Wharton Term 3

Credits Course ID Course Title
0.5 ACCT-622-702 Fdmtls of Mngl Acct I
1.0 FNCE-601-702 Corporate Finance
0.5 FNCE-896-401 Finance in Europe
0.5 FNCE-897-401 Fnce in Mid East & N Afr
0.5 MKTG-621-702 Mktg Mgmt Prog Design
0.5 MKTG-622-702 Mktg Mgmt Strategy
0.5 OPIM-632-702 Op Mgmt: Spply Chain Mgt
0.5 WHCP-614-713 Management Communication

Mktg Mgmt Prog Design Homework – Cyworld

Executive Summary

Cyworld has reached a crossroad of its development. After aggressive growth, the users are now unable to  find useful information on Cyworld and are getting tired of the services offered.

Cyworld’s unique position, with high market penetration and the support of SK Telecom, offer a true competitive advantage and unique opportunity.

Cyworld can develop value added services linking social networking, wireless services and unique advertising for a local service called Cyworld-Jiyeog (Jiyeog means “local” in Korean).  Cyworld-Jiyeog is tailored to provide useful information to Cyworld users and to provide targeted marketing service for local merchants. Our conservative financial projections suggest over $34M of additional revenue in the first year through the launch of this service.

Situation Analysis

Cyworld grew rapidly from its inception to reach a user base of over 21 million by 2007, representing almost half of the entire population of South Korea. Cyworld has over 90% market penetration in the 20-to-29 year old market and accounts for almost 50% of SK Communications’ revenues and the majority of its operating profits. Growth in Cyworld has plateaued.

Almost 70% of Cyworld revenue comes from the sales of virtual items that its customers use to decorate their home pages, but the members are getting tired of buying these virtual items. The users’ loyalty and the number of visits have declined. The company has recently started selling advertising, which is now Cyworld’s largest growing segment with 16% annual growth ; Advertising revenues have exceeded industry growth rates and are expected to grow even more. However, Cyworld was built on the premise that they would provide a clean community with limited advertising.

The declining number of connections is another problem that should concern Cyworld; a lower number of connections and users correspond with a lower revenue.  Refer to appendix A for brief SWOT analysis.
5 C’s framework

Context

By mid 2007, customers started using free services, such as blogs, to communicate, and YouTube and Flickr to share videos and photos.

Company

Cyworld’s market penetration and local accessibility gives them a unique competitive advantage in the South Korean market. 70% of its revenue is generated by the sale of virtual objects, although this has plateaued.

Customers

The part of the revenue generated by advertisements has grown consistently. By directly pursuing this source of revenue, though, Cyworld may risk alienating its loyal customer base. Cyworld is popular  among 20-29 year olds , but adults consider it a waste of time. Adults represent a huge loss of opportunity. Another remaining possibility is to pursue International customers.

Competitors

The main competitors, Facebook and MySpace offer similar services as Cyworld and generate incremental revenue through advertisements but lack a strong mobile presence.

Collaborators

Another source of revenue for Cyworld is music sales; downloaded content is offered in collaboration with BMG, Universal and other local companies. However, Cyworld keeps more than 50% of the revenue generated by these sales, whereas competitors like iTunes only take 30%.

Product Strategy

Main Strategy

Cyworld will offer a service called Cyworld-Jiyeog that incorporates targeted local advertising. Although the 20-29 year old demographic  is saturated and interest in virtual gifts has plateaued, there is potential to increase number of users in other age-groups and to increase activity level of existing users by providing information useful in daily life.

Local merchants will create advertisements for offers in addition to creating minihompy’s. Based on users’ profiles and preferences, Cyworld will display these offers from local vendors.  This useful information is both of critical importance and also currently a gap that Cyworld isn’t meeting. No competitor in Korea provides local services in this manner, so Cyworld is in a unique position to create the Cyworld-Jiyeog service.

Initially, the segmentation will be focused on users with high activity levels as indicated in case appendix 9. As interest grows and members from different demographics join, the offers for local vendors will expand to these new segments but will remain targeted to the individual user.

This strategy will encourage more use, since users will want to see the frequently updating offers and will inform friends of deals that interest them. In addition, Cyworld-Jiyeog mobile application accessible on SK Telecom devices could increase customer loyalty for SK Telekom and vice versa. As consumers subscribe to both services, the churn rate is projected to decrease by 2.3% (Exhibit G).

