ASIA'S SPENDING DILEMMA

Marketers, especially those in the luxury goods and services category, have had their worst fears confirmed after the latest PAX survey showed a decline in the universe of Asia's top-spending segment.

In the January to March quarter, the universe contracted by more than two per cent to 7.5 million compared with PAX's previous three-month review period (October to December, 2002). The first quarter decline was spurred by continued economic weakness, which was exacerbated by uncertainty in the lead-up to the US-led war on Iraq in mid-March.

But the latest survey did not take into full account the outbreak of Severe Acute Respiratory Syndrome (Sars) and the new Gulf war. Both of which occurred in March, at the tail end of the latest survey.

Synovate, which conducted the quarterly study, believes the contraction of the top-end universe could continue into the second quarter when the two additional deflationary events are accounted for.

Synovate media director Steve Garton described the decline over the first quarter as modest but said that factors were in place for a further contraction of the top-spending population in the April to June quarter. "The Sars jolt was disruptive to a number of key markets - Hong Kong, Singapore and Taiwan in particular.

"It was also disruptive to certain sectors, especially the travel and hospitality industries, which will take time to recover from it even as Sars is brought under control," Garton says.

The dip in the PAX universe was led by steep falls of 11.4 and 5.6 per cent respectively among the ranks of business decision-makers (BDMs) and top management in the nine markets surveyed - Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Manila, Singapore, Taipei, Seoul and India. The only bright point in the latest PAX survey is that the universe of affluent adults is virtually unchanged at 6.8 million, compared with the end of last year.

Garton blamed the diminishing number of business elites on continued belt-tightening by corporations as the general feeling is that economic recovery will occur later rather than sooner.

"The business sector feels the need to make economies where it can through layoffs and staff attrition.

"For the second quarter, there won't likely be a pick-up in the population of BDMs and top management executives because economic recoveries are typically productivity-led. That is, companies won't likely hire as turnover rises, meaning that existing staff must work harder until there are signs that the uptrend is long-term," says Garton.

The latest decline has worried marketers and is likely to see a continuation of below-the-line, tactical activities, in favour of long-term strategic, branding initiatives. "While recessions do clearly 'alter the mood' of an economy, they do not affect all product categories similarly," says Prashan Dutt, CNBC Asia-Pacific's newly-appointed regional director of research. "In several cases, consumer spending goes up or gets redistributed."

Luxury goods marketers acknowledge that while big spenders remain a strong force, their spending patterns are likely to shift - less travel and fewer big ticket purchases.

One luxury goods marketer, who spoke on condition of anonymity, said that high-net individuals were spending less but they still demanded quality and were willing to pay a premium price to get it.

"Top end goods are still moving. This group of people won't buy as much but they will still buy. They won't downgrade and buy a Samsonite all of a sudden," the marketer says.

But the dilemma facing all marketers is the same as last year - when to complement their tactical campaigns with branding initiatives.

Dutt adds: "A recession is a period for aggressive tactical manoeuvres, a time to invest and grow at minimal cost. Evolved marketers (need to) read the market carefully and change strategy, sharpen the focus on communication efforts.

"In any case, 12-18 months is too long a period to remain inactive. Holding to your core customer base is also essential."

Even so, for airline marketers like Cathay Pacific, the situation is far more complex. The airline industry has been buffeted by more than just economic factors, starting with the terror strike on the US in 2001 and more recently grappling with Sars. Olivia Wong, Cathay Pacific marketing communications manager, said bookings in first and business classes have been under pressure over the past two years and Sars served to exacerbate the downtrend. The number of passengers Cathay carries is currently about 60 per cent lower than the same period last year, but it's better than the 75 to 80 per cent slide it recorded at the height of the Sars outbreak in April. However, Wong says that while there has been a pick-up, "people are continuing to trade down to less expensive seats, including corporates".

She added that for the time being - at least until Hong Kong is dropped from the World Health Organisation's list of Sars-affected areas - Cathay would continue with below-the-line activities, including email initiatives and programmes to target corporate travel agents and travel managers.

Under the current situation, Wong says the airline is unlikely to resume above-the-line advertising until some time in the final quarter of this year.

OMD regional director Chris Skinner notes: "Companies are still advertising but they're not spending as much as before. It comes down to a lack of confidence in the market because of uncertainties over the global economy and Sars."

