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.