Expert Insights Key Opinion Leaders –riding the new advertising tide

Key Opinion Leaders –riding the new advertising tide
Advertising is one of the key fields that enable businesses to connect with customers. In today’s digital era and amid rapidly changing consumer behavior, advertising has had to evolve in order to keep pace with and resonate with target audiences.

Key Opinion Leaders, or KOLs, are the new thing in advertising and are the by-product of the internet and social media revolution. KOLs are content creators who regularly post their original content online; they attract hundreds of thousands of fans who follow and interact with them. KOLs always have a specific focus area, such as fashion, cosmetics or parenting. In these particular areas, their views or recommendations can have great impact on the group. As a result, businesses, particularly consumer brands, are increasingly engage in social media collaboration with KOLs to reach to their target audience effectively. Instead of creating its own marketing content, brands can take advantage of KOLs with hundreds of thousands of highly engaging followers to create the content. With their considerable influence and creative content, the delivery of advertising through KOLs has become more dynamic.

In China, social media platforms have been quickly evolving. New content formats, such as live streaming or short videos, are delivered on new platforms, for instance Weibo, Wechat, Toutiao or Meipai. Since 2014, China’s online advertising revenues have outgrown revenues from traditional channels such as TV and magazines and are forecast to grow to become five times bigger than they are currently, reaching RMB491.4 billion in 2018 and growing at 25-30% per year, according to iResearch.

China advertising market segments 2013-2018E in RMB bn

Source: iResearch

China online advertising market size 2013-2020E in RMB bn

Source: iResearch

Some 15% of the online advertising revenues are from social media ads.

KOL marketing spending in China is estimated to be at least RMB 35 billion (~USD5 billion) and is expected to grow three to five fold over the next five years.

The effectiveness of traditional formats of advertising as a marketing tool is being challenged by these new formats, such as KOL marketing, which is gaining increasing importance.

Unlike traditional advertising content, KOLs are a combination of media (self-franchise), traffic (fans and followers) and content. Advertisers are also allocating more resources to KOL marketing. According to AdMaster, 63% of brands want to invest more in KOL marketing in 2018.

The Golden Week holiday in China saw major outbound travel by Chinese people, and this is usually a prime and valuable time for advertisers of leisure and travel destinations to flex their creative muscle to attract consumers. Nearly 60% of Chinese outbound travelers are Millennials and Generation Z, based on a survey by Bloomberg Intelligence and Phocuswright. Over 70% of Chinese Millennial tourists rely on online resources to plan their trips, and KOLs play a key role in influencing customers’ purchasing decision-making process, according to PARKLU, a China-based influencer marketing platform for brands and KOLs.1

To help investors gain a deeper understanding of this new trend in advertising, Kim Leitzes, Founder and CEO of PARKLU, shares her insights.

About Kim Leitzes

Ms. Leitzes discovered the power of the KOL phenomenon in 2011, when she founded PARKLU to share her shopping experience on Taobao, hoping to become a KOL. Although she didn’t become a famous fashion KOL, it led to something bigger – in 2015 PARKLU raised a seed round of investment, with the goal of creating a platform that connects brands around the world with social media influencers in China. PARKLU is a leading platform in the KOLs space in China, with more than 40,000 influencers across 11 social media platforms, connecting leading brands with more than 600 million consumers in China through KOL marketing. PARKLU's data-driven technology gives brands the tools to discover the KOLs that are most relevant to them across a wide range of categories, manage social media campaigns and measure progress and effectiveness, including Return on Investment (ROI) and engagement across China’s top social media platforms.

In China, social media platforms have been changing at a rapid pace. How does this affect KOL marketing?

Kim Leitzes: China is a unique market for social media platforms. The platforms are changing at a much faster pace than in the rest of the world. So it’s our company’s mission to invest extra effort in helping KOLs to get exposed to different platforms and, at the same time, different content formats. This poses challenges for the KOL marketing business. We found out that KOLs and their fans tend to focus on one or two platforms that suit them the best. For example, a lot of KOLs are gaining exposure on Douyin, but ultimately their regular posts are still on Weibo/ Wechat. So, besides adopting new features and new platforms, focusing on the existing platforms is also important for the KOL marketing business.

In the world of social media, what is the major difference between China and other parts of the world? And how does that help KOL marketing to grow in China?

Kim Leitzes: From my observations, social media platforms in China are ahead of their international competitors in terms of monetization arrangements, such as the way they allocate traffic resources, how they share advertising revenue with KOLs and how they roll out campaigns. However, in terms of data analytics and supporting functions, China’s social media platforms still have a lot of room to improve. Businesses have more difficulty in directly delivering content due to a lack of data and support, while KOLs have more space to develop, since traffic is better allocated.

How are KOLs changing the advertising industry?

Kim Leitzes: I think KOLs represent the next generation in advertising media. The advertising industry has gone beyond the age of paper media and video media; now it’s time for KOLs. From the KOLs’ perspective, advertising remains the most important monetization method. The incentives push KOLs to keep on upgrading their content, which can ultimately benefit the advertising industry.

KOL marketing is far more effective for brands to reach out to potential customers than traditional advertising campaigns, definitely. People would not buy a product because they see an ad, but people buy a product after hearing other people’s experience. Kim Leitzes

What is the latest trend of KOL advertising?

Kim Leitzes: For advertisers, we find that advertisers and ad agents are allocating larger marketing budgets to KOL-related advertising. For KOLs, we see they are improving the balance between content creation and adver-tisement delivery. Instead of directly injecting advertising banners into their content, they are making soft advertising by adding original content like ads.

How do you see the future of KOL advertising?

Kim Leitzes: We think the long-term growth trend for KOL advertising and marketing is promising. We see data technology as critical, which can help KOLs to better map their fan base and fans’ interests. KOL marketing is far more effective for brands to reach out to potential customers than traditional advertising campaigns, definitely. People would not buy a product because they see an ad, but people buy a product after hearing other people’s experience.

Having good content remains at the heart of KOL advertising.

China online advertising market segments 2013-2020E

Source: iResearch

Besides advertising, what else are KOLs focusing on for monetization?

Kim Leitzes: We see live streaming become increasingly important for KOLs’ daily activity. KOLs are receiving significant amounts of virtual gifts in live streaming sessions. Some of the top KOLs are creating their own brands to monetize traffic. Currently, we see KOLs in the apparel and fashion segment actively doing this, given the entry barriers are relatively low.

What are the key challenges for KOL marketing business in general?

Kim Leitzes: The future for a lot of businesses in China is centered on technology. Technology-enabled services are very powerful. The marketers are relatively inexperienced. The percentage of expert KOL marketers is still very small. People need the right data visualization to feel confident in their KOL selections and to demonstrate the effectiveness of the marketing campaign. The bottle-neck for this market is that we work in a profession that is dominated by media professions but the skillset is more analytical. It needs more vigorous data analysis and big data to map the most relevant KOLs with the most effective platforms.

To learn more about China’s KOL phenomenon and investment themes behind KOL marketing, please follow the latest news on the Credit Suisse China Investment Conference.