The “turning point of fate” of offline advertising

2020 was supposed to be the year of recovery for China's offline advertising market. Many consulting firms, including iResearch, had given different growth expectations, but the sudden outbreak of the epidemic cast a shadow on the growth of China's offline advertising market in 2020.

If we look at it from a 5-month time dimension, offline advertising should be one of the worst sectors during the epidemic; if we extend this time dimension to 5 years, offline advertising is at a turning point in its fate.

The epidemic has pressed the "pause button" on China's economy, but as long-suppressed consumer demand explodes, it is inevitable that offline advertising will return to normal, especially in the second half of the year, and will surely usher in retaliatory growth.

More importantly, this epidemic will reshape offline advertising and accelerate the industry's evolution towards OMOMO, putting dataization, AI, and personalized advertising on the fast track.

Regarding this "black swan" opportunity, the editor's thinking logic is as follows.

1. Under the impact of the epidemic, the first thing to do is to ensure survival. The stop loss methods of each company are slightly different

The advertising industry was already in a downturn due to the economic downturn in 2019, and now with the impact of the epidemic, it is even more miserable. Especially for offline advertising, the value of a large number of offline advertisements has decreased, the conversion effect is not as expected, and advertisers are lost...

The essence of Internet business is traffic. Only with traffic can advertising have value. In order to prevent the spread of the epidemic, strict travel restrictions have been implemented across the country. Unlike online advertising, the scenes that outdoor advertising relies on, such as shopping malls, subways, cinemas, restaurants, office buildings, etc., have become deserted, and the flow of people has dropped sharply.

If there is no offline traffic, the resource value of outdoor advertising will tend to zero, and it is reasonable for advertisers to reduce their investment.

In addition, regular customers of outdoor advertising also suffered serious losses. Taking Ctrip, the leader in the OTA field, as an example, Ctrip expects that its net revenue in the first quarter of 2020 will drop by 45% to 50% year-on-year. Excluding equity compensation expenses, the operating loss in the first quarter of 2020 was between 1.75 billion and 1.85 billion yuan.

Affected by the epidemic, industries such as retail, fast-moving consumer goods, catering, film and television, and tourism have suddenly fallen into a state of stagnation, and the corresponding advertising budgets will be reduced or even zero, which will directly affect the revenue of offline advertising companies.

The “black swan” incident caught people off guard, and the customers of offline businesses turned to online advertising, which made the situation even worse. For offline advertising companies, the only goal is to survive. But how to survive is another difficult problem for enterprises.

In this context, outdoor advertising media must not only cleverly leverage external forces (cooperate with well-known brands and take advantage of anti-epidemic publicity), but also diligently improve internal strength (strengthen technical reserves and service levels). Here we take some leading companies as examples. The measures taken by the leading players in response to the epidemic may provide some reference for the industry.

△ Focus Media saves itself by transforming Jiang Nanchun into Li Jiaqi

Starting from February 16, Jiang Nanchun, chairman of Focus Media, transformed himself into the "Li Jiaqi of the venture capital circle" and started one live broadcast after another, drawing traffic from various toB platforms such as Zhenghe Island, 36Kr, Chuangye Dark Horse, and Business Knowledge Hall, in order to attack the consumer mindsets of potential customers. Of course, the conversion effect was not timely.

△ New trendy self-help marketing costs 800 yuan

On February 21, Xinchao Media decided to donate 10 billion yuan of standard-price advertising resources to caring companies during this epidemic. The amount of advertising donations given to each enterprise is equivalent to the amount of charitable donations made by the enterprise for this epidemic (the amount donated is the same as the amount given, and the maximum amount shall not exceed the publication price of RMB 50 million). This was a brilliant public relations response to the pandemic, as well as a self-rescue action that extended an olive branch to large corporate clients. However, the industry generally believed that Xinchao's move might cause it to lose its basic base of small business clients on which it relied for its prosperity, and it must guard against the embarrassing situation of losing both clients and markets.

△ Baima is looking for potential investors to save itself

On January 24, White Horse Outdoor Media (00100.HK) issued an announcement that the company would like to provide the latest information to the company's shareholders and potential investors. Clear, Channel Outdoor Holdings, Inc.'s strategic review of its approximately 50.91% stake in the company continues, but CCOH has begun preliminary discussions with a potential buyer. CCOH has not made any decision yet and has not entered into any definitive agreement with any party to implement any potential transaction.

