1. 1/34 일본 관광객 증가에 따른 면세점 시장 내 경쟁우위 확보를 위한 신라면세점 마케팅 커뮤니케이션 전략 The Project for Shilla Duty-free 작품 번호 : PT01-0011

2. What is DFS Industry? The Shilla Duty Free Profile & Properties DFS Industry Analysis What’s Happening? Industry Overview

3. 3/34 What is DFS Industry? Free duty shop business is where foreigners or natives going overseas can buy things in tax-free price. Korea duty free shop business is now in maturity stage and in the classification of customer, foreigners, especially Japanese are mostly important. DFS Industry in Korea Tax-Free For Travelers Related industry Price Japanese Korea Tourism

4. 4/34 The Shilla Duty Free Profile & Properties Shilla duty free shop, opened in 1986, is part of Hotel Shilla business. They pursue differentiated image by giving image of high-class and pleasant shopping environment as well as best service to both native and foreign customers. Name : The Shilla Duty Free Type : Downtown DFS Launch Date : 1986, Jul (Seoul) Location : Seoul (Jung-gu, MS 24.6%) Cheju (Yun-dong, MS 70%) Product Components : Imported famous brands & Local brands Positioning : Aspiring to high-dignity based on FIT segment Customer Composition : Korean(40%), Foreigner(60%) The Shilla Duty Free provides the best products and service. Furthermore, The Shilla Duty Free offers added benefit of best-in-class brand in DFS industry

5. 5/34 DFS Industry Analysis - Japanese The analysis of duty free shop industry based on 5 Force model is like the following. According to this, analyzing about consumers, competitors and substitute markets seems very important. New Entrants Supplier Consumer (Japanese) Substitutes Difficult to enter because of intense legal barrier Initial investment capital is big As much as brand awareness is important, there will follow huge loss in entering M/S is important criteria in industry competition High loyalty to famous brands TA or hotel influences very much to consumers’ mind Places exist where same products sell In selling famous brands, price is decisive factor to differentiate Switch cost is low Influence of supplier is huge since sales are concentrated in famous brands abroad, but will not handle this Competitors Evaluation: Moderate Evaluation: Strong Evaluation: Weak Evaluation: Strong : Strong

6. 6/34 What’s Happening? Increasing rate of foreign Visitors Because of 2004 Korea Syndrome in Japan, rate of traveling between Korea and Japan has been increasing. So it became an important issue for companies and state organs to carry out extensive and strategic marketing toward Japanese. “ 韓流 ” Increase route between Kimpo and Haneda, One day shopping possible JTB 2days 3night ‘ seoul plan; 24800 Yen 2008 韓流 wood In kyoung-gi !!! Theme park ‘travel cluster’.. B, Seven, Boa!!! 3 of them in oricon chart at the same time!!!

7. Who is Our Customer? Characteristics Customer Flow – Motive Customer Flow – FIT vs. TA Customer Flow – Times How do They Get Information? Where do They Buy in? Customer Analysis

8. 8/34 Who is Our Customer? Subdividing customers by sex and age, middle-aged women will take the largest portion in following industry while middle-aged men and women in twenties will be secondly important. FemaleMale Old Young Middle-aged Women Young Women Middle-aged Men Visitor flow by Sex Visitor flow by Age 1 st big segment 2 nd big segment 3 rd big segment Sharply Increased in middle-aged women As people get OLDER, their purchasing power goes UP + Females are more familiar with shopping.

9. 9/34 Characteristics? Tangible Factors Intangible Factors : Price & related incentive, Accessibility, Product line, Shop Design etc. : Brand, Service, etc. Extremely affected by Korean Syndrome Enjoy shopping Prefer to buy the famous brands Interested in food & esthetics Mainly purchase for gift Buy food a lot Highly prefer to buy famous brands Enjoy shopping Interested in esthetics Strong curiosity in another culture Customer Value Criteria Common Value Unique Value in each segment Middle-aged Women Middle-aged Men20 ’ s Women Values customers can get from visiting Korea and duty free shop can be classified like the following.

