Brands after digital transformation in China should start with martech, not adtech

Been to a digital conference in China lately? 

'Digital transformation' is one of the big buzzwords at these conferences.

But it’s really just adtech, when you look beyond the jargon. Every DMP/DSP is out in full force to promote their platforms, telling brands why they should place their media spend with them. Through proprietary software and special relationships that enable them to open closed doors, these platforms seem to have some magical ability to reach your desired target audiences. And because there’s no system for independent verification, you simply have to trust that their black boxes will deliver the goods.

Alibaba and Tencent are also in the DMP-services game, promising to match your data with their massive digital ecosystem for look-alike targeting to potential consumers, from awareness to purchase. Although massive in scale, their models are of an imperfect world that assumes Chinese consumers live totally within their firewalls, since neither player allows data sharing.

China has been buzzing with digital transformation solutions because there’s so much data out there, and data is key to making digital transformation happen. With China’s mobile penetration around 95 percent, mobile-payment rates 11 times of the US, and e-commerce reaching one-third of all retail purchases in 2018, there’s nowhere else in the world that has seen such a massive disruption in the entire marketing mix as China.

But adtech is actually just one part of digital transformation, which itself has many definitions. In broader terms, digital transformation is not just marketing, but the ability to harness the capabilities and advances of emerging technologies to digitally reinvent products, operations, and marketing.

Despite all these available technology and data, digital transformation in China is still in its beginnings. While platforms may have made it easier to target customers, it is still far from perfect.  Data fraud is present in almost a quarter of all third-party data, despite Tencent and Alibaba spending billions to combat it. Targeting algorithms are improving but will need more historical data to be more effective.

Most companies in China, foreign or local, are holding tons of their own data, but this data is under-utilised because it is disconnected and divided among company divisions, and not combined at a central source. And when there is centralised data, it’s segmented by transactions and demographics, and doesn’t contain any behavioural data from digital platforms. Behavioural data not only helps improve segmentation and personalisation on platforms like WeChat, but also helps third-party DMP targeting. 

The path to digital transformation in China isn’t just adtech, it’s also martech. Martech focuses on creating and managing advanced digital tools and process that maximize a brand’s customer databases. There’s a famous Chinese phrase: 攘外必先安内 (meaning to “resist foreign aggression through internal stability” or in English, “put your own house in order first”). Brands will realise more benefits by focusing on their own internal data resources first before engaging in third-party data. In marketing, we call this the 80/20 rule: 80 percent of your profits are created by 20 percent of your customers.

With so much uncertainty on the outside, it’s best for brands to focus on these existing customers that truly drive business. Alibaba and Tencent are pushing brands to merge their first-party data to their DMPs for better look-alike modeling. The reality is that most brands haven't yet gotten their own data houses in order and don't have the first-party databases to take advantage of these opportunities. Too much of the discussion nowadays is on DMPs, but the conversation should be about your existing customers.

Focusing on your existing 20 percent may be stating the obvious to many, but most Chinese companies are still addicted to their old days of new customer acquisition and growth through expanded distribution. That, as well as utilising digital tools to improve customer service, retention and repurchase are not priorities.

Martech is a lot harder than adtech because it requires a change of mindset, but it's fundamental for digital transformation, and necessary for companies to survive here in China.

Bryce Whitwam is CEO of Wunderman China.