△ Yashiwei introduced Ant Financial to save itself

On November 20, Asiaray issued an announcement stating that the company plans to issue a total of 35,675,700 shares to Ant Financial, with a subscription price of HK$4.10 per share, a discount of approximately 12.77% from the closing price of HK$4.7 on November 20. The net proceeds were approximately HK$143 million. The company said the proceeds will be used for general working capital and funding of its projects in China and Singapore. The Company is also considering the possible spin-off of the Group’s businesses in Southeast Asia, Hong Kong and Macau and their independent listing on a recognised stock exchange.

During the epidemic, industry leaders such as Focus Media further strengthened their brand influence by actively participating in epidemic prevention and control publicity; some companies, such as Xinchao Media, prepared for the coming of the cold winter by laying off employees and cutting salaries; and some digital marketing platforms, such as JD Mo Media, relied on the early layout of intelligent advertising terminals.

In addition, fortunately, offline advertising companies generally obtained financing in 2019, and the cash on their books is relatively safe.

2. Waiting for the turning point of the epidemic, retaliatory consumer investment is an opportunity

As the domestic epidemic is gradually brought under control, people's work and life will return to normal, and the recovery of offline advertising will become inevitable.

Although we cannot accurately determine when the epidemic will end, we can learn from SARS and see its impact on outdoor advertising.

According to CODC data, the low point of outdoor advertising in 2003 occurred in June, and with the end of the SARS epidemic (basically ended in July 2003), outdoor advertising has shown an upward trend.

The outbreak occurred during the Spring Festival, and the peak of offline consumption suddenly dropped to freezing point. Coupled with the pressure of economic downturn, the epidemic had a profound negative impact on outdoor advertising during the period.

Today, the epidemic in China has been effectively controlled, and the duration of the domestic epidemic is expected to be shorter than SARS (November 2002 - July 2003). All industries and sectors are actively resuming work and production, and offline traffic will return to normal. I believe that starting from the second quarter, advertising spending in various industries is expected to pick up, especially in industries such as catering, tourism, and film that have suffered major impacts. Outdoor advertising will also usher in a new round of growth.

Jiang Nanchun, the founder of Focus Media, who experienced the SARS in 2003, also predicted that after this epidemic, most of the leading companies and brands will not only not step on the brakes, but will step on the accelerator.

Now it is only a matter of time before the ban is lifted. The offline industry will return to normal and outdoor advertising will rebound. Hua Ge believes that after the epidemic, consumer demand will follow the recovery path of "warming up - outbreak - normal".

A. Warming-up period

Even if the epidemic reaches a turning point, society still needs a recovery period. Affected by the "tail" of the epidemic, consumers' offline consumption demand is much higher than during the epidemic period, and the flow of people has rebounded but has not returned to previous levels. For advertisers, this is a signal to place outdoor advertisements, but the scale of the placement is not large, it is just a tentative placement.

B. Outbreak

You must know that the epidemic has not eliminated people’s consumption demand, but has suppressed demand in the short term.

When the impact of the epidemic completely disappears, work and school will resume and return to normal. Due to the long-term suppression of the epidemic, consumer demand at this time will continue to rise for a period of time, and a round of "revenge consumption" will occur. Although consumer income will decrease during the epidemic, short-term consumer confidence will not decrease.

The flow of people will return to normal levels or even higher than normal. Offline consumption, led by fast-moving consumer goods and food, will experience explosive growth, and outdoor advertising will also usher in a climax.

Hua Ge has also interviewed friends around him. Most people will resume offline consumption within one week to one month after the end of the epidemic, mainly for dining, shopping, and traveling.

C Normal period

After another round of explosive consumption, consumer demand will return to normal levels before the epidemic. "Revenge consumption" is more driven by emotions and will not last very long, expected to be around 1 month.

Although the epidemic is not over yet, the competition has begun for outdoor advertising companies.

As BCG's "Impact of the Coronavirus Pandemic" report said: "Brands should plan ahead before recovery arrives so that they can stand out in the competition after the epidemic ends."

