Brand Confucian

Banks will roll out the much anticipated 50,000 won note tomorrow. A survey of the English and Korean language press on the event reveals the following interesting predictions on the note’s possible effects. Although a few of them I believe are misguided, each merits consideration from a marketer’s perspective.

Increased convenience

According to the Financial Times, the average Korean withdraws between 110,000 and 120,000 currency each time s/he visits the ATM. What took 11 or 12 notes before can be handled with three. Also, no longer will consumers be hassled with those pesky 100,000 won promissory notes (수표) that require a national ID number and mobile phone number. Most likely a 50 thousand won will replace promissory notes up to 500,000 or even 1,000,000 won.

Less paper and paperwork, more convenience. Fairly straightforward, so far.

Price increases – worries of price increases

Again, the Financial Times reports worries that consumer products manufacturers may increase prices. Most likely, manufacturers will alter package volume to increase value on 30,000-40,000 won products.

That seems reasonable, although frankly, as a marketer, I wouldn’t advise re-packaging initiatives coinciding with the new denominations’ launch. Such projects could easily backfire. Consumers (particularly Korean consumers) aren’t stupid, they’ll notice, and even if value increases, a 15-20 percent increase in packaging size is sometimes unperceivable, or seemingly insignificant. Korean products have been priced with the 10,000 won denomination in mind since its release in 1973. And price is only one variable influencing package volume demand. Consumption rates, average family size, and psychological price-value thresholds also must be given appropriate consideration when determining product volume/quantity. Before marketers and manufacturers jump on the re-packaging band wagon, they’d better do their research.

Increased Consumer Spending

The Korea Herald reports that retailers are hoping consumers will increase spending upon the release of the note – particularly on larger ticket items.

I’m not holding my breath. These retail marketers (I use the term lightly) are neglecting a well documented phenomena called the denomination effect. People are less likely to part with larger denominations. Granted, people will be more likely to spend the 50 thousand won notes than the 100,000 won promissory notes. But these aren’t as widely circulated as the ubiquitous Man-won (10,000 won[note]). Koreans are likely to be more attached to a 50 thousand won note than they are to five – 10,000 won notes. Since consumers overwhelmingly use the 10,000 won note on purchases up to 100,000 won, I predict that consumer spending in cash is likely to decline slightly, but overall will remain fairly constant as credit card spending for purchases of  50,000 – 100,000 won  will likely increase inversely. There is likely to be an initial frenzy spurred by various  ‘50,000 won discount events’ in which retailers actually forfeit margin in an effort to get people to part with these new notes, but after that, I believe things will pretty much go back to normal.

Increased inflation

Milton Freedman famously posited that “Inflation is everywhere and always a monetary phenomenon.”  Milton’s monetarism, the theory that largely informs fiscal policies the world over (including Korea), and has held relatively true for the past 4 decades or so, holds that inflationary pressures are directly related to the overall supply of money. Any inflation in the next couple years will have nothing to do with currency denomination (unless the new note increases monetary velocity by some exponentially miraculous factor – which it won’t) and everything to do with the hundreds of billions of dollars MB  borrows from kindergartners to spend on the great and ‘green’ economic bailout.

Increased Corruption

This one is by far my favorite. Munwha Ilbo’s Choi Bum obsesses opines on how the new denomination will increase the valuation of black money. You know, that black and vile stuff lining the nooks and crannies of an increasingly morally bereft society. Imagine their glee as shady politicians, mobsters, and pimps consider fattening their bank accounts from ever-thinning envelopes and more portable attaché cases.

After seeing the reporter’s name, I thought the article might be tongue-in-cheek. So I asked a Korean writer friend for a gut check – nope, the dude is officially a crack head.

I’m salivating.

Seriously.

MK reports that the much anticipated iphone release in Korea is scheduled for July.

About 3 months ago I went out looking for a new ‘smart’ phone and found that most ‘smart’ phones available in Korea are really rather dumb. While Haptic from Samsung Electronics has a nice, sleek design, and the LG cookie phone is cute, the content developed by manufacturers and service providers was severely lacking in my humble opinion.

I hope to see the iphone take Korea by storm. With such a large portion of the youth population not only familiar with web 2.0 technology but also with programming, I am optimistic about the application development market in Korea. I hope this platform is the next big thing for Korean nerds so they can showcase their innovation.

I also believe that millions of Koreans – my guess is around 5-6 million – will switch over. This will be huge for KT (formerly KTF) as I think they will take significant market share from SK in the venture. I hope that Apple will stick to its guns and remain with KT exclusively, at least for a while. This is total conjecture, but I’m guessing that the thing that’s been holding the phone’s release up – aside from government regulation, is the pricing arrangement with KT. Although subsidised mobile phone pricing has been available in Korea for some time, companies tend not to offer steep discounts on more popular models.

