Three Dimensional - China, Korea and Japan Essay

Article 44 Three Dimensional The markets of Japan, Korea, and China are far from homogeneous. Mnsurr KoTABE AND Cnysrnr Jmxc sia is one of the world’s most dynamic regions, and offers multiple opportunities for businesses and investors. In terms of its nominal gross domestic product (GDP) in 2005, Japan has the largest economy ($4. S0 trillion), followed by China ($1. S+ trillion) and Korea ($. lZ trillion). China’s real purchasing power exceeds $7 trillion, Japan’s is estimated at $4 trillion, and Korea’s is estimated at $1 trillion. These giants’combined purchasing power is comparable to the $12 trillion U.

S. economy. One of the challenges faced by American and other Western Executive Briefing Globalizing markets might not mean that markets have become similar. Although multinational companies tend to believe that all Asian markets are the same, a comparative analysis proves that consumers in Japan, Korea, and China differ in their brand orientations, attitudes toward domestic and foreign products, quality and price perceptions, and product feature preferences. To ensure success, companies must set aside narrow and risky assumptions, and tailor country-specific strategies to target these consumers. ultinational companies is a tendency to lump together these markets and assume that Asian consumers have similar tastes and preferences, moderated by different income levels. This is not only a very shortsighted view, but also a risky assumption when entering these markets. Asian countries have distinct cultural, social, and economic characteristics that affect consumer behavior, with consumers in Japan, Korea, and China differing in brand orientations, attitudes toward domestic and foreign products, quality and price perceptions, and technology feature preferences.

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A comparative analysis of consumer behaviors can help companies identify effective marketing strategies, and enable them to successfully tackle these Asian markets (see Table 1). importance to the reputation of the merchandise than to their personal social classes. Noticeably, the country’s consumer markets have expanded to China and Korea. In Shanghai or Seoul, you can see the influence of Japan’s fashion trends and products. There’s even a Chinese word for this phenomenon: ha-ri, which means the adoration of Japanese style. Korea.

Consumers have very sophisticated tastes, show immense passion for new experiences, and favor premium and expensive imported products. In 2004, the Korean Retail Index showed continuous growth of premium brands in certain product categories, such as whiskey, shampoo, and cosmetics. Consumers also demonstrate great interest in generational fads (expressions of their generations and cultures, not just of their economics or regions), thereby selecting products that follow their generations’ judgments and preferences. Brand Orientation Japan.

Of all the developed countries, this is the most brandconscious and status-conscious. It is also intensely styleconscious: Consumers love high-end luxury goods (especially from France and Italy), purchasing items such as designer handbags, shoes, and jewelry. Since 2007, Hermes, Louis Vuitton (commonly referred to as LVMH), and Coach have opened glitzy flagship stores in Tokyo and enjoyed double-digit sales growth. And the country represents 20Vo of Gucci’s worldwide revenueo l5%o of LVMH’s, and 127a of Chanel’s. It seems that a slumping economy has not inhibited its consumers.

Eager to “know who they are,” they prefer brands that contribute to their senses of identity and self-expression. These highly group-oriented consumers are apt to select prestigious merchandise based on social class standards, and prefer products that enhance their status. Accordingly, they attach more 184 China. Roughly 10 million-l3 million Chinese consumers prefer luxury goods. The majority of them are entrepreneurs or young professionals working for foreign multinational firms. Recent studies found that 247o of the population, mostly in their 20s and 30s, prefers new products and considers technology an important part of life. Those in their 40s and 50s are price-conscious, brand loyal, and less sensitive to technology. ) With higher education and purchasing power, this generation is brand- and status-conscious. It considers luxury goods to be personal achievements, bringing higher social status. Article 44. Three Dimensional Table Market Characteristics of the Three Largest Asian Economies Population (2005) Nominal GDP (2005) GDP purchasing power parity 1 Japan Korea 127 million 48 million $+. gO China 1,306 million trillion $ . ZZ trillion $1. 84 triilion $7. 3 triilion $3. 7 trillion $ . 92 trillion (2004)

