A Look at Digital Retail Innovation in Chinese Advertising

Advertising agencies tend to openly declare their enthusiasm for startups and all things disruptive, but many insiders told there is often not much substance behind such fancy talk.

And they usually manifest their love into three major art forms:

  • Collaborate with a reputable accelerator to co-create innovation “Hub”/”Lab”
  • Spend some money on startup events or awards in order to show off a good PR story
  • Recruit in-house innovation strategist to look for anything trendy or forward-thinking, albeit often given the person in charge neither power nor budget

One fundamental bottleneck gets in the way:

  •  Who will be eventually paying the startup/innovative solution, which might involve high risks of failure? Advertising Agencies or Agencies’ client?

The answer is neither.

So in that way, things would not actually move forward.

In China, the new trend is some advertising agencies are more willing to peddle innovation than ever before, perhaps not primarily for the sake of innovation, but simply for the increase of their own business revenues. For instance,

a local media buying & online advertising agency which has been operating for more than a decade is starting to promote its innovative solution specifically targeted at the beauty and fashion sector. If Alibaba is pushing New Retail by dominating the offline space, this online advertising agency gets the same inspiration by setting its foot in brick&mortar as well. The vision is the amalgamation of online advertising and offline innovation, with sophisticated data analytics sitting on top.

Instead of seeking external partnership, it even either invested or created two independent companies under its mothership, focusing on:

  • Smart device design and manufacturing
  • AI-driven data analysis and platform

Take beauty as an illustration here, this agency claims to be able to implement all the hot ideas in the market, an end to end offering, including but not limited to:

  • AR mirror
  • AI customer service
  • Interactive shelf
  • Automated vending machine
  • AI skin analyzer
  • All IOT related data dashboard and insights

The agency told it helped L’Oréal Paris roll out skin analyzer (RMB2000 per se) as a pilot project in selected offline stores. Just when you wonder where is Modiface (L’Oréal newly acquired AR/AI  baby) here? It is said Modiface only provides SDK in China, while not only did it produce the smart device, but also conduct all the dog work, such as software integration.

Its success case also includes the demo of Sephora AR makeup mirror.

Ok, wait a minute, we already mentioned the AR makeup mirror partnership between Sephora and Meitu (China’s selfie app giant and begins to provide Modiface like B2B technologies for beauty brands) a few months ago. See Link.

So who is actually serving Sephora here? The agency explained the project is, in fact, a collaboration with Meitu, meaning Meitu provides the AR feature/AI algorithm and its role is supplying the mirror behind. Anyhow only God or Sephora knows the truth.

The agency also revealed that it has been the key vendor, in particular, those shiny gadgets behind Sephora’s most creative flagship store in Shanghai.

In many ways, this local agency really hopes to convince its existing client portfolio into buying its offline innovation solution. But the conversion does not come that handy. The whole cost of launching an extravagant, high tech concept store is estimated to be at least RMB500,000. Sephora would debut one or two this kind, but highly unlikely to continue going down this road much further. The agency admitted that Sephora has already turned down the expansion proposal it drafted. Though lots of beauty brands might like to get their skin in those innovation games, they usually do not prefer to get themselves all in, to the bone.

Today, more and more local advertising agencies are adding innovation ideas on their menu to please their clients, however many brands consider them as newly packaged snake oil, full of smoke, an alluring excuse of asking extra money, without really solving the issue of B2C sales growth, aside from a big chunk of marketing budget they have to lavish on these agencies annually.

By: Cecilia Wu