How the ‘Jikgu’ Phenomenon Can Help You Sell More Overseas
South Koreans are sidestepping outrageously priced domestic goods by buying them from overseas vendors, online. Western companies can benefit from this phenomenon.
Most U.S.-based consumers take their online shopping options for granted. For them, visiting numerous e-commerce sites to compare selections and prices is effortless. Product selection abounds. Since these U.S. websites are published in the customers’ languages of choice (overwhelmingly English, and increasingly, Spanish), and since domestic e-retailers often feature competitive low prices, shoppers often get amazing deals.
This isn’t the case for other countries. E-commerce may be thriving worldwide (sales will reach $1.7 trillion this year), but many global consumers face astonishingly high prices for consumer goods from local e-commerce sites. According to local media coverage of this phenomenon, local sites in these countries can sometimes charge up to 40% more for a product, compared to what it might cost in the U.S.
(In fact, our research suggests a 40% markup is downright conservative. Consumers are paying much more than that in some countries, for some products. More on this shortly.)
This phenomenon is especially apparent in countries such as Russia, China and South Korea. There are numerous reasons for the price markups, but it often represents a lack of competition for licensees of overseas brands. This artificially inflates the domestic prices of imported goods.
In South Korea, for instance, companies often sign exclusive import deals with Korean retailers to enter the market. This grants them access to large distribution channels (such as chaebol-owned hypermarkets), but doesn’t provide much incentive to leverage new lines of distribution.
However, clever smaller online vendors compensate by offering these goods on their sites, presented in local languages.
Interestingly, these retailers rarely have any of these desirable products stocked locally. Instead, as orders roll in from local shoppers, these vendors visit overseas e-commerce sites — often in the U.S., in English — and order the product themselves. These importers often charge exorbitant rates to compensate for their time, effort and domestic fulfillment, once the product arrives from overseas.
This isn’t an illegal practice, but it can be egregiously costly for international consumers.
But some of these consumers have “fought back” in recent years by ordering these products themselves from U.S. sites. In fact, they’ll often wait for well-known Western shopping events (such as Black Friday) to save even more money.
Indeed, even with unfavorable exchange rates and international shipping costs, the products are still considerably cheaper than using a local retailer. Consider this chart, compiled from data MotionPoint gleaned from operating an English-language site for an e-retailer. When compared to what a Korean e-retailer commonly charges, the savings are considerable. The average markup to purchase the same product locally is 174%:
In South Korea, the practice of overseas direct shopping is called jikgu. It certainly saves Korean shoppers money, but — more significant for U.S.-based businesses and organizations — it can also contribute a significant lift to an e-retailer’s revenue.
According to South Korea’s Yonhap News Agency (citing a survey conducted by global cash-back operator EBATES), more than half of Koreans who purchased products from U.S. e-commerce sites during last year’s Black Friday spent more than the duty-free $200 ceiling.
More than 75% of respondents said they were comfortable paying the additional tariffs for these $200+ purchases, which can range from 5% to 13% for fashion, cosmetics and food products. Tariffs are even higher for luxury products such as mobile phones.
A jaw-dropping 99% of Korean shoppers said they planned to continue shopping overseas after Black Friday. Why? We infer that it has everything to do with cost savings.
The trend isn’t going away. In fact, it’s growing. South Korea’s imports made via jikgu grew five-fold between 2009 and 2013, the Yonhap news story reported. The amount reached $718 million in the first half of 2014, and was forecast to eclipse 2013’s $1 billion record.
Indeed, overseas credit card spending grew 15.4% in 2013, outpacing the increase in domestic spending of 3.2%, according to Savills Research & Consultancy (citing data from the Bank of Korea). Imports through these non-Korean e-commerce sites rose 47% that year.
All of this action and revenue is heading to overseas retailers, most of which are in the U.S.
The MotionPoint Perspective
MotionPoint translates, optimizes & operates hundreds of e-commerce websites. While most of our clients translate their sites from English into non-English languages, some localize their English sites, using country-specific terminology, to deploy in other English-speaking markets.
We recently examined the performance of a U.S. site we operate for a UK e-retailer, and confirmed this “jikgu lift.” Last year alone, purchases from residents in non-English speaking countries accounted for nearly 10% of the sales on the company’s American English site. At least half of these visitors hailed from Asian countries such as China, Russia and South Korea.
That’s an astonishing lift, considering the site isn’t optimized in any way for these international customers. Now consider the incremental revenue this company — and all other U.S.-based e-retailers, for that matter — can generate, when it provides translated & optimized versions of its site for these highly-engaged international markets.
Providing shopping experiences in a market’s preferred language is the easiest and most effective way a business can earn a customer’s trust. This is why those smaller local Korean e-retailers can thrive, despite their exorbitant price markups on products: they are in-market, in that market’s preferred language.
Western e-retailers that aren’t translating their sites to take advantage of this global shopping phenomenon (and the significant incremental revenue it represents) are leaving money on the table. Ignoring these markets will allow local resellers to become the de facto shapers of a brand’s image, as they fill the vacuum created by the brand’s absence.
Would you like to learn more about how global trends such as jikgu can generate more revenue and opportunities for your organization? Contact us. We’ll help you create a resonant, results-oriented plan to connect with these already-engaged markets.
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