10. 10/34 Customer Flow - Motive In female segment, visitors mostly come to Korea as a purpose of trip or leisure. However, in middle-aged male segment, their purposes are divided into two- for business (their specialty) activity and for trip or leisure. Middle-aged Women Middle-aged Men 20 ’ s Women 87.3%7.4% 45.1%49.7% 79.1%9.7% : For trip & leisure : For business & special activities : Mostly visit Korea for leisure and trip : Divided into two-visitors for business (special activities) purposes and for leisure or trip purpose : Mostly visit Korea for leisure and trip

11. 11/34 Customer Flow - FIT vs. TA Comparison by travel method For trip and leisure For business FITs are the largest. And more or less people’s traveling methods differ depending on their visiting purposes. Especially, middle-aged males who visit Korea for the purpose of business and specialty work have high portion in FIT. Shilla needs to focus on FITs, especially male FITs. → Shilla needs to focus on FITs, especially male FITs.

12. 12/34 Customer Flow - Times Frequency of visiting Korea in recent 3 years Many people visit Korea once or twice for joy. 1~2 times visit is usually seen in female group. (80% of entire females) Frequent visitors (visiting more than 4times) reached 30% roughly. Travel method and frequency of visiting Korea While uses in package tour is high in little- frequency-visits, more- than-4-times- visitors take high percentages in FIT. Visitors for business come repeatedly and are FIT type. Shilla needs to use concentrated marketing methods in women segment and focus on brand loyalty in FIT(Free Individual Traveler) segment → Shilla needs to use concentrated marketing methods in women segment and focus on brand loyalty in FIT(Free Individual Traveler) segment

13. 13/34 How do They Get Information? Information about travel in Korea is usually acquired from friends, family and peers, and which shows how important OLG(opinion leader group) is. Also, middle-aged men and women in twenties shows high percentages in using internet, while middle-aged women get their information from TA mainly. Information Channel Mainly used by middle-aged women Mainly used by middle-aged men & young women We can consider to form OLG. (Opinion Leader Group)

14. 14/34 Where do They Buy in? Customer’s Purchase Channel Airport DFS Departmen t store Dong- daemoon Nam- daemoon City DFS E-tae-won FIT52.640.326.723.115.817.3 Package tour49.444.644.332.439.416.6 Air-tel57.54627.4353710.8 Shopping places depending on traveling method In the case of FIT, many people go to airport DFS and department store whereas DFSs in urban are used less. So we need to provide physical and psychological incentives to FITs. What should Shilla do when having FITs as their advertisement target?

15. Market Overview Competitor Analysis Competitor Analysis – Differential Advantage Analysis Guess What! Non DFS Competitors SWOT Analysis Competitors Analysis

16. 16/34 Market Overview Competition is so severe in duty free shop industry. And In the aspect of product categories, there are variety of substitute competitors. Definition of industry and competitors Industry definition Duty Free shop industry Indirect competitor Direct competitor Overall shopping industry targeting Japanese travelers Majors Lotte, Walkerhill, Dongwha, Coex, AK etc. Awareness High-quality Lotte Dongwha Shilla W AK COEX Competitors Competition in duty free shop industry Recognition standard Launch Date Market Share High-quality standard Aimed concept Atmosphere and formation of the shop Similar enterprises satisfying needs in shopping Markets (Dong- daemoon, Nam- daemoon, Itawon, etc), department store, mall etc. Shilla needs to differentiate from competitors → Shilla needs to differentiate from competitors Criteria Industry

17. 17/34 Competitor Analysis ShillaLotteDong-whaAKCoexWalkerhill IndicationIntending “Relax in the downtown” Market leaderThe very first DFS Claim nobility Targeting in female Located in Coex mall Launch Date198619801973200120001992 No. of Shop271111 MS in Seoul24% over 52.5%10%??? MS in Cheju70%30%---- LocationUrban (Seoul, Jeju) Urban (Seoul, Busan, Jeju) Airport (Incheon, Jeju) Urban (Seoul)Airport (Incheon) Urban (Seoul) Product Components About 500 kinds of famous brand and locals About 400 kinds of famous brand and locals About 250 kinds of famous brand and locals About 400 kinds of famous brand and locals Relationship w/ TA -Cooperation with JTB ---- Relationship w/ Hotel1) Hotel Shilla, Hotel Chosun, Hotel Hamilton, Hotel Itawon Hotel Lotte--Hotel Intercontinental Hotel Walkerhill Etc.One complete building Using Bae yong Jun as their model Large flux of youngsters Not specified Main Competitors in DFS industry

