This interview first appeared as part of CMR’s interview series of thought leaders and senior executives in China in the CMR Business Quarterly.
LG Electronics is known throughout the world for its innovative and stylish premium consumer electronic products. In China, LG has become popular among premium consumers seeking high-end refrigerators, flat-screen TVs, air conditioners, and washing machines as they move to larger homes.
In 2007, LG charged KK Ko to lead its marketing efforts in China. Known as one of the top marketing minds in China, KK joined LG from Coke (NYSE:KO), where he ran Coke’s iMarketing Division for Asia and China.
CMR recently sat down with KK to hear his opinions and insights on how Chinese consumers are evolving and how LG plans to continue to build upon its success in China and what challenges exist in the marketplace.
CMR: LG has been gaining market share in China against competitors like Sony (NYSE:SNE) and Samsung, now selling over $10 billion of products annually into China. Chinese consumers are moving towards premium products and increasingly prioritize comfort and style in their product choice. How has LG shifted its market positioning and product lines in the digital display/ digital appliance space to meet these needs?
KK: Chinese customers are loyal to us largely because of our styling. Our product development team has focused on creating stylish and innovative products that attract Chinese consumers – the result is that our products like the Prada phone or Scarlett TV simply look stunning.
We have found that younger Chinese consumers especially are shifting towards premium digital products as they get wealthier and demand a more leisurely and comfortable lifestyle. Our major product focuses in China are all premium, from our digital TVs to washing machines to mobile phones. We have found that for electronic products, Chinese consumers are willing to pay more and are no longer price sensitive.
For mobile phones, for example, our recent TV commercials featuring Audrey Hepburn and smart technology help promote the stylish Black Label series as our flagship offering.
CMR: Rising incomes in China have led to demand for a more comfortable life and larger house sizes. What does this mean for LG and the home appliance industry?
KK: House sizes are getting larger, so consumers are looking to buy the best of breed home appliances but not necessarily larger appliances like air conditioners. LG is working to emphasize the importance of beauty and comfort in home living. Actually, there is a movement in the industry as a whole towards appliances as art pieces, and here in LG we are proud to be one of the pioneers.
CMR: We have written previously about the growing importance of expensive weddings to Chinese today and the large portion of their savings families will spend on the ceremony and in readying a new apartment for the newlyweds. What are the implications of China’s wedding fever on consumer electronics companies like LG? What is LG doing to cater to this key consumer group?
KK: LG is hard-core about newlyweds. We want all newlyweds to know that LG loves them and will cater to all their needs. And actually, this is our main communication concept for our 2008 National Day promotion series.
LG has found the life stage of getting married and setting up a family even more influential than house size on purchasing of home electronics and appliances. Usually getting married involves buying a house, and with that, everything that goes in the house: Side-by-side refrigerator, 47 inch LCD TV, family-size washing machine with steam function, and in the coming months, we’ll see robot vacuum cleaners.
CMR: Despite a global economic downturn, retail sales in China are still booming at a 22% growth clip this year. Do you see the consumer market staying strong in China or do you see a slowdown here too like it has with the export sector with a strong RMB and inflation?
KK: The soft stock and housing markets have definitely influenced consumer demand in China, but we are positive about China’s economy and the Chinese government’s policies. On top of that, we are expecting huge expansion in the digital TV market. There are 159 million TV households in China, and they all must switch their analog TVs to digital by 2015, when the analog signal will be turned off. That is tremendous opportunity for LG and other digital TV manufacturers.
CMR: There has been talk of increasing nationalism among Chinese consumers as Chinese companies like Haier improve their quality. Do you see this affecting your business?
KK: Especially after the earthquake and the Beijing Olympics, Chinese nationalism is riding high. And the confidence of Chinese companies like Haier is growing. As their products are distributed globally, the whole world will have to deal with this increased competition.
LG in China prefers to see the glass as half full. Being in one of the most competitive markets in the world keeps us in good shape, and strong. One of the tenets of our marketing is building bonds with the Chinese consumer. If they have an emotional bond with your brand, foreignness is not as bad as some people may think. To build these bonds, LG has the Go China! Program, and various charity works, community programs and our TVCs that appeal emotionally.
CMR: For many retail products, the fight for market share has moved from first tier cities to second and third tier cities and beyond as CMR has written in BusinessWeek in “Beyond Beijing: Selling Across China”. How do you expect growth to take place regionally for LG?
KK: Second and third tier cities are certainly key focus areas for LG, and we understand that success in these markets in the future requires commitment and long-term investment today. LG in China already has 5 branch offices and 29 sales offices all across the country, so we are well placed to tap into regional growth. We are empowering our branch offices even more at the regional level to take advantage of local growth opportunities.
CMR: Companies are using a wide range of media, and increasingly digital marketing, online advertising, and mobile marketing to reach their target consumer groups. Before joining LG, you ran Coke's digital marketing division in China and Asia. Can you explain the role and importance of digital marketing in China? Are these media effective? Who do they target most effectively?
KK: Generally, Chinese marketers are addicted to GRPs. This is despite that China has 250M internet users, and is the world’s No.1 internet market by population. And when in comes to youth and professionals, almost all of them are online users. But the situation is slowly changing.
In China, most consumers are likely to consult other opinion leaders before making a big purchase, such as a new home appliance. Study after study shows that many of these people will do a net search before visiting the stores, visiting company websites or reading other previous consumer feedback on bbs or blogs. Often these consumers will know what they want before going to the store, many know as much as the promoters in the shops. So the next battleground is influencing consumers and opinion leaders online, but in a sincere way with no manipulation.
We don’t think banner ads and microsites are the most effective way to go. We aim to converse with opinion leaders in a way that elicits a response for the general buying public. That is a challenge because what you do must have genuine value, as opposed to just eye balls and click-throughs.
Going forward, we aim to put more than half of our marketing investment in interactive media.
CMR: What marketing communications strategies has LG found work best for reaching premium consumers?
KK: Generally speaking, premium consumers are not a one group of people but several sub-groups depending on age and product group. Whoever buys a LG or Nokia (NYSE:NOK) mobile phone might be different than one who buys an LG or Siemens (SI) refrigerator. The thing that unites all of them is that they are time poor as China’s business sector gets more harried. So they, more than any other consumer group, they know how to filter out advertising aimed at them. The way to reach premium consumers is to do something of intrinsic value, so that they come to you. This is not the cheapest solution, but it is by far the most cost-effective solution.
CMR: Motorola has faced trouble in China after failing to produce a follow up to the successful Razr phone. What opportunities does the decline of Motorola (MOT) present for LG's mobile phone divisions in China?
KK: While Moto’s troubles are real, we don’t think the decline will be sustained, given Moto’s strength worldwide. So what LG has now is more like a window of opportunity in China to grab some market share for premium users. Again, LG is optimistic, as we have the structure and the capability to leverage on this opportunity.