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TravelHiking
The land of ‘freeconomics’Barter economy is disguised as free gifts
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승인 2010.02.25  11:57:06
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▲ Music label JYP hopes to cap a 1 billion won loss on the Wonder Girls through advertising deals. Photo courtesy JYP

I always knew that multiplex theaters have long had a special relationship with credit card companies in Korea. What I didn’t know is that cinema goers need to look up a giant index map plastered on the box office to navigate the labyrinth of perks and benefits offered to them by card companies.

Hundreds of credit card companies and local wireless carriers now provide their loyal customers with free movies or discounts at local cinemas, so ticket vendors often have to flip through a thick index book before they can even issue a ticket.

Welcome to the land of “freeconomics” that is Korea, where people pay points, miles and “eyeballs” - instead of cash - and answer survey questions to get almost anything in the market. If you’ve paid the full price for movies, musicals or concerts here, chances are you are either a foreign visitor or your credit card has been suspended recently.

Bonus points, air miles, rewards and other perks have been favorite promotional tools for many credit card companies the world over in attracting new customers, but their use - or overuse for that matter - has never been this pervasive anywhere.

Ask anyone you meet in the streets of Jeju to show you his or her wallet, and you will probably find in it at least 10 different cards, each strung with distinct benefits promised by the partners.

“U.S. card companies usually pay back about 1 percent of the sales amount as bonus points whenever their customers shop in affiliated stores,” said a Korean credit loan association executive. “Not a tiny rate sure, but the actual points paid back to the customers is much smaller than in Korea due to the limited number of partnered brands.”

Korean credit cards are usually affiliated with more than 10 local brands per card, making it much easier for the companies to offer free gifts, discounts and other co-promotion deals. American cards, on the contrary, have at most two or three partners on offer and are mostly focused on providing air miles or fuel discounts at gas stations.

The flip side of this crazy Korean freeconomics fueled by credit cards is that customers are in reality narrowing their shopping options in the market, in return for these perks and freebies. Think of the famed channel management strategy of Wal-Mart, shrank to the level of an individual consumer.

Wal-Mart is notorious for wringing out heavy concessions from its suppliers - that is how they can offer bargain prices to shoppers. The selected suppliers, however, are given exclusive rights to fill thousands of miles of Wal-Mart shelves around the world. In the case of Korean credit card holders, they are narrowing their shopping options within a few partnered brands, hence increasing their lifetime values to them.

There is no free lunch - you bought this freeconomics from the card companies by giving up your other buying options.

Giving up your other buying options is not much of an issue as long as what you get from the affiliated partners has no tangible difference in the benefits you can find elsewhere. However if that decision interferes with your eating habits, it is no more an issue of simple choice.

Local card companies have partnered with scores of restaurant brands but the problem is they are mostly American fast-food chains or family restaurants that feature a variety of greasy junk foods. If so, narrowing your dining options to those brands for too long could potentially pose a threat to your long-term health.

Wonder Girls,
Lollipops and Eyeballs

In this country where the extensive broadband infrastructure has practically decimated the paid-content business, persuading fans to pay for ephemeral products is increasingly becoming a losing game for the music industry.

JYP, the local music label that success-fully launched Rain, the international K-Pop sensation, grossed 7.5 billion won or some U.S. $7 million in 2008 by producing three blockbuster hits with Wonder Girls, its five-member girl group. Still, JYP recorded a 1 billion won loss, despite the brisk sales in music CDs, MP3 files and ring tones. JYP could cap its loss though by closing a series of advertising deals worth more than 1.5 billion won with Korean sponsors.

Here we see the emergence of free content distribution model subsidized by advertising dollars.

LG practically bought out a new song by Big Bang, a Korean boy group, last summer, when it used the song in television commercials well before its official release, for the newly launched Lollipop line of mobile phones targeted at teens. The new kind of freeconomics was realized again, but for every Lollipop phone they subscribe for, boys and girls are paying for the Big Bang’s new hit song indirectly in the form of eyeballs - advertizing jargon for audience attention.

When a new gadget seems just too expensive to attract but a few excited early adopters, tech companies usually turn to a variant of freeconomics called “servicification.” That is exactly what Thinkware and other local car navigation system producers are hurrying to establish before they launch WiBro navigation terminals on the domestic market.

Once a car navigation terminal is sold to customers, the relationship between the vendor and drivers is limited to a few periodic software upgrades. Thinkware hopes to change that by giving away WiBro navigation terminals “for free” and charging a monthly navigation service fee instead. WiBro is the service brand of KT’s Wimax wireless broadband network, and coupled with the car navigation system, it promises to offer a suite of advanced traffic information solutions updated in real time, thanks to its permanent connection to the broadband Internet.

Before long, WiBro terminals on the dashboard could relay real-time driving data fed from electronic control units to the servers of auto companies, turning your car to a giant mobile handset on the highway.

The servicification of automobiles will not stop at navigation terminals. Expect Hyundai to be transformed to a Web 2.0 service carrier on the highway soon.

All these examples point in one direction - that freeconomics is not a free lunch given for no reason. It is a barter economy disguised as free movies, air miles or sometimes shiny new gadgets, which attempts to turn every B2C (business to consumer) transaction to a B2B (business to business) model.

You thought you enjoyed a hot new Hollywood flick for free? You will pay for it when you watch new advertisements, shop for new pants or eat your fast-food burgers.

ⓒ Jeju Weekly 2009 (http://www.jejuweekly.com)
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