The pricing model is what I think will make this deal a game changer. A Korean friend of mine who purchased a new cellphone only a month ago is already planning on making switch. Korean consumers change handsets more frequently than consumers anywhere. SK will lose many, many subscribers in this battle. It will be interesting to see what they do to compensate.

One thing I am interested in is how the phone will be marketed. This is where Apple needs to be careful of being too hot-headed. A little market localization is in order. They definately need some local star power… someone not too expensive, but relevant and sofisticated. Hmmm….And in addition to TV and internet, they also need some event marketing. I hope they don’t blow this. It’s the opportunity of a lifetime.

Once I get my grubby paws on one of these things, and after allowing significant enough time to gauge the market response, I intend to write up a full review from the Korean consumer perspective.

According to a May 17 report issued by marketing and communication firm Cheil Worldwide (below CW), Korean consumers purchasing patterns are overall less reactionary and more situational than they have been during past recessions. While still broadly sensitive to the economic environment, CW claims Korean consumers learned how to internalize and individualize the recession from their experience in the 1997 Asian financial crisis (broadly, if misguidedly, referred to – even by the media – as the ‘IMF crisis’ in Korea).

As reported by YTN 24 News CW identified 5 ‘broad’ consumer behavior types in the current recession:

Observing – 30% (불황주시형)

Demographic: Married individuals in their 40s. Upper-class white-collar households with monthly income exceeding 5 million won made up 44.2 percent of this group.

Behavior: 82.8 percent acknowledge the severity of the recession but don’t make large changes in purchasing patterns.

Synchronizing – 24.1% (불황동조형)

Demographic: Middle class families in their 30-40s. This group is dominated by homemakers and households with monthly income of 3-4 million won.

Behavior: 89.3 percent express concern about the severity of the recession. Synchronizers display a blind ‘alignment’ behavior toward the recession. This group is particularly likely to decrease (70.4 percent) consumer spending, most typically by ‘trading down’(55.3 percent) before nixing discretionary spending.

Korean Consumer Recession Purchasing Behavior Trends

Subordinating – 22.69% (불황복종형)

Demographic: Self-employed individuals and men figured heavily in this demographic. Families with monthly income of less than 3 million won were common. High household debt was also a common denominator for this group, with the average debt to income ratio at 71.8 percent.

Behavior: This group indicates a willingness to cut without regard to a commodity’s category or importance. Insurance is the only expense that seems to stick with this group.

Self Preserving – 14.7% (불황자존형)

Demographic: Unmarried individuals in their 20s.

Behavior: This group tends to contradict itself. While 94.8 and 74.2 percent respectively claim they are decreasing or delaying discretionary spending, only 3.1 and 2.1 percent respectively indicate willingness to give up favorite products and brands. This group displays an overwhelming (74.2 percent) aversion to decreased ‘personal investment,’ regardless of the economic environment.

Disregarding – 8% (불황무시형)

Demographic: Unmarried professionals and women dominate this demographic. Single income households with monthly income exceeding 5 million won comprise 47.4 percent of this group. As a group, disregarders display a better-than-average debt to income ratio of 45.6 percent.

Behavior: This group is motivated by quality of life and indicates a willingness to maintain discretionary spending.

The take-home message: now is not the time to cut back on marketing. Each of these groups – even the subordinators – can be reached through targeted communication. But marketers need to focus on 3 Re’s of Re-cession.

Re-search, research, research – Insights gained during a downturn are triply valuable because a) your competitors are likely cutting their research budgets and therefore sharpening your edge by default b) consumer behavior is more volatile making mistakes more costly but also creating hidden gem opportunities for those ready with the right message at the right time and c) recessions create an atmosphere of defacto group-think for marketers (especially those whose research budgets have been slashed) making it easier to zig group zag if you’ve got your message properly targeted.

Re-think pricing strategies. Now is not the time to slash all inventory by 50%. The Korean market in particular is ripe for price re-anchoring. It is important to maintain a broad perspective. Take a fresh look at your overall portfolio and current customer segments. Can you tweak your product offering or value proposition to increase market share or even open a new segment? Don’t focus only on down-trading. Look at disregarders, Self preservers, and possibly observers as well (together comprising 52.7 percent of the market) as potential up-traders as well. People will be looking for value bargains as well as price bargains. Well positioned price promotions and communication can help to increase market share for premium products in new consumer segments. Be careful of steep discounting however, as it tends to hurt brand image (even though your image will be a little sturdier during a recession so long as quality and supply are reliable).

Re-view advertising spending. It is a well documented truth that recessions are a great time to grab market share through effective advertising. However it would be a mistake to blindly increase advertising dollars in a gamble to increase market share. If you can, maintain the marketing budget and increase reach (your budget should go further as costs go down). If you don’t have a choice and must decrease advertising spending do it the smart way. Look for ways to cut advertising’s length without compromising on frequency or reach. The most important thing to remember about advertising is that you have to do it better in a recession. Better doesn’t necessarily mean more, it means better planned, more effectively positioned and timed, better targeted and expertly communicated.