
Our interviewees consistently pointed to three areas that challenge quality and jeopardize the credibility of their industry today: changes in respondent behaviors; pricing; and qualified labor supply.
The quick evolution of the research industry has been paralleled by even quicker changes in Chinese mores and social norms. Chen explains that early on, respondents were “‘simple’ ... [they] found marketing research novel and would participate without doubts.” Wu echoes, “People told us what they thought in a straightforward manner, without hesitation. ... Some even were so hospitable that they invited us to stay for dinner.” Today, says Chen, people are less willing to give you their time. Despite the availability of experienced researchers and efficient public transport, completion rates for household interviews continue to decline.
A European or North American researcher who has contended with plummeting response rates and increasing incentive requirements for the past 20 years may offer a wry smile at this point. But Western researchers have also experienced these changes over a longer period and in a gentler way. Just as Chinese MR has gone from fledgling to fully developed in less than three decades, many urban respondents have progressed from naïve and intrigued to cynical and mistrusting in the same period. Just as it begins to gain critical mass, China’s marketing research industry must cope with a public that often slams the door in its face (literally), expects unfeasibly high incentives or seeks to game the system.
Taken a toll
Pricing structures for research in China have also taken a toll on the industry’s development and ability to raise the bar on quality of execution. Simply put, many clients (both domestic and international) expect research to be done at prices not dissimilar from 1995 and many agencies feel obliged to comply. To some degree, Chinese MR agencies are locked in a commoditizing price war, says Chen. “Many companies are similar in their ways of doing things. Being too homogeneous ... brings us back to the vicious cycle of pricing and quality concerns.”
P&G’s influence on research in general has extended to pricing structures. First, P&G tends to subcontract only data collection, fostering growth and professional development mainly in the operationally-oriented commodity end of the market. As well, P&G’s pricing systems focus on cost-per-interview and haven’t evolved a lot in the past two decades, despite order-of-magnitude changes in China’s GDP and labor costs. To some degree, as P&G goes, so go all other clients. “As a result,” says Wu, “the marketing research pricing levels of China are strongly undervalued today. This not only affects local companies, but also makes multinational [research firms] unable to command higher prices.”
Various other factors also contribute to pricing concerns. All of our interviewees remarked that, as the industry has grown larger and more competitive, margin pressures on agencies are universal. Tian also comments that the tradition of clients (at any level in the supply chain) paying vendors only on completion of work places enormous cash flow pressures on smaller vendors. This, in turn, can squelch innovation and lead to a general sense of commoditization throughout the industry. Finally, China’s habit – common across industries – of throwing large quantities of cheap labor at problems is not ideally suited to high-end services like marketing research, despite the labor-intensive nature of much data collection.
To some degree, all of these trends are present in other areas of the world as well, yet China continues to suffer from one of the most inconsistent quality reputations for marketing research worldwide. Even in markets in which MR is a more established part of the business process, client willingness to pay more for quality has declined sharply in the last two decades. The prevailing philosophy is that agencies should be able to maintain and even raise their game without raising prices, just as most client companies have had to do in their own market segments.
Blaming this on low margins or the pricing expectations of a single, influential client may dodge important issues. With rapid growth and success comes rapid responsibility; China has not moved any faster in marketing research than it has in any other industry to accept international standards of quality and authenticity, despite the best efforts of organizations like the CMRA. And the sheer scale of business in China seems to complicate efforts to promote quality initiatives.
In marketing research, of course, quality ultimately derives from having a corpus of professionals who – through academic and on-the-job training – manage quality research against theory-based best practices. Perhaps the most significant challenge raised by our experts is the availability of qualified MR professionals. Marketing research faces significant – sometimes insurmountable – competition from other, higher-paying professions. Says Chen, “People have high expectations for a promotion path. In six years or so, they demand to be promoted to director level. If you do not make it happen, there are competitors waiting.” Wu adds, “At the beginning, their income is lower than in some other industries. So turnover is high. As a result we cannot train up a researcher well so that solid skills are transferred.”
Exciting prospects
Despite these challenges, China offers exciting prospects that differ from more established markets. Over time, influence of domestic clients is likely to change the MR landscape. Companies such as Haier, Lenovo and Huawei continue to expand into international markets; given the propensity of Chinese business leaders to choose domestic companies when possible, their research providers will be along for the ride. According to Chen, “If a local Chinese provider of MR can offer research to [domestic Chinese companies] through a network of research capabilities in different countries globally, they probably will be more inclined to buy from this provider. ... I do not see such a local company yet, but in five or 10 years’ time there probably will be.”
As well, client-side researchers will increase in sophistication over time. Currently most research expertise rests in agencies and a handful of multinational companies. But as domestic clients increase the spend and sophistication of their research, their staff are likely to become more discerning of research quality and more appreciative of the competitive advantages that high-quality research can confer. Tian expects to see “a better understanding of and culture of MR on the client and agency side.”
A fascinating stage
Finally, China remains a fascinating stage for experimentation in new research methods. “I think marketing researchers in China are still trying to see clearly how online and offline methods can work together,” explains Wu. Even as much marketing research in China is still best conducted face-to-face, China’s youthful population and robust mobile infrastructure points to a pattern of decline in traditional data collection and a rise in mobile and online methods. And rest assured that, like all other changes in China’s brief marketing research history, this pattern will be faster, bigger and subtly different from any other market.