A particularly crucial point here is that in addition to traditional fast-moving consumer goods brands, such as Xiaoxiandun, Dong'e Ejiao, Luckin Coffee and other regulars in media advertising, catering, education, service and other categories based on the 5-kilometer living radius will enter a period of restorative investment.

This means that residential communities will become key advertising channels.

3. The epidemic has forced the reconstruction of offline advertising, and the OMOMO model will be popular

A crisis means a change in the industry. This epidemic is equivalent to a stress test, forcing companies to upgrade and reform themselves.

In Hua Ge’s opinion, the epidemic is reshaping the offline advertising industry, and OMOMO will become the main theme. OMO (Online-Merge-Offline) refers to the deep integration of online and offline. This business model was proposed by Kai-Fu Lee, the founder of Sinovation Ventures, for new retail.

He believes that the impact of the Internet on the real economy is gradually deepening after going through the pure offline era, e-commerce era, and O2O era. In the future, the new business wave of OMO will drive offline businesses to complete online and offline integration within 10 years.

Today, the offline advertising industry is being forced to open up the OMO model. Hua Ge believes that the OMOMO (Online-Merge-Offline-Merge-Online) model is a complete closed loop. There are four basic standards for the most important direction of change in offline advertising in the next five years.

Standard configuration 1: Fully intelligent advertising terminal

After the epidemic, all industries are in a state of disrepair. Especially for the outdoor advertising industry, it will accelerate into a period of ecological reconstruction. Traditional delivery forms and effects can no longer meet the needs of all parties in the industry, and the digitalization of the industry and the online upgrading of products are imminent. With the popularization of 5G and cheaper smart chips, 100% intelligence of offline advertising terminals is an inevitable trend. Through the application of digital technologies such as AI and IOT, the core advantages of intelligent terminal management and control will gradually emerge.

Standard Configuration 2: Online Advertising and Marketing Data

The essence of advertising is to spread the word, that is, to convey effective information to users. The acquisition of effective information will become the keyword for the entire marketing industry. Consumers need effective information (precise delivery), brands need effective information (effect conversion and monitoring), and regulators also need effective information (data security). How to obtain and deliver effective messages requires the integration of online and offline data.

In recent years, the marketing circle has been pursuing the integration of brand and effect, and the effectiveness of traditional offline advertising has been questioned many times. It is well known that offline advertising has three major problems: it is difficult to select sites before the investment, the cost of monitoring during the investment is high, and it is difficult to quantify after the investment.

In order to solve these three major problems, the leading outdoor advertising platforms have now chosen to go digital. By leveraging artificial intelligence, big data, IoT and marketing knowledge graphs to form rich user tags and segmented fields, we help advertisers accurately match users, guide data-based delivery, optimize scenario-based resources, formulate pricing strategies, and evaluate delivery effects, so as to quickly reach the target population, optimize delivery results, and maximize marketing effects.

In the future, digital marketing capabilities will be the key to platform competition. Nowadays, affected by the epidemic, companies have to slow down, but this is not a bad thing. On the contrary, the platform can cultivate internal strength, enhance digital marketing capabilities, accelerate digital transformation, and meet more intense competition after the turning point.

Standard configuration three: Advertising leads to sales

With the maturity of facial recognition technology, payment channels, mobile accounts, address authorization and other channels, the most ideal advertising delivery model is to complete the transaction as soon as the advertisement is delivered, so that consumer decisions can be made directly in the marketing scenario.

Standard Configuration 4: Private Online Traffic

At present, the main model is to obtain online data for analysis and then place offline advertisements. This is a routine operation for many brands, but in fact, the end of advertising does not mean the end of brand marketing.

For brands, it is more important to convert the data obtained offline back to online. Through data accumulation, we help manage brand assets and make advertising more effective. With effective feedback from post-investment data, advertising is no longer a cost but convertible investment income.

In cooperation models similar to JD Mo Media + JD Mall, Focus Media + Alibaba, and Xinchao + Baidu, the most critical thing is how merchants use technical means to convert offline public domain exposure traffic into private domain traffic for brand placement, which is the key to long-term and sustainable placement.

Pure theory is too boring. Taking the example of JD Mo Media’s advertising for an air-conditioning brand, Brother Hua can demonstrate to everyone that when the OMOMO (online-offline-online) closed loop is completed, advertising will undergo essential changes.

