Demanding Korean consumers

A customer checks out a bag at the luxury goods section of a department store in Seoul in this undated photo. / Korea Times photo by Kim Joo-seong

What foreign firms need to know to suceed

Production date printed on a Seoul Milk pack

When global Internet company Yahoo closed down its Korean office last year, an employee blogged about it, blaming demanding domestic consumers for the closure. Foreign companies, the employee said, would prefer to operate in a market where they were less harassed by consumers.

Korean consumers are not always what companies want them to be. Some foreign companies fail to satisfy local consumers and leave the market, while others successfully adapt and thrive. The key to success is to understand what Korean consumers prioritize and are sensitive about.

Market insiders say that Korea's demanding consumers make it an ideal test market. If a company can be successful here, they say that success can be replicated elsewhere.

In an interview with The Korea Times' Business Focus, BMW Korea President Kim Hyo-joon said, "Trends change fast in Korea's industries and consumers respond to new products immediately. It's a market where companies can quickly learn if a new product or service will thrive or fail."

Here are a few things Koreans pay particular attention to when they purchase goods or services.

Production information

Koreans' sensitivity toward production dates is demonstrated in their purchase of cosmetics.

At cosmetics stores, consumers religiously check the date when the product was manufactured. Further, in Korea, the law requires that detailed production information be printed on the package or the container, including the original manufacturer and the date the cosmetics were made in the year/month/date format.

Because consumers can't check the information when buying cosmetics online, they commonly inquire about the production date and ask sellers to send the newest ones. In August, the Fair Trade Commission (FTC), the consumer protection and antitrust body, revised the regulations so that online retailers must disclose the production date, shelf life, original manufacturer, country it was made and formula of each item.

The same applies to imported cosmetics, which now have a separate label with the production date stuck on their packages.

Foreign-made cosmetic products usually have only codes instead of the date, as well as how long the product can be used once the container is opened. Koreans find the specific date of production by typing the codes into smartphone apps or on specialized websites.

Last year, consumers discovered that importers had faked the production dates on the Korean-language labels of scores of foreign cosmetics products. They found the actual dates of the products by typing the codes printed on the containers.

Domestic consumers also pay close attention to who the original manufacturers are, as well as who the sellers are. Cosmetics are often marketed and sold by brands other than the original manufacturers. Having cosmetics made by well-known original manufacturers such as Kolmar Korea and Cosmax can win consumers' trust and help boost sales.

Two years ago, a lawmaker submitted a revision to the law that would have made the disclosure of the original manufacturer not obligatory. The revision did not pass the assembly because consumers and major original manufacturers protested that it would hurt consumers' right to know.

While the date of production is largely related to the product's safety, Korean consumers tend to think that the more recently an item is made, the more valuable it is. For Koreans, the manufacturing date matters even for goods that do not have an expiration date.

One example is French luxury brand Chanel's classic shoulder bags, whose approximate dates of production can be deduced from the multi-digit number found inside.

Many Korean buyers check the number to get the bags made most recently. The number is also useful when they want to resell the bags, whose prices often rise steeply. Buyers estimate when the bags were bought and how much they would have cost at that time. As classic Chanel bags have a large secondhand market in Korea, the number is an important factor in calculating their prices, a 29-year-old owner of two Chanel classic shoulder bags said. "Designs and the leathers Chanel use vary by the periods the bags were made, and you can check that by the numbers," she added.

Some businesses use the voluntary disclosure of production dates as a marketing tool.

Seoul Milk began in July 2009 printing the production date together with the expiry date. While the expiry date can be decided arbitrarily, the production date will clearly tell how fresh the product is, the dairy firm said. "It will satisfy consumers' right to know and inform them about the products accurately," Noh Min-ho, Seoul's marketing head, said in a statement.

The dairy industry leader later issued a release, saying that the daily sales jumped from some 8 million packs to over 9 million in two months. A survey of 400 housewives done in early September 2009 also showed that 64 percent of them checked the production date when they bought milk and 98 percent were influenced by it.

After-sales service

One important factor Koreans consider when making a heavy purchase is after-sales service, which is simply called A/S here.

The latest survey by research firm Marketing Insight found that 36 percent of the buyers of domestic vehicles said they did not choose imported cars because of their relatively poor after-sales service.

When GM Daewoo was reborn as General Motors (GM) Korea and launched the Chevrolet brand in early 2011, the first thing the company tried to improve was after-sales services.

The Chevy Care 3-5-7 program available to all Chevrolet vehicles, including the mini-car Spark, consisted of three years of free maintenance, including a free oil change; a five-year bumper-to-bumper warranty; and seven years of free 24-hour roadside assistance. GM also renovated its 506 service centers across the country.