GDP per capita purchasing power $29,400 $19,200 2. 9% 4. 6% $5,600 parity (2004) GDP real growth rate of country 9. 17″ (2o04) Degree of luxury brand consciousness Preference for foreign products Very strong Strong Weak Varied the presence of foreign companies in previously closed industries. (In fact, the society is much too uncritical and passive in the acceptance of foreign-especially American-products. ) Korea. These consumers hold negative attitudes toward foreign businesses; the majority believes that these businesses transfer local wealth to other countries, and crowd out small establishments. onsumers are very proud, and demonstrate a complicated love-hate relationship with foreign brands. very few consumers understand or speak English, let alone the languages of their closest trading partners: Japan and china. often, Korean campaigns require significant retranding-use of localized brands-to influence local perceptions. According to an official at carrefour (the world’s second-largest retailer), the company has difficulty expanding its investm”nt, into other provinces because of excessive regulations, and hasn’t done enough research to keep up with Korean consumers’needs.

Nevertheless, the country is increasingly comfortable with mouth advertising, garnering a flood of free publicity. The company flourished by promoting high quality with rocar appeal. Strong (particularly for European products) Very strong Price/quality perception Extremely Polarization of Very price quality consumption conscious demanding Very And consumers are far less brand-conscious than before, and will embrace new products from unknown companies. china. Attitudes toward foreign products differ, depending on consumers’age groups.

Companies can no longer view this country’s youth through the lens of traditional cultural values; this generation considers international taste a key factor in making decisions. conversely, the mature generation (55 years and older) expresses a definite preference for locally made products. In general, consumers believe imported products under foreign brand names are more dependable. Many foreign companies (e. g. , Nike, Nokia, Sony, McDon_ ald’s) have replaced unknown local brands. The country retains lmportance of high-tech features on new products high Very igh Varied sources: central lntelligence Agency, world Factbook, and lndex Mundi Purchasing behavior tends to vary regionally. consumers in metropolitan areas follow fashions/trends/styles, prefer novelty items, and are aware of brand image and product quality. Thesl consumers live on the eastern coast-in major cities such as shanghai, Beijing, shenzhen, and Dalian. There, luxury brands such as Armani, Prada, and LVMH are considered prominent logos for high-income clientele. According to LVMH, this country is its fourth-largest market in terms of worldwide sales.

It’s no wonder that many highend firms label these consumers “the new Japanese”: a group of increasingly wealthy people hungry for brands and fanatical about spending. cally customers for upscale brands, there is a growing affinity from the younger, affluent consumer for western brands. ,’ However, some foreign companies-with an increased focus more than 300 licensed starbucks outlets, and chairman Howard schultz says of this market: “In addition to the 200 million middle-to-upper-class segments of the population that are typi- n local appeal-have lost their prominent brands, images to domestic rivals, ultimately forfeiting their market share. After all, when this country’s consumers are inspired by design and function, they prefer domestic brands because of their good value for the money. Quality and Price Japan. These consumers are the worrd’s strictest when it comes to demand for product quality, and they clearly articulate their needs/desires about a product or packaging operation. They view information other than price (e. g. brand, packaging, advertising) as important variables in assessing quality and making decisions. compared with chinese and Korean consumers, they have much higher expectations for products-and are willing to pay premium prices for them. In agricultural produce, for example, they are less tolerant of skin blemishes, small size, and uniformity. Foreign companies that don’t fully understanrd and meet consumers’ needs/expectations struggle with their investments. Although wal-Mart dwarfs the competition (with $2g5 billion in 2004 global sales) and owns 42% of all Japanese Domestic vs. Foreign

Japan. Although consumers are extremely demanding and have different perceptions of products made in other countries, they are generally accepting of quality foreign products. However, Japan is mostly dominated by well-established companies such as canon, Sony, and royota. Many globally successful firms experience great difficulty gaining footholds. In this market, Hliagen-Dazs lapanlnc. succeeded the exit of competitor Ben & Jerry’s, dominating the premium ice cream market with a 90va market share. It successfully delivered the message of a “lifestyle-enhancement product” with word-of185

ANNUAL EDITIONS supermarket chains, it faces losses there. Its “everyday low prices” philosophy doesn’t seem to attract Japanese consumers, because they often associate low price with low quality: yasu-karou, warukarou-cheap price, cheap product. To cater to these consumers, manufacturers have adopted a total quality approach. To survive fierce local competition, Procter & Gamble sought the best available materials for product formulations and packaging. In the process, it learned some invaluable lessons on how to improve operations, and obtained new product ideas from consumers. Interestingly, the company took this education on the Japanese way of interacting with consumers and applied it globally. ) Today, the country serves as Procter & Gamble’s major technical center in Asia, where it develops certain global technologies. And McDonald’s opened its first store in Tokyo’s Grnza district, which is identified with luxury brand-name goods. It purchased expensive land-not justified by the limited profits of a hamburger establishment-to boost the quality image of its product. Today, McDonald’s Japan has grown to become the country’s largest fast-food chain.

