If there is one thing that spreads pervasively in South Korea, it is a trend. A trend, one that is greatly in the public’s favor for a certain amount of time, is what business professionals scavenge for as they search for promising new ideas. Despite its lucrative façade, engaging in trendy business comes at cost in South Korea; a trend attracts plenty of potential business owners. While the old franchise stores of local conglomerates continue to thrive, new businesses, which have shaped their models according to certain societal trends, are placed at a precipice when a massive amount of similar supply starts pouring in.
Trendy businesses are initially enticing—at the beginning, the demand for items seems limitless and bountiful. An example of such a case would be the rise of chicken restaurants in South Korea two years ago. As starting a restaurant has a relatively low entry barrier, such business appeals to retirees or young people without much experience. This created a rise in chicken supply, rendering several chicken stores with lower sales, even forcing some out of the market. On the other hand, conglomerates continue to have steady incomes and business growth, displaying a disparity between the stability of conglomerates and new businesses.
The Problem—What Trendy Businesses are Doing Wrong
When 2016 was coming close to an end, Korea Statistics (KOSTAT) released a report that studied the lifespan of enterprises owned by individuals not affiliated with conglomerates. The study concluded that one in every four enterprises lasts less than two years. This study clearly depicts how a new business will rarely last long enough to be considered successful.
King of Taipei Castella’s case is a relevant example of such statistics. The franchise, once known for their popular Castella cakes that people lined up for, suddenly experienced a gradual decrease in sales. This was evident after an exposé targeted against the company proved that the ingredients they actually used were different from what they claimed they were using. According to Professor Tony Garret (Department of Business Administration), “When competition is high and companies are not making themselves different, they make it cheaper. In the case of King of Taipei’s Castella Cakes, the ingredients they were allegedly using were too expensive.”
A similar example can be seen in the case of Juicy. Juicy's fruit juice first received public attention with its cheap prices. However, at the end of 2016, Seoul Broadcasting Station (SBS) News carried out an investigation to measure the actual volume of fresh fruit juice against the claimed volume of the company. This revealed that Juicy’s claim that its product contained one liter of fruit juice was incorrect. The real volume ranged from 600 mililiters to 800 mililiters. Once the revelation was known it subjected Juicy to the strict scrutiny of the public and made consumers more critical when buying similar products.
Why do these kinds of instances occur so frequently? According to Professor Fang-Chi Lu (Department of Business Administration), “When a trend begins, people jump into businesses too easily from seeing the popularity of the product.” The competition becomes fierce and companies think about how to make profits—either by selling more products with false but appealing advertising, or lowering costs using cheap ingredients. Therefore, as Lu points out, “they start taking a myopic view, creating a tendency to engage in unethical behavior.”
It is also important to realize that conglomerates do not experience the same. Unlike relatively new trendy businesses, franchises of conglomerates experience a relatively longer lifespan. Paris Baguette, established in 1945, is a comparable example as it is a bakery that has a low entry barrier just like the Castella stores. An explanation for its exceptionally constant popularity is that “consumers see a brand value. Large businesses are less likely to engage in unethical behaviors even during times of fierce competition because it will hurt their business image. Hence, they spend a lot of time on customer trust,” explained Lu.
Furthermore, according to Garret, the differences in the response among consumers to a conglomerate committing a mistake versus a new trendy business depends on the number of years the company has built a relationship with its consumers. “Because these big corporations spent years building a trusting relationship with their consumers, one bad act can be more easily forgiven as compared to when a small and a new company commits the same action,” stated Garret. This distinction could be a reason for the grave consequences a trendy business faces after committing a mistake.
▲ Photo of the castella cake. Photo retrieved from Sister’s Castella Cakes homepage.
What Trendy Business Owners Should Know
As Lu points out, “When a leading brand makes a mistake through unethical advertising, an anti-business sentiment for the whole category of the brand’s product will be harbored.” Consequently, after the occurrence of King of Taipei Castella’s exposé, consumers not only distrusted the King of Taipei franchise, but most franchises selling Castella. If trendy businesses wish to sustain themselves, they should make the right choices from the beginning, even if they will suffer from a loss initially.
In addition, cutting down production costs to make products cheaper is not a sustainable way for long term business. According to Garret, “There will always be someone who can make the product cheaper. Also, when you drive down cost, quality will decrease.” Thus, instead of trying to find a better way to conform to what everyone else is selling, a better alternative would be to seek for relative advantage. “Unlike franchises of conglomerates that offer only standard choices, small businesses can easily distinguish themselves. Small cafés, for instance, can offer a unique kind of coffee, have friendly employees, or even invest for a better environment.” said Garret.
The lessons here are simple. Trendy businesses should look out for their long term development by providing their consumers with a refreshing product. This product should be distinguishable from the other ones that are already provided in status quo. In addition, they should realize that building a relationship based on trust is essential as well. This is why engaging in unethical business practices will get them nowhere. It is only when these lessons are realized trendy businesses will be given the leverage to compete with successful conglomerates.