As mentioned above, advertising based on the OMOMO model will restore user footprints (people who browsed and added a product but did not purchase it, etc.) through the data that connects online and offline, and screen out offline distribution outlets for targeted distribution, thereby achieving an effective increase in online purchase rate. And because they are on the same platform ecosystem, merchants can convert public domain traffic into private domain traffic for stores through key paths.

This is just one example of digital marketing on the platform. In the era of rapid development, every company faces problems such as extensive operations. As Hua Ge mentioned earlier, the past delivery forms and effects can no longer meet the needs of brands, and the digitalization of the industry and the online upgrading of products are imminent. In fact, JD Mo Media is using its digital technology capabilities to help the industry speed up its transformation and upgrading.

At present, compared with Focus Media and Xintiao, JD Mo Media, which is backed by JD Mall and JD Digits, has a slight starting advantage. It is still unknown whether Focus Media + Alibaba, Xintiao + Baidu/JD.com can achieve the effect of 1+1>2 in the future.

Time is the best standard to test the OMOMO model.

4. A few quick thoughts: Offline advertising will also be different for different people

Nowadays, digitalization is becoming more and more infiltrated in the outdoor advertising market, and more and more giants are beginning to make efforts to lay out their plans, which has also attracted a lot of capital investment.

The three characteristics of outdoor advertising, namely, scene-based, infinite scalability and compulsory, have also attracted a large number of advertisers to turn to outdoor advertising. Regarding outdoor advertising, Hua Ge also has the following thoughts:

1. Upgrade of outdoor interactive advertising

The article "Top Ten Marketing Observations in 2020: The Integration of Advertising and Private Domain Traffic" predicts that in 2020, the advertising industry will enter an era where there will be no advertising without interaction, and interaction will be the effect. In the 3G era, pictures and texts were the mainstream, in the 4G era, short video live streaming was the mainstream, and in the 5G era, interaction is the mainstream. In 2020, more and more interactive advertisements will appear outdoors, immersing users in the interactive experience and bringing brands and users closer together.

2. Videos replace text and images as the mainstream

With the development of 5G technology, the transmission rate of future networks can reach 10Gbps, which means that downloading a high-definition movie will take less than one second, and video output will be qualitatively improved. In addition, people are more easily attracted to dynamic videos than static images and texts, and the video advertising format will be more in line with user habits. This also means that videos will replace pictures and texts, and video scenes will become the mainstream of outdoor advertising.

3. Advertising scenarios are more diverse

In addition to traditional elevator advertising, advertising scene categories will expand rapidly under the impetus of capital, including elevator IoT screens, elevator projections, horizontal shows, framed posters, express lockers, barriers, access control screens, access control light boxes, community bulletin boards, etc. Taking JD Mo Media as an example, it has more than 55 million POI points in more than 400 cities across the country, covering communities, retail, travel and other scenarios. Among them, there are more than 2 million frame advertisements, 160,000 elevator TV screens, and more than 100,000 community access control screens. It can be said that smart advertising scenes will be everywhere.

4. Outdoor advertising has different faces for different people

With the development of AI technology and big data, we have seen that online advertisements will recommend personalized advertisements based on personal interests and hobbies. From one face for each person to different faces for each person, outdoor advertising will also be recommended based on individual personality in the future. It can be customized by region, by community, or even by individual.

5. Industry reshuffle accelerates, and the “big fish eat small fish” effect is obvious

For some small and medium-sized enterprises, without sufficient cash flow, they may not be able to wait for the dawn before the darkness. The leading players will continue to acquire the resources of bankrupt small and medium-sized enterprises by relying on their own advantages in capital, technology and other aspects, accelerating the reshuffle of the industry. For the outdoor advertising industry, it will accelerate into a period of ecological reconstruction. As the competition for online traffic has become fierce, advertisers are forced to start expanding offline traffic. After the epidemic, the "big fish eat small fish" effect will become more obvious.

Editor's note:

The worst moments also breed the best beginnings. In 2020, being alive means everything. I believe that after enduring the long winter, offline advertising will usher in a brighter spring.

Author: Hua Ge

Source: Party A Finance