Barring another shock to the system, Skinner believes that advertising spend could start moving upwards by the autumn but he warns that "advertisers on the whole remain cautious and are looking for more added-value and cost-effective media options".

Garton, meanwhile, says that there is another force at work which has so far been unmeasured by PAX.

"The unseen force is China which is stealing market share away from markets which are still dependent on low-cost manufacturing as a major revenue earner. And as China is forecast to turn in another year of strong gross domestic product growth this year, the expectation is that it will continue to erode the competitiveness of other manufacturing centres."

Garton says there is growing interest among regional media owners to learn about China's emerging rich but he notes that the reach of regional media print titles and television channels is miniscule because of official restrictions on the distribution of foreign publications and broadcasts.

Nevertheless, he says there are plans to conduct surveys similar to PAX in the country on the back of expectations that rules governing foreign media will be relaxed with China's membership in the World Trade Organisation and its hosting of the Olympics in 2008.

ASIA'S CONTRACTING UNIVERSE OF TOP-SPENDERS
                                        Q3+Q4 '02+          Change from
                           Q3+Q4 '02        Q1 '03  previous period (%)
Total PAX Sample            7,709,440     7,520,870                -2.4%
Affluent Adults             6,831,243     6,840,998                +0.1%
BDMs                        1,972,782     1,747,871               -11.4%
Top Management                360,610       340,563                -5.6%
Bangkok                       919,999       938,000                 2.0%
Hong Kong                   1,213,000     1,204,000                -0.7%
Jakarta                       383,000       356,000                -7.0%
Kuala Lumpur                  346,000       337,000                -2.6%
Manila                        431,000       407,000                -5.6%
Singapore                     628,000       587,000                -6.5%
Taipei                      1,119,000     1,097,000                -2.0%
India                       1,391,000     1,288,000                -7.4%
Seoul                       1,279,000     1,308,000                 2.3%
SOURCE: Synovate
CABLE & SATELLITE: A BAG OF HIKES AND SLIDES
                                Q3+Q4 '02   Q3+Q4 '02+Q1 '03
                              Past 7 days        Past 7 days   % change
Bangkok                            369,049            325,990     -11.6%
Hong Kong                          754,971            760,874      0.78%
Jakarta                            109,157             93,891    -13.98%
Kuala Lumpur                       235,183            242,010       2.9%
Manila                             331,621            312,915      -5.6%
Singapore                          461,491            437,774     -5.14%
Taipei                             977,662            975,737     -1.97%
India                            1,100,659          1,091,690     -8.15%
Seoul                              825,845            889,104      7.66%
SOURCE: Synovate
TOP MANAGEMENT'S ACTIVITIES: PAST 12 MONTHS
                                                              Q3+Q4 02+
                                          Q3 2002  Q3+Q4 2002     Q1 03
Formulated a strategic plan                    35%         33%       35%
Worked on international strategies             19%         16%       16%
Addressed a public meeting                     20%         20%       19%
Made executive decisions which affect own      17%         15%       16%
organisation's operation in other countries
Sat on an professional committee               14%         11%       12%
Been interviewed on TV, radio, press            9%          9%       11%
Lobbied or advised members of national or       6%          5%        7%
local government
Had an article/book published                   3%          3%        5%
SOURCE: Synovate
READERSHIP IN ASIA: TAKING A TUMBLE
                              Q3+Q4 '02    Q3+Q4 '02 +Q1 '03   % change
Any regional daily               102,475               99,728      -2.7%
Any regional weekly              945,640              915,124      -3.2%
Any regional bi-weekly           193,871              185,451      -4.3%
Any regional monthly           1,604,400            1,566,498      -2.4%
NOTE:
- Any regional daily includes: The Asian Wall Street Journal, Financial
Times, International Herald Tribune and USA Today"
- Any regional weekly includes: Business Week, The Economist, Newsweek,
Far Eastern Economic Review, Time and Yazhou Zhoukan
- Any regional bi-weekly includes: Forbes and Fortune
- Any regional monthly includes: Asia Inc., Asiamoney, CFO Asia,
Reader's Digest English, Reader's Digest Chinese, Business Traveller and
National Geographic
SOURCE: Synovate