The strategy will also encourage more users and more connections. As non-users discover the benefit of joining Cyworld in order to obtain local merchant discounts, they will start joining Cyworld.

Rationale

Alternative strategies such as additional generic advertisements, mobile applications for Cyworld, and games that interconnect NateOn and Cyworld, will result in more frequent use in the short-term but with these alternatives  do not provide useful information.

, Users will visit Cyworld-Jiyeog more frequently in order to view local deals they can immediately use. As a result, additional consumers from different age ranges will be enticed to join by word of mouth and through advertising, increasing use among current members, and increasing memberships and connections among non-users.

Targeting

In order to succeed in this segment, Cyworld-Jiyeog will need participation from numerous vendors. Therefore, Cyworld should start in a target-rich environment and develop a robust advertising campaign that is tactically targeted at more popular keywords used by consistent Cyworld users.  Cyworld will seek partnership with vendors whose products/services closely align with these keywords. This will ensure useful information is provided to meet the customers’ immediate needs. Over time, multiple segments will be targeted as new users join Cyworld from different demographics. These users will have different needs, so unique vendors will be pursued.

Risks

Local vendors will need to believe in this strategy’s potential, though without prior experience, it may appear speculative. If enough local vendors do not participate, the strategy will fail because users won’t see the value in logging on to check the deals, and non-users won’t be incentivized to join.

Marketing Plans

Positioning

Cyworld will  position itself as a social networking and local services engine.  Cyworld–Jiyong will be a premium destination for local businesses to promote their businesses.

 

Positioning statement –Cyworld–Jiyong will be  a premium online source for users to get useful information about local activities, events and businesses, appealing to users in the age-group of 19 to 29 who would otherwise have relied on coupons and local business advertisements received by mail”. (Exhibit H)

Implementation (4-P Framework)

Product

Cyworld-Jiyeog’s well-defined message –A platform for local interactions.  Cyworld-Jiyeog will be user-friendly, and will provide useful information about local services that the user is interested in, addressing the need for useful information and ease of use.

Price

Cyworld will continue to be free for users.  There will be no setup charge for local businesses, but Cyworld-Jiyeog will charge businesses 250 Korean Wons every time a user goes to a local business’ website or minihompy.  This is a new market for Cyworld, so there won’t be loss due to cannibalization. Cyworld-Jiyeog will increase stickiness (activity-level) of users on the Cyworld.  As shown in exhibit D, Cyworld-Jiyeog will generate over $34M in new revenues.

Promotion

Taking advantage of the 90% penetration in a key demographic and a huge user base, Cyworld-Jiyeog should conduct an 80% below the line promotion and 20% above the line promotion for local businesses.  Cyworld-Jiyeog should also provide incentives such as free clicks for the first three months to local businesses to incentivize them to try Cyworld-Jiyeog.  A key selling point to end users is the easy to use product with information and resources for users’ daily life.  For local businesses, the value proposition is to get customers who are interested in their products and services at a very low cost.   The promotion strategy for local businesses will be to invite them to take advantage of this online presence and reap the benefits before competitors join. Local vendors are incentivized by pairing with Cyworld’s established brand name. As the popularity of Cyworld-Jiyeog grows, more local businesses will recognize the value of advertising through Cyworld-Jiyeog in order to be viable in the competitive marketplace.

Placement

Cyworld-Jiyeog should first target SK Telecom customers who have business accounts and also build relationships with various city and local business associations. In the first quarter, Cyworld should focus on key metropolitan areas with a high percentage of youth and target local businesses such as restaurants, movie theaters and electronics stores.  Over the next few quarters, other types of businesses and rest of the country should be offered these services.

Conclusion

Cyworld-Jiyeog will not only generate additional revenue when new users join Cyworld to get local deals but Cyworld-Jiyeog will also generate $34M million in annual revenue by selling services to local businesses.  Cyworld-Jiyeog addresses the needs for useful information and decrease the churn rate of users. Cyworld’s brand in conjunction with the service partnership with SK Telekom should help establish a strong foundation for Cyworld-Jiyeog in the Korean market.