In terms of cost, the younger generation prefers low-priced products-everything priced at 100 yen (similar to U. S. dollar stores). The “two extreme price markets” segmentation model explains how consumers value lowerprices fortheirpractical use while paying premium prices for self-satisfaction, social status, and the quality of products-especially those from Europe. As a result, anything that falls in the middle of the price range-such as the country’s designer brands-generates petty profits. Korea. Consumption has been sluggish since the Asian financial crisis of 1997-1999.

However, the younger generation is at the forefront of a new and emerging pattern; it holds opposing expectations of/preferences for low-priced and high-priced goods. When purchasing high-tech or fashion-related items, these consumers prefer well-known brands, and tend to purchase expensive goods to attain psychological satisfaction. Yet they are willing to purchase unbranded goods with low prices, as long as the basic features are guaranteed. It has taken several decades for discount stores to surpass the retail market. China.

Most consumers are price sensitive, and try to safeguard part of their income for investment. In 2005, many global automakers readjusted their strategies in this country, based on demand predictions that most consumers would purchase cars priced less than $12,000. One popular Chinese automaker, Chery, priced its QQ model between $5,500 and $7,500; another aggressive domestic automaker, Xiali, priced its cars at similarly affordable prices. Although this market is lucrative with growing demand, foreign brands (e. g. , Honda, General Motors, Volkswagen Group) cannot compete with Chinese automakers’ competitive prices.

And when the younger generation worships Western and luxury brands-in eagerness to establish its social identity-it might prefer pirated versions to domestic ones, making anticounterfeiting control a major issue for companies. by The World Bank Group, the country possesses 410,000 of the world’s 720,000 working robots (which perform useful chores and provide companionship). Its electronics companies create gizmos by borrowing new concepts from the computer industry, such as personal video recorders, interactive pagers, and Internet radios.

Instead of looking for cost or value, consumers are willing to pay for better and cooler features and technological sophisticar tion. Largely because of Japan’s small living quarters, manu- facturers have become experts at miniaturrzing and creating multifunction devices. For instance, Sony’s PlayStation Portable compacts the power of the original PlayStation into a palmsized package. According to the company, it can deliver music and MPEG-4 video, can display photos, and even offers a WiFi connection for wireless gaming and messaging.

It’s also no wonder that the country welcomed Baroke, the first company to successfully produce quality sparkling and still wine in a can. Korea. The most wired country in the world is a leader in Internet usage and high-tech industries such as mobile phones, liquid crystal displays, and semiconductors. It also has widespread broadband, and high volumes of personal computer ownership. While mobile phone sales have cooled in Japan, these consumers continue to trade in phones for newer models about every six months.

Largely because of Japan’s small living quarters, manufacturers have become experts at miniaturizing and creating multifunction devices. According to a Samsung Research Institute survey, consumers prefer to express themselves without following social conventions. The Cyworld virtual community Web site, for instance, provides a subscriber with a private room, a circle of friends, and an endless range of “home” decoration possibilities and cool music. Ever-widening cyberspace reaches more than one-fourth of the population. The younger generation in particular enjoys virtual shopping malls and e-commerce. China.

It is imperative for companies to understand the major differences in consumer behavior between generations. Young Chinese consumers (typically affluent segments in the prosperous cities) are passionate about the latest developments. Recent studies found that 247o of the population-most with ages in the early 20s or 30s-prefer new products and consider technology an importantpart of life. Those in their 40s-50s, on the other hand, are price conscious, brand loyal, and less sensitive to technology. Advice and Recommendations Marketers need to tailor country-specific strategies to target consumers in Japan, Korea, and China.

