8th Annual Pan-Pacific Guide: Braving an Economic Monsoon1 Apr, 2009 By: Thomas Haire Response
Experts in the markets of Asia, Australia and New Zealand agree that DR marketers interested in these areas must do their homework before setting sail during the global economic crisis.
By Thomas Haire
Certainly, the North American businessperson has heard more than his or her share of economic horror stories during the past eight months. However, the economic crisis has not been contained to the Americas — that’s why it’s often referred to as the “global economic crisis,” after all.
And, perhaps no group of nations has been hit quite as hard as those in the Pan-Pacific market — ranging from the English-speaking island nations of Australia and New Zealand, northward throughout Southeast and South-central Asia. Import/export issues have hammered China, India, Japan and other major Asian markets repeatedly since the middle of 2008.
At the same time, the threats of terrorism and extensive counterfeiting operations continue to hamper the Pan-Pacific region in its efforts to become not just a hotbed of direct response product manufacturing, but also of DR consumerism.
In the face of these issues, Response gathered a group of experts on the region to find out what opportunities are out there for DR marketers looking to work in these markets. While these experts point to Japan, Australia and New Zealand as having the best potential to reach consumers, they also warn that planning and education are major necessities before jumping into this part of the world.
What’s the hottest topic in the region? How is it affecting business?
Nicole Ali, Northern Response Intl. Ltd.: The overshadowing “doom and gloom” of currency devaluations and economic fluctuations have left many once-thriving markets in a serious state of flux when it comes to consumer spending, B-to-B activities, and/or investing in media and marketing locally. This obviously affects the DR industry on many levels — from manufacturing to end distribution.
Japan, the world’s second largest economy, is already in a recession and declining. Japanese exports fell 35 percent in December 2008 from a year earlier, as the global demand for its cars, electronics and capital goods continues to dry up. Direct response companies and distributors are still purchasing but are far more conservative with opening orders, carrying inventory or launching new product campaigns. It still remains, however, the top market in Asia during these difficult times.
China, the so-called “workshop of the world,” is being hit as well, with exports declining for the third consecutive month in January, falling 17.5 percent from a year earlier and imports plunging 43.1 percent (twice as deep as December’s 21.3-percent fall). Because many of China’s imports are inputs into the country’s global manufacturing exports, the sharp decline in imports indicates further falls in related Asian activity. China is a huge link to many global markets, and as it suffers, the domino effect becomes larger than life.
India, the other “economic workshop,” is suffering as well with exports falling 24 percent in January. According to official data, 1 million Indian workers in the export sector have lost their jobs since September 2008. Textile, gem and jewelry workers have been worst affected.
The list goes on and on — from South Korea to Taiwan to Singapore to Thailand. Our next steps require some deep-down faith that, despite all odds, people will continue to buy our widgets and gadgets at well-designed payment plan prices, and a lot of strategic placement in the stronger economies will work while the weaker ones are reviving themselves. Or, perhaps a consult with a fortune-teller from the Che Kung temple in Hong Kong will work.
Lori Cohen, Thane Intl.: The hottest topic is the global economy. Everyone is being somewhat cautious, yet if they have a hot product, they are going full force.
Priya Ghai, Guthy-Renker India: Terrorism — it’s not affecting our business, but it is troubling India’s tourism and hotel industry.
Harry Hill, Oak Lawn Marketing Ltd.: In Japan, there are various hot topics. The dramatic decline of the economy is causing tremendous angst, both on a corporate and an individual level. Toyota is posting its first loss in more than 50 years. Other major manufacturers — particularly those that depend upon exports, like automobile companies and high technology manufacturers — are posting major losses, laying off people and restructuring their businesses.
The weakness of recent political administrations is also contributing to this sense of crisis. Since former Prime Minister Koizumi stepped down, no Japanese prime minister has served for more than a year, and the current administration’s approval levels are in the low-teens. Combining economic malaise with political paralysis has deepened the sense of crisis.
In the media world, TV advertising revenues are down more than 30 percent. This, of course, should result in opportunity to direct marketing advertisers.
Despite the depth of the problems discussed above, Japanese financial institutions were generally on the sidelines during the recent U.S. asset bubble, and so they emerged relatively unscathed on a balance-sheet level. Similarly, Japanese personal saving rates are still the highest in the world and, despite the news of layoffs, unemployment is still under 5 percent.
Alan Meyerson, Danoz Direct: The hottest topic in Australia is the economy. Business in Australia has seen a drop in responses, but unfortunately not as big a drop in DRTV media rates just yet. Retail, in general, is down with some major chains closing down stores for the first time ever. Foreign exchange is also a hot topic, because it is shrinking our margins at a rapid rate.
