Political and economic tension fuels uncertainty for brands in South Korea

KOREA: POLITICAL TENSIONS

The words ‘trade war’ automatically bring to mind the continued wrangling between the world’s top two economies, but South Korea and Japan are busy reigniting their own spat, which has bigger implications for brands than it might at first seem.

Japan’s striking of South Korea from its list of preferred economic partners, which took effect in August, will make it difficult for the latter country to import the materials needed to make smartphones, which are the key factor in Samsung’s success as a brand. It remains to be seen whether this turn of events will dent Samsung’s international presence, but the situation is surely something any multinational brand would prefer not to face.

Jeeyoung Kwak, senior executive vice-president and chief operating officer of McCann Worldgroup Korea, sees the tensions with Japan escalating and causing a headache for international advertisers in the domestic market as well. Consumer-led Japan boycotts are currently underway, with gleeful photos of empty Japanese shops abounding on social media.

For Kwak the vendetta seems to represent more than the simmering resentment of a neighbour, highlighting broader nationalistic tendencies among South Korean consumers. “Overcoming this national movement of domestic brand preference purchase intent will be an important factor for global brands,” she says, pointing to research by her agency from last year that shows global brand preference in just three categories out of 11. At the same time, the categories are surprising given the prominence of domestic brands in each of them: technology, cars and alcohol.

The market appears confused. McCann’s research shows trust diminishing in domestic brands and increasing in global ones. Kwak attributes this to “moral hazard issues”—essentially corruption—surrounding local conglomerates including Samsung, which have drawn increasingly vociferous condemnation from everyday people in recent years.

She says people expect greater transparency in business and that brands will need to demonstrate this quality in order to be accepted. People are taking brands less at face value and conducting more rigorous research before deciding on a purchase, consulting at least five sources, she says.

Conscience seems to be playing a bigger role in people’s purchase decisions. Soo Won Lee, chief executive of TBWA Hakuhodo’s South Korean office, says “conscious consumption”, whereby people scrutinise a product’s “integrity and morality” before deciding whether to buy it, is having a tangible influence on brand behaviour. She gives the example of Orion, a large domestic confectionary company, which began implementing simplified, apparently eco-friendly packaging as a selling point across 22 brands. While the trend can be seen as positive, corporate tendency towards greenwashing is likely to test consumer resolve in this area over the next few months.  

Other social trends likely to have a bearing on brands include the more deliberate pursuit of work-life balance, prompted by a law passed in July to reduce working hours to a (still quite high) maximum 52 per week. According to Lee, this has resulted in more people taking weekend trips, which has been a boon to the travel sector, but taking leisure time more seriously clearly has implication for a host of sectors and is likely to see lifestyle-oriented brands competing more intensely for people’s attention.

Like a number of Asian countries, South Korea has a rapidly ageing population and a pronounced generation gap. In terms of communications, Kwak sees mass-market brands positioning themselves as “newtro”—fudging together the appeal of new and retro characteristics—in an effort to appeal to both youthful and elderly consumers. She said brands are also making more effort to personalise content for different generations.

Asked which brands had shown the most innovation over the past year, both Lee and Kwak pointed to a grocery startup—the rather oddly-named Market Kurly. Seeming to take its cue from Cheil’s 2011 ‘Virtual Grocery Store’ for Tesco (which at the time was variously held up as being a work of genius and denounced as a cynical piece of scam), Market Kurly is an app-enabled service that takes orders up to midnight and promises to deliver by 7am. Lee says it has spurred more traditional retailers including Shinsegae and Coupang to introduce similar services, highlighting the appetite for things that make life easier in a highly-pressurised society.

The cosmetics business is likely to be a further driver of innovation and marketing spend for the foreseeable future, with (according to Kwak) thousands of brands launching every year. Many are presumably created with export in mind, hoping to capitalise on Asia’s apparently insatiable appetite for ‘K-beauty’ products. Still, with the threat of recession looming in a number of markets including at home, the coming 12 months in South Korea are not likely to be an easy ride for brands in any sectors.