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The retail industry in China is making up for lost time and advancing at a spanking pace with digital point-of-purchase and signage applications to address consumers at critical points, reports Jayanthi Iyengar.

Walk down any busy city street in China and you will see liquid crystal display (LCD) screens beaming their message at you. It is the same scenario in railway stations, subways, retail stores, malls, and the lobbies of malls and other commercial buildings where audiovisual messaging and in-elevator advertising is the order of the day.

Behind nearly all of these display terminals is Focus Media Holding Ltd (listed on Nasdaq as FMCN), China’s largest out-of-home multi-platform lifestyle company. The two-and-a-half-yearold company, which has been consolidating its position in the fast-evolving, Chinese digital-signage (DS) market, announced its cash-and-stocks buyout of Shanghai Framedia Advertising Development last October for US$183 million. Then, in January this year, it acquired Target Media for US$325 million.

Before the acquisition, Framedia, was a billboard operator claiming dominance over China’s largest community advertising network while Target Media was the country’s second-largest out-of-home flat-panel display-advertising network operator, particularly in residential areas. Like Focus Media, Target Media was a start-up, launched in July 2003, and became a worthy competitor to its acquirer.

Following the mergers, Focus Media now operates a commercial location advertising network of over 60,000 displays in more than 30,000 commercial locations in about 75 cities in China. With the purchase of Framedia and Target Media, it gains a strong foothold in the billboard segment and in DS advertising, overtaking competitors such as Shanghai-based Digital Media Group and CGEN. Digital Media Group offers digital advertising on suburban trains and railway platforms, while CGEN operates digital displays in 255 hypermarkets and runs a digital network on Carrefour’s premises.

“The industry is watching the Carrefour deal but, since the announcement, it is not clear what is happenning,” says Joe Rossi, managing director, Asia, of UK-based global digital media retail network enabler Digital View, which has an office in Hong Kong.

The industry sees the Carrefour arrangement as a potential trend-setter in the Chinese digital retail space, the way the Wal-Mart-Prime Retail Networks (PRN) combination has been in the US. PRN, a subsidiary of global advertising firm Thomson SA, operates the mega retailer’s Wal-Mart TV on a revenuesharing basis.

In China, Focus Media has a presence in the commercial-location media network, in-store media network and in-elevator poster-frame network. Its advertisers include China Mobile, Sony, Haier, Canon, Alcatel, Toyota, Mazda, GM, Ford, Pizza Hut, McDonald’s and Heinz.

Focus Media’s investor relations manager, Jie Chen, says: “We have a broad advertising-client base. We provide advertisers with segmented media channels as an alternative to traditional media.”

Having sewn up deals for commercial and residential building-top and in-elevator advertising, what is stopping Focus Media from integrating its display terminals operating at various locations?

Industry sources say the Chinese out-of-home digital advertiser is not interested in integrating and centralising advertising messages as this will thrust it into the broadcasting space, subjecting it to the law governing satellite broadcasting, including meeting licensing requirements from the federal and provincial governments as well as meeting minimum capital requirements.

Focus Media’s business model, currently followed by retail DS operators in China, is similar to the Wal-Mart- PRN version in the US in that it pays retailers rental for the right to lease out the advertising space on the retail premises. The difference is that Focus Media does not have a revenue-sharing arrangement with the retailer from which it hires the advertising site.

The profits and growth opportunities that the DS business offers in China have brought many foreign media operators into the country. Two such companies are the UK’s London-based Digital View and Philadelphia-based Scale Inc, USA. The former also has a presence in Australia and Hong Kong while the latter is present Norway, the Netherlands, Japan and Hong Kong.

Both offer client services, ranging from dynamic DS software, narrowcasting, display networks and kiosks to cable- and corporate-TV broadcast.

These retail DS-network enablers say retailers in China need to relook DS and milk the medium for commercial benefit. As Scala Inc executive vicepresident Jeff Porter likes to tell clients during his presentations: “Digital signage — [not Web, TV or print] — is the new medium. Video-production houses think they have a broadcast-TV budget when they think DS. That’s just not the case. Retail point-of-purchase displays are usually static, which implies that the customer will simply pass it by.

“The real answer is to have a mix — part static, part animation, part video. And, the best companies producing content for DS today have figured out how to seamlessly integrate all three and re-purpose many of the media assets already available.

