Grey China case study regarding kaunching Gi.ppt

Case study : Gray China Strategic Move regarding launching Gi

1. GreyChina
By
Asif Ali Rahman

2. 6/26/2024 © 2004 by Asif Ali Rahman 2
Synopsis
GreyChina'sCEO,VivecaChan,mustmakeadecisionregarding
themostopportunetimeforthelaunchofGi–aninteractive
servicesdepartment.GreyChinawasasubsidiaryofGrey
Advertising,basedinNewYork.ThekeyserviceofferedbyGiwould
bethedevelopmentofclientwebsitesontheInternet,butChanalso
plannedtoinvestigateotherservices,includingsmartcards,point-
of-saledevicesthattrackedcustomerloyaltyorawardedpoints
basedontheirpurchases,andinteractiveTV.Althoughawareness
ofInternetmarketingwasgrowingrapidlyinHongKong,demand
wasgrowingataslowerpace.InmainlandChina,despitean
increasingawarenessandacceptanceoftheInternet,most
companieswerelargelyunawareorskepticalofhowWebsitescould
beintegratedintotheirmarketingcommunicationsprogramsto
promotetheirproducts.Thus,Channeededtoconsiderwhetherthe
launchshouldbedelayeduntiltheChinesemarketmaturedmore
fully.

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Learning Objectives
The case provides information about both the disadvantages and
advantages of being a pioneer in the marketplace: Grey China
would need to build primary demand in an industry that is still in its
earliest stage of growth. This would be a costly endeavor in terms of
financial outlay, as well as in the diversion of management focus.
However, first mover advantage could allow Grey to become a
market leader, and give it a chance to greatly influence the
development of the market. Moreover, it would add to the firm's
service offerings, increasing its diversification (a global trend in the
advertising industry).
In the context of an industry in the infancy stage of the industry life
cycle, the case asks students to design an initial marketing plan for
the new service. Decisions regarding the development of an
effective pricing strategy and a marketing communications plan as
well as a target market analysis will provide students with the
opportunity to focus on those parts of a marketing strategy.

4. Is launching of Gi a proper
strategic move for Grey China?

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Factors Influencing Gi’s Success
Credibility and reputation for quality in the marketplace (important in
an industry where there are no benchmarks or standards)
Lau and Chan's high profile in the advertising industry in Hong Kong
and China
Knowledge transfer from Gi in the U.S. (ability to leverage their
experience)
Access to other agency services (research, creative, etc.)
Valuable experience in creating integrated branding campaigns
Polished client pitches
Extensive advertising industry contacts for prospecting
Lau (IT and marketing specialist –advertising industry experience
and MBA)
Customization for local markets (offices throughout China, which is
regionally very diverse)

6. Should Chan wait until the market has
matured past the initial growth stage?
Should she place a greater emphasis on the
Hong Kong or the mainland Chinese market?

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Considerations in the Decision
Opportunity Costs
Building an advertising agency from the ground up with several offices throughout
China had taken considerable resources
A great deal more investment was necessary to build the basic infrastructure of the
agency throughout China if Grey China was to play the leading role that Chan
envisioned for the company. Expansion of each office was an imminent possibility,
involving hiring of more staff and upgrading of systems. Moreover, Chan had made a
commitment to bring Grey's global standards into its China operations. This entailed
extensive training programs and aggressive expansion of Grey's IT systems.
Moreover, she had already committed to an on-going financial investment to link Grey
China's four offices through technology to transfer knowledge freely between sites
and to pool resources to create a single "virtual office"
Other less risky projects were also competing for her firm's limited resources of time
and money. For example, Chan considered the fact that an investment in media
research or hiring talented creative staff would likely have a greater impact on Grey
China's revenue stream in the near term than would the launch of Gi. Chan's
expectation –and hope –was that cost recovery would begin within two years
The fact that, after the initial investment, investment in the department could grow in
tandem with revenue was another key impetus for Chan to immediately launch Gi.
However, the launch of Gi would involve diverting capital and management focus
from other projects during an entrenched recession in Hong Kong that began in early
1998 and continued into 1999, with no signs of relief in the near future.

