China Is No Longer A Faint Blip on the DM Radar ScreenChina is on the verge of becoming a significant direct marketing market, as proved by Reader's Digest and other new market entrants this year. Current trends are bringing opportunities worth monitoring.
Beijing's hosting of the Olym-pics in 2008 is symbolic of real engagement with the outside world. Positive improvements include postal reform, greater acceptance of direct marketing, more list availability and rising personal incomes.
On the downside, the consumer market has not grown as fast as the economy, and strong price competition is hurting margins. For many companies it is time to take a closer look.
Reader's Digest is the biggest name among new entrants. Though its flagship magazine has yet to be approved for publishing in China, it has begun licensing books to a mainland publisher. A local direct marketing firm has been test marketing these books in solo mailings from Guangzhou since December with different premiums and prices.
These tests have relied mostly on post office compiled lists, which have not worked well for catalogers. Sweepstakes-based marketing pitches are handicapped by a Chinese law that limits first prizes to a paltry $600.
Other new entrants include Austria's Europa Versand, which sells health products and knickknacks by solo mailer. UNICEF began to sell greeting cards to domestic businesses via direct mail this year. A number of other charities have done testing of direct mail fundraising solicitations to consumer lists. QVC has been sniffing around, as has Singapore's Health and Science, which will try to base in Hong Kong. (Yes, Hong Kong is now part of China. But it retains border and customs controls and a different currency, thus access to mainland China is limited.)
China's preparation for entry into the World Trade Organization has meant many developments, all positive. Unfortunately, many of them are to be phased in during the next five or more years. Duty rates have come down across the board, and restrictions on foreign investment are to be dismantled step by step. In the run-up to WTO, China's legal system is being brought more closely in line with international practice.
The beginning of an effective direct marketing association is in place, with local chapters being set up in Shanghai and Guangzhou. These two cities are the hubs of direct marketing activity in China to date, and these local chapters have more than two dozen members between them.
About 18 months ago, China's Post Office Administration was separated from the Ministry of Posts and Telecommunications, giving postal reform a shot in the arm. The e-commerce bubble also drove reform efforts, though many changes were quite basic. Simply adding night shifts at bulk distribution points late last year has helped speed mail and parcel delivery by up to 30 percent. Parcel delivery in most areas is finally to the door.
The post office is now one step closer to offering COD services with parcel post. Today COD is available only via Express Mail or private courier, and then only within limited geographical areas.
Business Reply Mail has finally come to China this spring, and polybags have been approved for the first time. Unfortunately, all catalogs must still be mailed in an envelope. A major postal problem remains the delivery rate of catalogs in some areas of the country.
Telephone rates have dropped substantially with the breakup of China's telecommunications monopoly. Inbound toll-free calls have dropped to 9 cents per minute, while outbound long distance, via IP telephony, are below 3 cents per minute.
Many of the business-to-consumer Web sites have struggled or closed. Otto has been pleased with its Web site, www.otto-cheer.com, which is performing well given its small budget. According to the company, the site is not good for prospecting but catalog recipients are heavy users.
The top companies in the industry are Dell Computer Corp. with the highest annual sales, and Bertelsmann Book Club with the largest customer list, 1.5 million, followed by Healthy Household, a Guangzhou multititle consumer cataloger.
Otto, 3Suisse and Mecox Lane each run apparel catalogs in Shanghai. Procter and Gamble Co. has stepped up mailings to a large database of consumers built via product inserts and other promotions.
In the DRTV market, Australia's TVSN and Japan's Oakwood have been leaders, though high media costs and deteriorating response rates have brought consolidation and losses. Most sales by television are consummated through COD deliveries. Unfortunately, the rejection rates at delivery are high, reaching more than 20 percent, and COD is unavailable outside urban areas.