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Leveraging Japan: Marketing to the New Asia / Edition 1 available in Hardcover
Japan's current shift from a manufacturing to a consumer economy is creating unprecedented opportunities for any company with the savvy to exploit this, the world's second largest market. Certainly, as the Japanese economy continues to rebound, more and more companies will continue to stake and build their presence there and use it as a springboard to enter other growing Asian markets. In Leveraging Japan, three leading authorities on market strategy and Japan present the new rules of Japanese marketing and discuss the evolution of other emerging Asian markets. These experts then share the same strategies that they've used to help American Express, Avon, Levi Strauss, and KFC, among other multinational companies, successfully establish a presence in Japan and leverage that presence to enter other Asian markets.
To read the first chapter from this book, click here.
Read an Excerpt
The Fourth Rush
A large orange Hermes box in the middle of Tokyo's posh Ginza shopping district seemed strangely out of place, given the gloomy economic picture in Japan. Was this bold promotion a sign that the company was out of step with the times? Was it wishful thinking? Not at all. The success of Hermes, Tiffany's, Mercedes-Benz, and other luxury marketers, the rise of category killers and outlet malls, and the continued success of long-standing brands such as Coca-Cola and McDonald's are all indications that there is more to the Japanese market than its economic crisis. Tiffany & Company continued to grow its jewelry business at 13 percent per year from 1996 to 1998, despite the lackluster overall economy in Japan.1 Tiffany's sales rose 21 percent year-to-year in the first half of 1998, even while sales fell by 16 percent in the rest of Asia.2 Gucci is expanding its presence in Japan, opening several large stores in rapid succession, and it has a three-year backlog of orders from Japan for its version of the popular Hermes ÒKellyÓ bag (named for Grace Kelly). Hermes, with sales up 30 percent in the first half of 1998, plans to open a flagship store in the Mercedes's Ginza in 2000. Mercedes's new ÒA ClassÓ model reached its first-year target of selling 7,000 cars well before the end of 1998.3 There is a wait of five to twenty-four months for some Mercedes- Benz models. At the other end of the market, McDonald's Japan posted a 13.4-percent increase in sales in 1998 (and nearly an equal increase in profits) driven by skillful pricing strategies and the opening of 459 new stores.4 International Trade and Industry (MITI) survey found that productivity per employee was 1.7 times higher for foreign companies in Japan than for Japanese companies and 1.9 times higher for non-manufacturing companies.
The Fourth Wave of Investment
Despite the turbulence of Japanese markets, foreign investors continue to swim like salmon against the current into Japan. A 1999 Japanese External Trade Organization (JETRO) Investment White paper found that foreign direct investment in Japan from April through September 1998 was more than double that of the previous year. (It had tapered off slightly in 1997 after a tremendous surge in 1996.) Stock and ownership acquisitions reached an all-time high of $4.9 billion (´593 billion) in 1997. Although manufacturing investments were up slightly, most of the new investment was from non manufacturing sectors, particularly financial institutions and insurance, driven by the financial Big Bang. United States financial services firms, for example, invested $1.3 billion (´171 billion) in Japan in the first half of 1998. There were also increases in foreign investments in areas such as computer software and networks, advertising, cinema complexes, and satellite digital broadcasting.
Beneath the shifts in the economy, there are more fundamental changes taking place among Japanese consumers. Changes in demographics-in particular, a rise in unmarried working women-and changes in consumer behavior and attitudes are reshaping the post-war economy and mentality.