18. 18/34 Competitor Analysis-Differential Advantage Analysis The differentiation from competitors in DFS industry can be accomplished by maintaining product line width and reinforcing the service quality, which cannot be easily imitated by competitors Price & Price-related Incentive Brand Awareness (Brand power) Product Line Width Service Shop Design & Interior Geographical Coverage Channel Coverage : Strong: So-so: Weak Competitive Advantage

19. 19/34 Guess What! What makes this difference? The problem is…. Low brand awareness or Low channel coverage This shows the result in the case of eliminating region’s coverage effect by comparing individual stores Price policy is similar Shilla has higher advantage in service and environmental conditions of duty free shop Traveling means getting into touch with something new. Therefore, when it comes to choosing products, something familiar becomes more attractive-which is one of the key driver of duty free shop. Accumulated M/S in 3quarter 2004 Lotte brand is originated from Japan.

20. 20/34 Non DFS Competitors Since Japanese usually purchase luxuries while traveling in Korea, we need to focus on showing that our price is reasonable to set-up price in department store. Department StoreTraditional MarketMall Luxuries are about 10~20% more expensive than DFS. Categories besides imported goods are relatively cheap Cheap Price Variety of famous brands Easy to buy local brand products General kinds of local product Product Place Promotion Using high-quality pursuing strategy to attract foreigners and natives No special promotion strategy, but have high percentage of Japanese visitors No special promotion Downtown as well as around Kang-nam Traditional market in the downtown area Tiny network connections Downtown as well as around Kang-nam Lotte, Hyundai, Shinsaegae etc. Dong-daemoon, Itawon, Nam daemoon Coex mall etc. Competitors Additions Lotte Dep. “Avenuel” openWeak brandWeak in specializing products

21. 21/34 SWOT Analysis S TO W Good Relationship with Hotel Shilla Providing High-class Image Enough Experience Strong Point in Service & Shopping Environment Korean Syndrome in Japan Increasing Japanese Visitors (Especially in elderly women layer) Recent Economic Prosperity in Japan Korean-Japan Friendship Year in 2005 Lack of Opinion Leader Low Awareness Low connection with Travel Agency Just one shop in Seoul Discord in FIT segment Possibility that Korean Syndrome’s over Severe Competition in Industry Anti-mood for Korean Syndrome Lotte’s all-out expansion

22. Growth Opportunities Strategic Process Structure Setting Up Brand Identity Key Issue/ Action Plan in Seg, #1 Key Issue/ Action Plan in Seg, #2 Key Issue/ Action Plan in Seg, #3 Growth Opportunity & Strategy

23. 23/34 Growth Opportunities Differentiation Differentiate in product service itself Differentiate in the positioning of product& service Differentiate in the market structure Differentiate in the method of Positioning recognition Concentrated and differentiated marketing in middle- aged female segment Increase in customer loyalty in middle-aged male segment Proposition new kind of value in shopping- oriented 20’s women segment Differentiation of recognition with competitors Find subdivided markets to avoid competition Find a new market Follow-up in Scale Expansion in customer supply (esp. female) Expansion in customer supply (esp. male) Cooperation w/ Japan TA Expanding geographical coverage More Concrete, More Precise “Brand Identity”! “Higher Awareness” We Should Achieve… &

24. 24/34 Strategic Process Structure Redefine Brand Identity : Increase brand awareness through aggressive marketing-communication strategy Basic ConstructionMarketing Mix & Communication Increase Brand Awareness Enlarge M / S Concentrated and differentiated marketing in middle- aged female segment Increase in customer loyalty in middle-aged male segment Proposition new kind of value in shopping- oriented 20’s women segment

25. 25/34 Setting Up Brand Identity Korean Value Dynasty Luxurious Calm Upper-class High-quality Coziness Korean culture Familiarity Leadership 1000 year’s history Trustful Desire to have Wealth Pride in Korea Trip Reasonable Price This concept should be supported by the supreme service, shopping environment and product quality This mission should be observed by adequate price and price-related policy