“Unless you fully understand how to do this effectively, you will end up being yet another postscript in a litany of defunct companies that ‘just didn’t get it’.”

Richard F Trask, director of marketing of Scala Broadcast Multimedia, says that the Chinese market, which is very new, presents an emerging business opportunity for DS enablers. “To date, the major focus of DS in China has been for retail applications,” he observes.

Even in the developed world, says Trask, the Scala experience indicates there is greater acceptance of DS in a retail environment in Europe than in the US. “This is due to the conservative nature of the retail industry in the US. It also has to do with the relationship between retailers and their advertising/ media companies.”

The advertising/media companies develop in-store strategies for retailers using a media mix that includes paper, posters, TV advertising, newspaper advertising and, more recently, DS.

“The key to the success of DS in this retail strategy depends on its being made a part of the marketing mix and not a separate entity outside the in-store marketing strategy,” states Trask.

Another guiding influence is the realisation that ad spend on traditional TV advertising is no longer as effective. The new issue is that viewers are beginning to employ new technology like DVD recorders to skip the ads displayed during a TV programme. Also, TV advertising is, by nature, created for the home audience and is often ineffective when directed at the consumer in the store.

“The trend in in-store advertising is towards messages at point-of-sale which address the consumer at that critical point — ‘the last mile’. These messages/ ads focus [on] the product being sold on the shelf where the display is employed,” Trask explains.

For this reason, an in-store environment may have multiple channels addressing consumers in various departments in the store — deli counter, houseware, health and beauty, appliances, etc — with each message/ advertisement designed to sell the product or service at a specific location.

“As it turns out, DS is the only adaptable technology to address this instore requirement. DS networks provide real-time messaging/ads or promotions in a day-parting environment.

“With DS networks, messages/ads can be developed for [different] portions of the day, with the flexibility to address the right customer at the right time retailer’s Wal-Mart TV on a revenuesharing basis.

In China, Focus Media has a presence in the commercial-location media network, in-store media network and in-elevator poster-frame network. Its advertisers include China Mobile, Sony, Haier, Canon, Alcatel, Toyota, Mazda, GM, Ford, Pizza Hut, McDonald’s and Heinz.

Focus Media’s investor relations manager, Jie Chen, says: “We have a broad advertising-client base. We provide advertisers with segmented media channels as an alternative to traditional media.”

Having sewn up deals for commercial and residential building-top and in-elevator advertising, what is stopping Focus Media from integrating its display terminals operating at various locations?

Industry sources say the Chinese out-of-home digital advertiser is not interested in integrating and centralising advertising messages as this will thrust it into the broadcasting space, subjecting it to the law governing satellite broadcasting, including meeting licensing requirements from the federal and provincial governments as well as meeting minimum capital requirements.

Focus Media’s business model, currently followed by retail DS operators in China, is similar to the Wal-Mart- PRN version in the US in that it pays retailers rental for the right to lease out the advertising space on the retail premises. The difference is that Focus Media does not have a revenue-sharing arrangement with the retailer from which it hires the advertising site.

The profits and growth opportunities that the DS business offers in China have brought many foreign media operators into the country. Two such companies are the UK’s London-based Digital View and Philadelphia-based Scale Inc, USA. The former also has a presence in Australia and Hong Kong while the latter is present Norway, the Netherlands, Japan and Hong Kong.

Both offer client services, ranging from dynamic DS software, narrowcasting, display networks and kiosks to cable- and corporate-TV broadcast.

These retail DS-network enablers say retailers in China need to relook DS and milk the medium for commercial benefit. As Scala Inc executive vicepresident Jeff Porter likes to tell clients during his presentations: “Digital signage — [not Web, TV or print] — is the new medium. Video-production houses think they have a broadcast-TV budget when they think DS. That’s just not the case. Retail point-of-purchase displays are usually static, which implies that the customer will simply pass it by. “

The real answer is to have a mix — part static, part animation, part video. And, the best companies producing content for DS today have figured out how to seamlessly integrate all three and re-purpose many of the media assets already available.

“Unless you fully understand how to do this effectively, you will end up being yet another postscript in a litany of defunct companies that ‘just didn’t get it’.”

Richard F Trask, director of marketing of Scala Broadcast Multimedia, says that the Chinese market, which is very new, presents an emerging business opportunity for DS enablers. “To date, the major focus of DS in China has been for retail applications,” he observes.

