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Advertising – Social evil or opportunity to add value?

Advertising – Social evil or opportunity to add value?

Blog article entry on: Mar 5, 2010

There are 3 points I will make in this article:

1. Brand building and advertising are under utilised as business tools in Vietnam
2. Foreign invested consumer goods and services companies are taking advantage of this fact to gain market share
3. The Vietnam advertising industry is at the beginning of a huge growth curve

When I first arrived in Vietnam in 2002, to manage advertising agency J Walter Thompson, I was surprised to learn how young and under developed the advertising and marketing disciplines were in this great country.

It was not until the 1990’s that advertising campaigns on TV were permitted, and many other forms of communication, such as event marketing, consumer promotions and billboard advertising were significantly more important in Vietnam than they were in other markets, where mass media such as TV, newspaper and magazine advertising dominate the industry.

At that time two key impacts resulted from this imbalance in the industry:

1. Marketing budgets were spent inefficiently – because efficient mass media were under utilised
2. Because marketing investment was seen to be inefficient it was not made a priority by Vietnamese businesses, who underestimated the benefits it could deliver, because of point 1. above.

An added complication here has been the government limitation on a company’s ability to claim advertising expenditure as a legitimate business expense. Companies have been restricted to claiming no more than 10% of turnover for marketing expenses.

International marketing companies saw this as an opportunity to establish their brands and gain market share by investing in advertising while their local competitors did not. As a result the top 10 advertisers each year on TV and in Print, for the past 10 years, have mainly been foreign invested companies.

When we look at advertising expenditure per capita we get some idea of the size of the disparity. In 2006 we compared countries across the Asia Pacific region to size the opportunity in Vietnam for advertising companies (to understand the potential for our own advertising business, by estimating how much advertising should grow in Vietnam.

An excellent yardstick here is China with which Vietnam shares many cultural values, but other developing markets also provide interesting contrasts. A study from the World Advertising Research Centre, in 2007, provided raw numbers for measured advertising expenditure by country, and was used as the basis for the following analysis:

Advertising Expenditure Per Capita 2006, WARC (C) 2007:
Analysis and conclusions by red|brand builders

(Measured expenditure only – TV / Print / Outdoor / Internet – not including the value of Event Marketing or consumer promotions)

Country 2006 USD$ Advertising Expenditure per capita
Developed Group
Australia $427.2
Hong Kong $886.4
Singapore $278.7
Japan $267.1
South Korea $166.2
Taiwan $63.5
Country 2006 USD$ Advertising Expenditure per capita
Developed Group
Vietnam $4.6
Malaysia $49.8
Thailand $37.4
China $36.7
Philippines $30.8
Indonesia $14.5

Vietnam has made significant gains since 2006, with advertising expenditure growing annually at roughly double the rate of GDP growth, but the potential growth of the industry is still huge.

If we take the ‘developing group’ as our benchmark, the simple (rather than weighted) average of per capita advertising expenditure is $33.84 (7.35 times Vietnam).

While the ‘developed group’ has a simple average of $188.57 (41 times Vietnam).

Based on our forward projections, we believe advertising expenditure in Vietnam will double to $2Billiion USD by 2015 (15% annual growth – compounding), with a big shift towards more efficient media such as TV and Online, and the battle to win a share of that growth between foreign invested and local advertising agencies will be fierce.

At present there are approximately 3,000 advertising company licenses issued in Vietnam but of those around 30 (mainly foreign invested companies) hold around 80% share of a market worth around $1 Billion USD.

Local companies will gain more share as the market grows. We expect their growth rate to be double that of foreign invested players, but the foreign invested companies will still grow, as the market grows because they have the ‘first mover advantage’ combined with global and regional advertising contracts with multinational fmcg and services companies.

Branding will continue to grow in importance in Vietnam as companies and state owned enterprises realise the return on investment that branding can generate. ‘Cola’ – is not Coca-Cola, a Daewoo is not a BMW and in each case at least a 25% ‘intangible’ gain is made in the price consumers are willing to pay for the product.

Sure some of the price gain can be attributed to improvements in quality, but over and above that are significant price gains attributed to brand alone.

How Vietnam and the great companies of Vietnam can access the power of brand building, is a topic for another day.

Click here to download the complete PDF file

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