Bill Quarless, Impact Products: By far, the dominant topic is the global financial crisis. China is disproportionately reliant on exports, and the slowdown in U.S. demand is having a direct and immediate effect. In recent months, more than 70,000 factories have closed, resulting in job losses for some 20 million workers. More than 6,000 Hong Kong-owned factories have gone bankrupt since the start of the economic downturn.
Some of the hardest hit segments of the manufacturing industry are the low-cost, low-tech manufacturing plants in southern China — in other words, the very factories that supply DRTV products. With fixed overhead and decreasing volume, many factories with low margins are finding it difficult to survive.
DRTV companies will have a harder time identifying stable factories they can rely on for timely shipments — or even feel comfortable wiring money to. The last thing a DRTV company with a hot item wants to do is send a $50,000 deposit to a factory that is going to be closed in a week.
In addition, ramp-up times will also be lengthened. Most factories are now operating on skeleton crews and a significant increase in daily production requirements will take time. In the DRTV industry, especially, lost time is lost opportunity.
Stefanie Sonneleitner, Nine Network Australia: The economic downturn has had a negative effect on sales and response rates for clients, which in turn obviously means demand for our advertising space is down from last year. Traditionally, we have increased rates year-on-year in line with regular network ad rates, but this year we have actually reduced our base rate card for the first time. We had hit a ceiling with what we were charging people — even when the economy was strong and response rates were high, you can still only charge a client so much because of the population size of Australia. So regardless of what happened with the economy, we would not have been able to keep increasing rates but to have to lower them has certainly come as an unwelcome surprise. Many of my clients are purely covering costs (and even losing money) at the moment and not actually making a profit but they are happy to continue to increase brand awareness, as well as maintain a presence in the market alongside their competitors since they are still advertising. As long as they are covering costs, they can at least keep moving stock.
What markets are the hottest in the region? Why?
Ali: Japan, Australia and New Zealand still rank at the top of the food chain as far as DRTV markets with the most potential in Asia. They still represent the most stable economies, and, in the case of Australia and New Zealand, they are English-speaking, which presents no challenge for translations faced in other Asian markets.
Cohen: Japan is always one of the better markets due to size and spending habits of the consumers.
What products are doing well in these markets? Why?
Ali: For us, the migration to lower priced, everyday items and consumables like ShamWow, Quick Shine cleaning products, Pediwow and Spinlash Revolving Mascara have proven tremendously successful during tough economic times. Luckily, we shifted our focus when we did. The question is how long this ride will last.
Cohen: Right now, Thane has many very successful items, including H2O Mop, Tobi, Slim-and-Lift Supreme, Swivel Sweeper and more. These shows really drive sales, and the products deliver.
Hill: Products or industries that are currently succeeding in Japan are cellular phone services, convenience stores, fast food and health-and-fitness. Since the recession is affording people more time, people are looking for low-cost activities or purchases to fill their time and improve their lives. Some of the biggest products in Japan from 2008 include expanded cell phone services — like concierge services and GPS — and exercise DVDs.
Meyerson: Products with high value and minimum risk seem to be holding on. Helping customers save time and money is key at the moment, but still with unique differences and innovation. Best-sellers in Australia for Danoz Direct are the Flavorwave Oven and H2O Steam Mop.
Are local or federal governments having any success (or even trying to) remedy the product-counterfeiting problem? What more do you think can, and needs, to be done in this area?
Ghai: There are organizations and, in India, the Drug Controller’s Office that are supposed to tackle these issues. But, in reality, nothing gets done. As in many places, you can try to prevent counterfeiting by holograms, good relationships, regulations, etc. But it really boils down to harnessing your strategy — whether it’s a “speed-to-market” one or brand loyalty and distinction.
Fortunately, Guthy-Renker’s strategy has never included one-shot sauna belts or the like, so the strategy is different for our beauty products. We typically do not launch our fitness or intellectual property (IP) products in Asia due to them being mostly DVDs, which are easy to counterfeit. I don’t doubt that we will have issues as our market share of cosmetics grows, but then one establishes controls when you are laying down the foundation of a business. On another note, India is corrupt — consumer interests, IP protection, etc. — these may be buzzwords, but, in practice, your local politician will protect his interests over the greater good, unless of course the greater good is “bought” to his attention.
Hill: The Japanese government, local governments and police will take actions to protect against counterfeiting and copyright infringement. The problem, however, is that the burden of providing evidence falls predominantly on the damaged party and, since Japan does not have a discovery process, putting the evidentiary trail together is long and burdensome. The second problem is that generally the Japanese courts award only actual and not punitive damages. However, if an infringement is established, the process is very efficient in stopping sales or intercepting products at the port of entry.