26. 26/34 Possess Genuine Korea… …in Shilla Duty Free Possess Genuine Korea…

27. 27/34 Key Issue/Action Plan in Seg. #1 Concentrated and differentiated marketing in middle-aged female segment Target Customer Key Issue & Strategy Tactics - Expand from OLG to broader - Should absorb potential customer - Use post-visitors - Should have incentive program Middle-aged women who is.. a little sensitive to price, but wishing differentiation Korea-Shilla Campaign 1. Objective : OLG Formation & Increase awareness 2. Contents : Will handle this in the end 1. Objective : Absorbing potentials & Increase awareness 2. Contents : Give beautiful postcards with Shilla brand for DFS visitors and let them write to their family, friends. And Shilla deliver them to Japan 1. Objective : Incentive Program 2. Contents : Couponing through magazines for women etc. & Couponing for frequent visitors

28. 28/34 Key Issue/Action Plan in Seg. #2 Target Customer - Increase customer loyalty - Form OLG - Manage for-business traveler - Increase accessibility Middle-aged men who is.. FIT, frequent visitor, purchasing for giving a gift Key Issue & Strategy Tactics Increase in customer loyalty in middle-aged male segment 1. Objective : Customer loyalty & Increase accessibility 2. Contents : Investigate target customer and send e-mail about Korean travel, purchasing proposal for their family and friends (like what they love) & Give product catalog and make possible order by phone or internet while traveling Korea 1. Objective : Manage business traveler & Increase loyalty 2. Contents : Support Japanese- related business meeting or conference (Hotel Shilla is helpful) & send mail or publications about Korean business trend. In addition to that, can consider mileage support

29. 29/34 Key Issue/Action Plan in Seg. #3 Target Customer - Should have incentive program - Should absorb potential customer - Inform Korean youth culture 20’s women who is.. sensitive to price, travel-liking, indulging in famous brands Key Issue & Strategy Tactics Value proposition in shopping-oriented 20’s women segment 1. Objective : Incentive Program 2. Contents : Couponing through magazines for women etc. & Couponing for frequent visitors 1. Objective : Inform cheaper price & Inform Korean youth culture 2. Contents : Message will be “Enjoy Korea and shopping”

30. Design of Korea-Shilla Campaign Term Plan of Korea-Shilla Campaign Follow Up & Extension Plan Korea – Shilla Campaign

31. 31/34 Raise recognition of Shilla Brand to females living in Japan’s large cities Regard them as OLG (Opinion Leader Group) and expand female customers later on Campaign ObjectiveTarget Customer : Near 東京 (Tokyo), 大阪 (Osaka) : Middle-aged females who have high purchasing power and like shopping : Interested in Korea & Culture : Interested in travel Campaign Message The Shilla duty free shop gives away best product and best service with reasonable price providing 100% satisfaction to Japanese female visitors Campaign Title Period : Mar 2005 ~ Jul 2005 ~ Breathe Genuine Korea ~ After visitors begin touring, most of them have already their plans scheduled. So it is important to raise recognition of the brand in Japan beforehand by marketing and communication. Design of Korea-Shilla Campaign

32. 32/34 Term Plan of Korea-Shilla Campaign Period #1 Launching (1 Mar. 2005 – 15 May 2005) Period #1 Launching (1 Mar. 2005 – 15 May 2005) Period #2 Focusing (16 May. 2005 – 15 Jun. 2005) Period #2 Focusing (16 May. 2005 – 15 Jun. 2005) Period #3 Maintaining ( 16 Jun. 2005 – Jul. 2005) Period #3 Maintaining ( 16 Jun. 2005 – Jul. 2005) Intensiveness Key Issue Activities Medium Strong Strong to Weak aware of customer’s subliminal learning ability effective to use media that Japanese middle-aged women easily access in daily life focus on being intimate with customers and enlarging recognition carry out concentrated communication work with customers provide direct and physical incentives in traveling and in using duty free shop continue communicating with customers who are on their journey or planning to travel use travel-related goods or places to communicate with customers focus on giving final firm belief in purchasing products support communities related to Korea (Food, Han-bok, Korean etc.) arrange advertisements in places that middle-aged females go often like dept. store arrange ads in airports and in the plane arrange concentrated ads in public relations traveling magazines same as before but raise intensity support Korea related events or lottery on Korea tour ticket couponing Since we expect no. of Japanese visitors will reach the peak during summer vacation seasons, we are planning these following project.

33. 33/34 Follow-up & Extension Plan The brand of Shilla duty free shop cannot be thought separately from the brand of Hotel Shilla. With follow-up plan, we are going to settle the Shilla brand in Japan and lead globalization of Shilla brand through these high-quality Japanese travelers. Network Effect in Asia

34. 34/34 Thank you for listening! Q & A