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Considerations in the Decision
Economic Environment
Advertising budgets were often the first to be slashed in troubled times. Moreover,
even in boom times, clients were not overly eager to try revolutionary new forms of
advertising (to experiment). Advertising agencies were held highly accountable by
their clients who needed to be constantly reassured that their advertising
expenditures were positively impacting the bottom line.
However, the issues of accountability and affordability potentially meant increased
opportunity for Gi. Lau saw the economic downturn in Hong Kong as an advantage:
“The major cost of doing business in Hong Kong is rent. Hong Kong
was recently rated the most expensive city in the world –not because
of input costs or labor but because of rent. Moreover, Hong Kong
thrives on small business –we have a very entrepreneurial culture.
We are not afraid to take chances”
Lau believed that her clients were searching for increased value in their advertising
budgets during these economically harsh times. Lau's contention was that developing
an interactive campaign was less expensive than creating, producing, and buying
media time, for a 30-second TV commercial for example, which could run into
hundreds of thousands of dollars. Moreover, although the Internet clearly could not
reach the mass audiences that television could reach, the Internet could use
resources better because audiences could be segmented and targeted much more
effectively.

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Considerations in the Decision
Increased cost accountability
through Auditing
Relatively lower costs for Internet marketing compared with more traditional
advertising services
Internet Marketing could be monitored more effectively than more traditional forms of
media. As with many other forms of advertising it was very difficult to prove a direct
correlation between advertising dollar outlay and increase in revenues. However, an
Internet site could be audited for `hits' a client could be sure of just how many
consumers visited its site, and whether they were new or repeat visitors.
Another key part of Gi's marketing strategy would be to overcome the fact that
website development would be a costly endeavor for Gi's clients. Moreover, this
investment would be made in an environment of uncertainty –it would be very
difficult for Lau to prove to potential clients in Hong Kong or China that Internet
advertising would increase their revenue.
Another challenge would focus on the industry debate about the degree of security in
the electronic-commerce infrastructure of the Internet, which slowed more robust
consumer acceptance of the Internet as a shopping channel.
In China in 1998, credit card information still needed to be faxed for a purchase
because most state banks would not authorize payment through the Internet alone,
thus complicating the transaction. Consequently, most Internet sites were produced
to increase awareness of a company's products or services, to strengthen its brand
name, to disseminate information to its target market, or to use as a public relations
channel rather than a sales channel.

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The Issue of Timing –Go Now
The global trend toward integration of agency services meant
that to remain a global leader in advertising services, Grey
China would need to be a pioneer in its offerings of advertising
services. The case states that Chan envisioned a role for her
agency that "broke barriers and helped to write the rules of
China's burgeoning advertising industry."
Second, Chan respected Lau and appreciated her IT talent, and
wanted to keep her at Grey. Chan could entice Lau to remain at
Grey Gi by providing a professional challenge, an opportunity
to share in the division's profits, and a chance to head the
division. Because talented IT personnel with excellent
salesmanship were scarce in the industry (and specifically in
China), Chan's desire to keep Lau at Grey China was a
significant factor in the decision to establish Gi immediately.
Another major consideration in launching Gi was the fact that
after an initial investment, further investment in the division
could come with increased revenue.

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Hong Kong or China
Hong Kongwas
significantly more
advanced
technologically than
China, Gi should focus
on that market
Hong Kong was
smaller in size
Chinawas a bigger
market with two million
users (double the size
of Hong Kong)
Business in China was
driven by relationships
(lack of acceptance of
interactive marketing)

12. What general pricing strategy would
you recommend for the launch of Gi
in China?

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What does the price Gi sets for
its services depend on?
How long can Grey China afford to run Gi
at a loss (which largely depends on Chan's
patience)?
How long is Lau willing to ‘stick it out’
before she sees a satisfactory monetary
reward?
Anticipated revenues (revenue cannot be
forecast with any degree of certainty due
to the immaturity of the market)