Leveraging the World's Second-Largest Market
The Japan visible in this rising consumer market is not the wounded samurai of the news headlines. Nor is it the impenetrable walled market discussed in the boardrooms of Detroit's auto companies. While the Japanese economy is facing unprecedented struggles and changes, the emerging nation is very much alive. This vibrant consumer market-the second largest in the world-is unlike anything Japan has seen in the past. A transformation is taking place, creating new opportunities for those companies that haven't passed by Japan on their way to other parts of Asia. ÒIf you are not in Japan, you are missing out on a big opportunity for a number of years,Ó says Robert Simon, former chairman of EstŽe Lauder K.K., one of the most successful foreign cosmetic firms in Japan. ÒNo matter how big the potential is in most of Asia, it will take time to develop.Ó
Open for Business
This large market, once locked behind regulations, complex distribution systems, and loyal and enigmatic consumers, is now open for business. The changes in the Japanese market are a sign of a fundamental revolution: the emergence of a true consumer market. Japan's move to a consumer market can not only offer insight into the development of other Asian economies, but observe key Japanese players in their development as well.
Myths and Realities of the Japanese Market
Several interrelated forces have conspired to transform the Japanese market. There have been fundamental shifts in the nature of the Japanese consumer and the emergence of creative entrepreneurs to meet these new consumer needs. Consumer shifts have been precipitated by an increase in working women and a steadily rising marriage age. Changes have been encouraged by the slow, steady loosening of the stranglehold of regulations. And they have been driven forward by a typhoon of technology and innovation sweeping through distribution channels. Myth: Japanese customers make purchases based on relationships with retailers and manufacturers, so they rarely shop around.
Reality: Japanese customers shop around for value. Young consumers, in particular, do as much comparison shopping as their Western peers-and perhaps even more. Consider a study by MITI that asked consumers in New York, Tokyo, and London: ÒDo you shop around for a better deal in making a purchase?Ó Among older consumers, New Yorkers and Londoners were far more likely to shop around than their Japanese peers. The surprising result was for the under-twenty-nine group. In this age group, 75 percent of New York youth and 64 percent of Londoners shopped around for better deals. But in Tokyo, 78 percent of all young people would shop around for a better deal. This is nearly double the percentage of Tokyo consumers over fifty years of age.
Myth: Japanese consumers equate price with quality.
Reality: Japanese consumers are now intensely concerned with price. In some cases, they are more price sensitive than their Western counterparts. Whereas the traditional Japanese customer demanded quality at any price, today's customers are seeking value. While more than 70 percent of retailers sold products at manufacturer's suggested price in 1998, only 29.4 percent were still following that practice five price-busting years later. The rest had cut prices.17 At the height of discounting in 1993, one out of every two suits was bought from a discounter. In general, Japanese customers are less willing to compromise quality for price than their Western peers. (Many discounters failed to see this, offering shoddy products at reduced prices, and they quickly lost their newfound markets to major brands, which had lowered their prices in response but maintained high quality.) Price is now a key competitive weapon.
Myth: Japanese customers are fiercely nationalistic, making it hard for foreign companies to enter the market.
Reality: If Japanese customers scorn foreign products, they don't show it. Japan is far more open to foreign products than some of its neighbors. Ninety-two percent of Japanese consumers said they prefer a superior product regardless of its nation of origin, compared to just 59 percent of respondents in South Korea and 68 percent in China.18 Products no longer have to be produced by Japanese workers to be accepted. McDonald's dominates fast food, Coca-Cola in soft drinks, Schick in razors, and Mars in pet foods. Japanese customers increasingly look for the best value, wherever it is produced. Japanese brands are still strong, but customers have accepted a dramatic rise in imports produced by offshore and foreign manufacturers (usually sold under Japanese brands). Even sales of import cars (including, for example, Hondas made in the United States) doubled between 1991 and 1995, and foreign cars rose from 4 percent to 11 percent of all new car registrations between 1991 and 1996.
Myth: Japanese consumers are conservative and will buy only well-known brands.
Reality: Consumers are willing to experiment with new tastes and brands, as shown in the rise of Asahi dry beer discussed later on. The initial rise of private brands in the late 1980s indicated the willingness of customers to trade a brand image for lower price. (A November 1998 survey of distribution companies found that the number handling private brands had increased to 56 percent, although the rate of increase had tapered off, perhaps because of concerns about quality.19) The experience of the 1980s and 1990s shows that customers are not wedded to traditional brands.