The existence of strategically equivalent segments (e. g. , the younger generation, with its propensity to purchase high-quality, innovative, and foreign products) suggests a geocentric approach to global markets. These similarities allow for standardtzed strategies across 186 Technology Features Japan. Because of the country’s harmonic convergence of the domestic market and the industrial sector, consumers have always preferred high-tech gadgets. According to an estimate Article 44. Three Dimensional nationai boundaries. By aggregating such segments, companies not r-rnlr preserve consumer orientation, but also reduce the o-the country’s economic development, consumers’ perceptions of an “invasion” then will dissipate number of marketing mixes they have to offer-without losing market share, marketing, advertising, research and development. and production throughout Asia. loreor er. because product design, function, and quality determine consumers’ experiences, companies must simultaneousll incorporate all areas-such as product developrnent and marketin-e-to establish commanding positions in mature markets. Once they create positive images in these countries, success ri’ill be forthcoming. .

Japan: over time. Product design directly affects a company’s competitiveness. This and brand power can overcome product quality, and even product functions. To present the best product design to its consumers, Samsung Electronics hired an influential British industrial designer. According to the company’s Economic Research Institute, a good design “provides a good experience for consumers”, it looks different, feels good, is easy to use, and has an identity. Foreign companies can no longer wait; the market for consumer goods is growing rapidly, stimulated by a strong economy. . This is the most profitable market for luxury goods companies. The key to success is promotion of high quality, local appeal, and a sense of extravagance. As one of the most volatile markets, it requires a steady flow of new stimuli with an improved rhythm of innovations. To survive, companies must continuously develop new products and establish prestigious brand vaiue. If they can succeed there, then they can do so anywhere. China: . . . . . . . . Picky Japanese consumers clearly articulate their requirements about products or packaging operations.

As a resuit, companies can use the country as their technical center-to gain tirsthand experience in satisfying consumers in the region. These consumers are willing to pay for better and cooler features and technological sophistication. Companies can win their hearts by introducing gizmos. Because significant differences exist among generations, and those differences will translate into diverse consumer behaviors, segmentation marketing (identifying variations based on age, region, and gender) is best. Companies must be aware of these differences, and understand what kinds of products/ services can meet the market segment’s needs.

For Its diversity and the vastness of its consumer base make it critical for companies to segment consllmers based on demographic, geographic, and psychographic/lifestyle variations. Because of the younger generation’s brand orientation, promoting symboiic value is imperative for conspicuous and inconspicuous foreign products. Multinational companies can’t assume that their first-mover advantages will be rewarded for brand recognition and established distribution channels. Cost-conscious consumers are quite unpredictable, so companies should avoid a too-high premium price strategy.

Instead, they should research quantitatively acceptable price/value trade-offs by category. Because local brands are on the rise, foreign companies must work harder to localize research and development and the contents of their products. They must also better evaluate the market and the potential for long-term growth. Without competitive pricing and world-class product design/quality, companies will have a tough time surviving. . example: Coca-Cola has introduced more products here than anywhere else, including coffee and green tea beverages that appeal to Japanese tastes.

As a result, its net operating revenue represents more than 607o of the total Asian segment (207o of its worldwide revenue). Korea: A consumer-oriented approach is crucial for identifying tastes and blending in, rather than being viewed as Company executives must remember that not all countries are created equally. By understanding and learning to appreciate the differences and similarities between these three Asian purchasing giants, companies from other countries can immerse their organizations seamlessly. oreign. Careful market, brand, and advertising testing is imperative. It can be difficult to enter this market alone; strategic alliances with domestic companies are apracttcal way to understand locai preferences when introducing a global brand. Masaarr Ko’rann is the Washburn Chair of International Business and Marketing and director of research at the Institute of Global Management Studies at Temple Universitv’s Fox School of Business and Management in Philadelphia. He may be reached at [email protected] temple. edu.

Cnvsrar, Juxc is a PhD candidate in strategy and international business at the Fox School of Business and Management. She may be reached at [email protected] edu. To join the discussion If foreign companies make greater efforts to intensify their involvements with-and long-term commitments on this article, please visit www. marketingpower. com,/marketingmanagementblog. From Marketing Management, Yo1. 15, no. 2, March/April 2006, pp. 39-43. Copyright O 2006 by American Marketing Association. Reprinted by permtssron.


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