Quarless: Knock-offs and counterfeits of DRTV products will increase in the coming year. First, factories are desperate — and getting more so each day. Manufacturers that had a nice stable business making widgets a year ago are now looking outside of their normal business to supplement their production. Naturally, they will look for items that are hot and in high demand.
Second, there is no one to stop these practices. As China exports continue to plummet, the Chinese government will be happy to see anything ship out. With concerns of social unrest from rising unemployment and a goal of 8-percent economic growth to “maintain order,” the Chinese government has much bigger concerns these days than copycats and counterfeiters.
Is India continuing to gain on China as the “Pan-Pacific hub” of the DRTV business? If so, why?
Ali: Although China has been giving India a run for their rupee over recent years, we are seeing the effects of currency devaluation in China and extreme fluctuations in the costs of raw materials, which has led China into a state of re-evaluation for many manufacturers. Worldwide markets, like the United States and Europe, are opting to raise tariffs on Chinese imports in an effort to boost local manufacturing and protect local economies. The “Chindia” train is currently docked at the station until further notice.
Ghai: Business is good in India, Guthy launched a few months back, and, while there are the inevitable start-up challenges of a new market, the phones are ringing. We have set ourselves apart from the typical items that are sold on TV. Our products are incomparable, and our content is markedly superior. In addition, Guthy’s brands are luxury brands to a certain extent, and the offerings are unavailable not just via TV but also in retail. We are seeing more sophisticated home shopping channels launch, and the media environment is changing. Mobile phones are a large part of communications and ecommerce will grow substantially.
I think it would be a stretch to call India the DRTV hub. We have some major challenges that prevent us from gaining that status — the infrastructure and “last-mile” delivery are two big ones, and there are more. Overall, it’s a tough business, but with the right backing and determination, we will prove to be successful.
The Australia/New Zealand markets seem to have been overlooked by DR marketers in the past, which is surprising given the many similarities to the U.S. Why is this and is it changing?
Ali: I don’t think these markets are overlooked at all, at least not by companies that have been in the global marketing business for more than a decade. I just don’t think they are maximized as much as they could be or timed appropriately in terms of synching up product marketing launches with the U.S.
There are obviously a lot of advantages marketing in these two countries as they are English-speaking, culturally similar in nature to Canada, and mature in terms of DRTV channels of distribution — from TV and live home shopping through to retail, print and online. Unfortunately, many U.S. infomercial producers do not factor international outreach into the early part of the production process. If they did, they would realize how much business can come from great markets like these simultaneously with their U.S. launches — rather than years after the fact, after the knockoffs have hit the international circuit.
Meyerson: We’re about a tenth of the size of the U.S. market, and we have very limited airtime. However, with only four free-to-air channels with limited infomercial space and one 24-hour infomercial channel on cable TV, Danoz Direct is still comparative with some of the largest DRTV companies in the U.S. based on market size.
Sonneleitner: Our small population plays a role. In America, you can spend less for a good response, whereas in Australia, you need to spend a lot to get the same level of response. The lack of available products in Australia compared to the U.S. also comes down to how few DR clients we have in Australia. Eighty percent of our revenue pretty much comes from six major clients.
What three things must DR advertisers know as they decide to enter the Australia/New Zealand markets? What kind of success can DR advertisers expect when entering these markets?
Ali: The broadcast clearance of infomercials/spots here can be stringent, so doing due diligence up front is necessary or you will not be able to air in these countries, including:
- Substantiation for every claim made in your infomercial/spot/packaging content
- Additional B-roll footage to substitute into the ads to replace footage with heavy claims
- Signed testimonials for everyone appearing in the ad
- Good customer service is vital
- Be brave enough to test, but cautious enough not to waste
- They are very different to any other DRTV market
Sonneleitner: For “Mornings With Kerri Anne,” we suggest an approximate price point of $100 is ideal and should help most clients get a favorable response or allow them to at least cover costs.
My clients do not disclose response rates so the only way I have of knowing that it works is the fact that they continue to buy advertorials. Considering the production costs are included, it is a very cost-effective way of advertising.
At the moment I am also making a point of mentioning to potential new clients that it is not a highly profitable environment because the economy is obviously in a downturn. Many advertorial clients are suffering since consumers do not have as much disposable income as they did a year or two ago. Two years ago, I could pretty much guarantee success for any new client, but those days are no longer. It can be very hit-and-miss. Response is near impossible to predict.