Myth: Japanese customers like face-to-face shopping and will not buy a product sight unseen.
Reality: Working women have less time to shop, so convenience has become more important. Direct-mail sales have grown from virtually nothing in the 1970s to more than one-fifth of the sales of large department stores today.20 While retail sales fell during the recession, direct marketing sales continued to grow at a rate of 5 to 7 percent each year.21 Internet sales also continue to grow, both from domestic and foreign companies, showing that Japanese customers don't necessarily prefer shopping face to face, as long as value and selection are high enough.
Myth: Japanese distribution channels are impossible to enter.
Reality: Direct marketers and mail order companies are bypassing the distribution channels altogether. The rise of parallel imports is breaking through the expensive multilevel wholesale channels. Manufacturers are relying less on their traditional networks of keiretsu stores, and regulators are beginning to relax the large-scale retail law.22
Myth: Japanese firms place long-term, stable relationships with other firms above all other considerations.
Reality: Today, the value-added of the relationship is most important. Every expenditure is carefully evaluated, and relationships between firms are far more expendable. For example, under pressure from clients, top advertising agencies are restructuring, focusing more on their creative contributions than merely on their access to media and to major firms. Tokyo Electric Power set aside its long-term relationship with equipment supplier Statchi to invite global contracts. Keiretsu relationships are disintegrating. In business-to-business sales, relationship-based marketing is losing power to benefits-based marketing.
Opportunities in Change
These changing realities create opportunities. In addition to the many foreign entrants moving into Japan, other foreign and domestic firms have taken advantage of the nation's new realities to find opportunities in this $4.6 trillion (approximately ´552 trillion) market. Companies are creating unique selling propositions in a land where Òbig and ambiguousÓ used to be a marketing virtue. A few examples:
P&G had given up selling dish soap in Japan after the failure of Orange Joy in the 1970s, but times had changed. By studying Japanese consumers, P&G researchers found a need for a more concentrated detergent developed specifically for Japan. Shifting dietary patterns (such as increasing consumption of meat and fried foods) increased the need for a grease-fighting soap. P&G's advertising stressed Joy's concentrated power in cutting grease as well as its gentleness on hands. P&G used a documentary format featuring interviews of homemakers by a famous comedian. Customers proved very willing to shift to a new brand that offered a better value proposition. P&G also used clever incentives in the distribution channel to encourage retailers to promote the brand. The company gave retailers higher margins and redesigned its bottles to save shelf space, improving the efficiency of transporting and selling the soap.23 P&G's experience in cleaning up the detergent market also shows how a success in Japan can be leveraged in other Asian markets. P&G has taken the formula for Joy developed for Japan and has begun selling it in the Philippines and other Asian markets.24
Asahi exploded the myth that all beers taste the same and that Japanese consumers would accept anything served up by a dominant firm. To Kirin's surprise, it turned out that Japanese consumers did have taste buds and minds of their own. (Kirin also lost ground to Asahi in distribution. Reluctant to antagonize its networks of small liquor stores, Kirin was slow to move to discount and convenience stores, which have become key outlets in distributing alcoholic beverages.)
Opening the Gateway to Asia
The value of understanding changes in Japanese markets is not limited to Japan. Japanese companies are among the most important players in all emerging Asian markets. The nation still accounts for nearly two-thirds of the entire East Asian economy, and it would be hard to develop a coherent strategy for the region while ignoring this part of the market.29 A 1998 JETRO survey of 705 foreign companies found an increasing interest in Japan as a base for future Asian operations. While only 10 percent considered Japan as their current base for Asian operations, some 24 percent said they considered Japan to be Òthe base in the future.Ó30
A Window on Asian Culture
Although there are great cultural gulfs separating Japan from other Asian countries, the leap from Japan to the rest of Asia is in many ways not as great at the step from the West to Japan. Recent studies have shown significant similarities among young Asian consumers and important differences from their Western peers.31 Awareness of some similarities, such as a rice culture, similar hair and skin needs, and other characteristics often give companies with an experience in Japan an edge over rivals without that experience. For example, P&G's Whisper, a sanitary napkin tailored to the needs of Japanese women, is the leading brand in its category in Japan and has been very successful in other parts of Asia. Unilever's dishwashing products designed for Japan have also been successful in Asia. (It should be stressed, however, that Asian markets are no more Japanese than Japan is Western, and they are as heterogeneous as most Western markets.)