That year, GM Korea posted record sales of some 140,000 vehicles — a 12 percent increase from 2010. In November 2011, the company was visited by other foreign firms that wanted to study its achievement. Mike Arcamone, then president of GM Korea, told the visitors that some products are launched three or four years in advance in Korea because of the highly educated Korean consumers' desire for innovations. He said that the key to success in the Korean market is to provide tailored services that can touch consumers' minds.

Chevy Care was initially envisioned as a promotional event for the first year of Chevrolet's launch. However, because of its popularity, it was extended to 2012 and again to 2013.

Another case that shows Koreans' high expectations is the change in the after-sales service terms for Apple's iPhone.

Until March 2011, buyers of iPhones could exchange defective devices with brand-new ones only on the day of the purchase. After a backlash from consumers, mobile carrier KT extended the exchange period to 14 days from the date of purchase.

Apple's policy stated that during the term of the guarantee, phones could be repaired for free, exchanged with new or refurbished ones or returned. However, in reality, it exchanged defective phones only with refurbished ones. After a myriad of complaints from consumers, the FTC interfered and ordered Apple to improve its after-sales services.

Apple succumbed to the pressure and changed its conditions, stating that as of Oct. 31, 2011 it would replace defective devices with new ones until one month from the purchase date.

In May 2012, the same terms were extended to other Apple products, including iPads, iPods and MacBooks. The FTC subsequently boasted in a press release that Koreans would benefit from the world's most consumer-friendly after-sales service terms on Apple's electronics.

Although large Korean companies tend to provide superior after sales services than small and medium businesses or foreign firms, returning goods and getting refunded still remains an inconvenient experience in Korea, compared to the U.S. and some European countries.

In the past few years, the FTC has tried to improve consumers' rights by investigating poor practices and pressuring firms to make their return and refund policies more consumer-friendly.

One example is the investigation into foreign airliners' refusal to refund discounted flights. German carrier Lufthansa was found to have not offered refunds on discounted plane tickets including fuel surcharge and have not allowed cancellations of bookings. The FTC ordered the airliner last June to change the policy, threatening to sue if it doesn't oblige. The FTC said, "A discounted ticket is about 21 percent or 280,000 won on average cheaper than a standard ticket, but the cancellation charge of a discount ticket is five times as high as that for a standard one."

After the FTC's investigation, Singapore Airlines and China Southern voluntarily changed its policies so that they give a partial refund on discounted tickets.

When social commerce services became highly popular in 2011, the FTC issued a series of warnings about damages to consumers and ordered the service providers such as TicketMonster, Coupang and Groupon to help buyers of discounted vouchers get full refunds if they request one seven days from purchase. As complaints about difficulties in using vouchers before the expiry date amount, the FTC ordered the companies to make their refund policies more generous. Now, even after vouchers have expired, the buyers can get 70 percent of the vouchers' value as points and use them within six months.

Premium service

Certain services that are considered only for VIPs in other countries are perceived as basic in Korea. For example, at most gas stations in Korea, the gas-station employees, not the drivers, fill the tanks up with gas.

Another example is delivery services. When recipients of parcels are not at home, they expect to get a call from delivery men on their mobile phones. The state-run Korea Post sends text messages three times to recipients of international express deliveries. The messages are sent when the delivery has been loaded onto the airplane at the Incheon International Airport, when it has arrived in the country of destination and when it is delivered to the recipient.

"As the world is flooded with mail, we started providing the service to satisfy consumers' needs to know if their parcels have got delivered safely," a Korea Post official said.

Korea Post also offers full refunds to express delayed deliveries to 10 key countries of destination, which the firm touts the policy as a premium service. Korea Post's express delivery services are much cheaper than those provided by its multinational private sector competitors such as FedEx and DHL.

Seol Do-won, executive vice president of Home plus, the Korean division of the U.K. retail giant TESCO, commented on these differences. "Korean consumers are very different. They demand from discount chains the same service they get from department stores. We even have parking assistants at the large supermarkets."

Many cases of VIP services available as the basic are found at Korea's financial sector where companies compete with services, not tangible goods.

Shinhan Banks has extended a type of its private banking service to all customers. "S-Solution," a private banking service started in April last year, advises customers on efficient distribution of assets, recommends products, and helps customers to structure financial portfolios and plan for retirement. The solution will also evaluate the performance of the existing assets and make suggestions. Such services had been only available to private banking customers.

The trend of premium services for a wider group of customers is observed in the credit card industry as well.

For example, Hyundai Card, an affiliate of Hyundai Motor Group, has the M3 credit card that consumers of all classes can get with an annual membership of 70,000 won. The card holders can enjoy free parking at 16 prestigious parking lots 30 times a year. They can also use Hyundai Card's air lounge at Incheon International Airport while getting 10 percent discounts on dining at restaurants at five-star hotels in Korea.