Even in the developed world, says Trask, the Scala experience indicates there is greater acceptance of DS in a retail environment in Europe than in the US. “This is due to the conservative nature of the retail industry in the US. It also has to do with the relationship between retailers and their advertising/ media companies.”

The advertising/media companies develop in-store strategies for retailers using a media mix that includes paper, posters, TV advertising, newspaper advertising and, more recently, DS.

“The key to the success of DS in this retail strategy depends on its being made a part of the marketing mix and not a separate entity outside the in-store marketing strategy,” states Trask.

Another guiding influence is the realisation that ad spend on traditional TV advertising is no longer as effective. The new issue is that viewers are beginning to employ new technology like DVD recorders to skip the ads displayed during a TV programme. Also, TV advertising is, by nature, created for the home audience and is often ineffective when directed at the consumer in the store.

“The trend in in-store advertising is towards messages at point-of-sale which address the consumer at that critical point — ‘the last mile’. These messages/ ads focus [on] the product being sold on the shelf where the display is employed,” Trask explains.

For this reason, an in-store environment may have multiple channels addressing consumers in various departments in the store — deli counter, houseware, health and beauty, appliances, etc — with each message/ advertisement designed to sell the product or service at a specific location.

“ As it turns out, DS is the only adaptable technology to address this instore requirement. DS networks provide real-time messaging/ads or promotions in a day-parting environment. “

With DS networks, messages/ads can be developed for [different] portions of the day, with the flexibility to address the right customer at the right time [and] location.

“Most in-store ads are developed ... to run for a period of time, typically, a week, a month or longer,” says Trask.

Digital View also cites several studies to highlight the effectiveness of digital communications in the retail format. A study conducted by Mintel US in 2003 showed that “customers visited stores with digital media twice as often as stores without it, spent an average of 5% more time in stores with digital media and spent 10% more [money] in stores with digital media. Also, the impulse-purchase rate was twice the normal”.

Another study by the UK’s I-vu in 2004 showed that digital media improved simulation, and engaged and informed customers. Consequently, it resulted in a 74% brand recall. A snapshot qualitative research on the drink sector in 2003 revealed that 82% of consumers found digital-media networks entertaining, 66% found them highly innovative and 68% discussed them with friends. Rossi of Digital View elaborates:

“The digital medium for retailers has the potential for a larger (holistic) consumer-buying and employee-education experience when it delivers broadcast, narrowcast and one-on-one messaging. Broadcasting could address generalised messages, narrowcasting could be focused on specifics while oneon- one could be educative, motivational and interactive.”

Currently, most of the retail-centric DS networks display either local- or national-brand ads of products sold in the store. These networks generally segregate themselves into in-house managed networks and third-party managed networks.

In-house networks are owned and self-managed by retailers, which sometimes hire service companies to do the job instead. Third-party managed networks, such as the PRN in the US, are owned by advertising companies. In-house networks’ advertising space is sold to national brands, interspersed with local ads, while thirdparty networks that are run by media companies like Focus Media sell ad space on the network to national brands and, often, either “barter” the ad space to the local retailer or charge the retailer for advertising in the space.

Although in-house networks give the retailer complete control over the system and messages/ads displayed at any given time, their implementation and maintenance, which could be significant, are borne by the retailer.

Conversely, a retailer need not bear the installation and maintenance costs of a third-party DS network but the disadvantage is that the local retailer has little or no control over the ads.

If DS-network enablers are to be believed, the future of DS lies in-house.

“Imagine the head of a mega retailer directly addressing shoppers at any of its retail outlets, the rapport between the retailer and buyer would be immediate. The [same effect can be be achieved with] the sales force, the marketing team and the rest of the staff when the head of the organisation shares his message directly with his employees at the same time across geographical territories,” says Rossi, who believes retailers would be drawn to the benefits of one-to-one communication of their own DS networks.

There is then the question of cost to retailers. “The cost of digital displays is plummeting worldwide. The cost of a plasma or LCD screen is one-third the cost it was even one-and-a-half years ago. This dynamic in conjunction with the availability of affordable broadband has made it easier for retailers to adopt DS networks,” explains Trask.

Adds Rossi: “Retailers already have very advanced IT infrastructure. Building DS on the existing platform would not cost that much. Besides, look at the benefit. The reach of the retailer would be phenomenal. As far as I see it that is where the market will go.”