Japan is one of the best case studies for the rapid emergence of a modern economy-from its post-war start to a fully developed modern economy. Japan's experience in shifting from a producer-driven economy to a consumer-driven market, its shift from a closed to an open society, its move from a homogeneous market to a heterogeneous market, the power of institutions such as MITI in shaping the economy, the rise of entrepreneurship, and the changing role of women are all trends that can be or are being repeated in various parts of Asia. Emerging Asian economies won't be identical to Japan's, but by examining how these changes play out in Japanese markets, companies can gain experience in handling these changes in other Asian markets.
Asia looks to Japan for fashion and products in much the same way as Japan looks to the West. While Japanese tourists head to Disneyland in California, Asian travelers pour into Tokyo Disneyland. They read Japanese manga comics, use Japanese appliances, drive Japanese vehicles, and play Japanese computer games. Tokyo is the financial and cultural ÒcapitalÓ of Asia in the way that New York City is the ÒcapitalÓ of North America.
In addition to offering perspectives on Asian markets, Japan also offers experience and insight into working with Japanese partners. Japan is the most powerful player in the development of Asia. There are few parts of Asia in which new entrants will not find themselves working with Japanese suppliers, retailers, or other firms. Japanese companies are huge investors in Asia. They have also been involved in Asia for far longer than most Western firms.
Just as Japanese firms are very often the most powerful partners in entering Asia, they are also the most significant competitors. For companies facing off against Japanese firms in Asia, the home market offers insight into their strategies and corporate approach.
Because of the size and spending power of the Japanese market, companies can build capital and a base of operations for other parts of Asia. While other Asian markets are still developing, firms can actually make money in Japan in the short term.
Japan's Emerging Marketing Age
The overriding impact of the transformation of the Japanese market is that marketing has become more important than ever to success in Japan. The market has transformed from a ÒpushÓ economy based on what companies produced to a ÒpullÓ economy based on what consumers demand. Whereas they once were an afterthought, marketing issues now make or break a company's position in Japan. The winners in the new Japanese market will be the companies with the most creativity and skill in marketing. Japan has entered its Marketing Age and it is very likely many other Asian countries will follow suit as their economies develop.
Soccer Among the Sumos
In the old market, large corporations threw their weight around like massive sumo wrestlers as the customers looked on. The matches were fierce but also ceremonial, aggressive yet civil. These were highly stylized matches. Like sumos, the most successful new products came from the large and established stables. The customer was on the sidelines.
Points of Leverage
Table of Contents
Preface Acknowledgements About the Authors
1. The Fourth Rush
2. From Shoji Screen to Sheet GlassForces Shaping the Japanese Market
3. The Japanese Gateway to Asia
4. Strategies for Entering Japan and Asia
5. From "Tap Water" Marketing to Tapping Markets
6. From Power to FinesseSegmentation, Positioning, and Branding
7. Starting with the CustomerDeveloping Products and Services
8. The Discovery of ValuePricing and Promotion
9. Goodbye to GreetingNew Rules of Communications, Advertising, and Public Relations
10. The Rise of Cybermarketing
11. Breaking the LabyrinthNew Rules of Distribution
12. Beyond BowingNew Rules of Customer Satisfaction and Value Creation
13. New Rules of Marketing Research
Conclusion: Leveraging the Future