Advertising practices

Advertising is an important means of marketing. Many Chinese enterprises in one way or another believe that advertising will automatically generate sales. This belief has resulted in over-extended outlays on advertising and high prices. A recent example of exorbitant advertising expenditure is Qinchi liquor, who spent RMB320 million (US$38.55 million) in the open bidding for prime time advertising on CCTV (China Central Television Station), the only national television network. The only reward seemed to be the title of 'king of the bid', rather than the expected sales increase.

Terms such as gross rating point (GRP) or cost per thousand (CPT) in advertising theory seem to be unknown to most advertising decision- makers . Consequently, few have given thought to an integrated and holistic approach to communication. Interestingly, however, those foreign joint ventures that have been successful in advertising their products are rarely seen on the seething bidding floor. None has gone so far as to chase the title of 'king of the bid'.

For many years , most advertising dollars have gone to television media, as they are seen as the most effective channels of communication to create product awareness among potential consumers in China.

Over 50 per cent of the media have agency agreements with advertising companies and nearly half their business is given to advertising agencies as a result of the agency agreements. Advertising agents normally receive 15 per cent commission on advertising sales. The majority of the media requires advance payment, while advertisers are left with little recourse if the advertisement is not aired or published at agreed times. The lack of reliable ratings data is another problem that makes it difficult for advertisers to make decisions and evaluate the effectiveness of their advertising efforts.

Comparison advertising is not permitted under the Advertising Law, nor is the use of superlatives. All advertising copy must be reviewed and approved by the regulatory authority, the State Industrial and Commercial Administration, before going into media. Claims such as 'No 1' or 'Top selling' need to be supported by documentation, such as certificates issued by the relevant government agencies or authoritative survey organizations.

Higher prices used to be charged to foreign companies but this price discrimination has been removed and all companies, both foreign and local, now pay the same price. Advertising rates are reviewed and published on an annual basis.