Marketing in Japan
Marketing in Japan is often described as one of the big remaining mysteries of marketing worldwide, especially for companies entering the Japanese market (Melville, 1999). And even though the Japanese consumer market is struggling at the moment, with low GDP and income growth rates (Worldbank, 2015), a decline in population growth and an ageing society, the complexities of Japanese marketing are interesting to analyze in light of worldwide changes in the advertising industry. With the shift to the online world, marketing around the world is changing and new players evolve.
In order to gain an understanding what this continuous shift towards the online world means for the Japanese market, it is important to understand core aspects of how marketing worked and works in Japan. In this new world of marketing, three key areas of marketing have emerged to be the main success factors.
The first, obviously, is the power and the importance of advertising. The most powerful companies in the world nowadays don’t base their business model on natural resources such as oil, but rather focus on monetizing their services by building strong platforms as a basis for advertising outreach. No matter, if we are talking about Google, Facebook or the strong player in the Japanese market, Yahoo, advertising is core to their business.
The second aspect is the importance of branding. Branding has always been one of the most relevant parts of marketing, even more, in the online world, where products are not tangible anymore and the amount of information inflow is bigger than ever, standing out from the mass and gaining the trust of your customer has never been more important.
After having reached out to your customer with an ad and gained his or her trust through your known and well established brand, you will want to deliver your product to the customer and here, the world of distribution systems comes into play. As Japan has a very unique kind of distribution system, this aspect might even be more relevant here.
This paper will describe and analyze distribution, branding and advertising in the Japanese consumer market. Well established literature is analyzed and new insights and current information is added in order to describe the current state of the market, relevant cultural aspects and give an outlook on possible future market developments. This short paper will only be able to peek into the different segments and the usage of mainly English sources limits the degree of detail of the insights. Nonetheless, overall developments and learnings are still of practical relevance.
Distribution in Japan
When examining the distribution system in Japan, the main focus will be on fast moving consumer goods. This chapter gives a short introduction into the retail market from a consumer’s point of view before analyzing the current structure of the supply chain. Changes that have led to the current system will be included in the analysis and an outlook will be given at the end of the chapter.
Consumer Goods Retailing
The consumer goods market in Japan, especially the fast-moving consumer goods (FMCG) market, can be divided into four distinct categories as the market is not concentrated and firms tend to be domestic (Haddock-Fraser, et al., 2009). Whereas western markets, such as the US-market show a high dominance of supermarket chains with a market share of over 90% and very low share (5.5%) for convenience stores (United States Department of Agriculture, 2011), the Japanese market is more balanced. Supermarkets account for about half of the retail sales volume; convenience stores have a slightly higher market share than department stores at about 25% (METI, 2016). In addition, smaller mom-and-pop stores still account for a high amount of end-customer sales.
Haddock-Fraser et al. point out that supermarkets in Japan, nonetheless, are not directly comparable to those in western countries as they tend to be smaller in size and have a more restricted assortment (Haddock-Fraser, et al., 2009). It is also pointed out that the density of convenience stores in Japan is extremely high, which accommodates for the consumer behavior of mainly shopping perishable goods on a daily basis (Sato, 2004). In order to facilitate these characteristics and to reach the customer in the right location, convenience stores are abundant and focus on main commuting flows, as car ownership in Japan is not at the level of other developed countries, thus, making shops outside of densely populated areas unattractive (Dargey & Gately, 1999). For the same reason, “mom-and-pop” stores still are able to survive in Japan.
Nevertheless, the biggest players in the Japanese retail market is the convenience store chain Seven-Eleven Japan with a market share of 41 % in the convenience store market followed by Lawson (20,5%) and FamilyMart (19%) as of 2015 (Seven & i Holdings Co., Ltd., 2015). In addition to offline retail, most of the convenience and supermarket chains are now slowly moving into the rapidly expanding online retail segment where they will meet competition such as Rakuten (80 million user) and Amazon as late movers (Salsberg & Morita, 2012).
Structure of the Supply Chain
As the Japanese retail market seems to be highly complex, with different consumer facing channels and a large variety of brands and store types, it is to be expected that the supply chain system behind these outlets is not simpler. Indeed, the wholesaling system in Japan is made up of multiple layers where retailers, wholesalers and manufacturers interact (Schmekel & Larke, 2002). Adding to this is presence of possible regional and local wholesalers which then provide goods to the retailer and are willing to go to extremes in order to satisfy customer demand.
As this system is highly inefficient and smaller local outlets only managed to add marginal value to the supply chain, distribution systems in the Japanese market are changing and becoming less fragmented (Larke & Davies, 2007). Especially the large retail chains that are backed by their parent companies (e.g. Mitsubishi, Mitsui Bussan, Itochu) are pushing for changes in the system and starting to vertically integrate their local supply chains.
A classic example of this development can be seen in the case of Seven-Eleven. Their franchise based model is built upon the core pillars of perfectly functioning IT-Systems and fast and coherent distribution channels (Nagayama & Weill, 2004). Their integrated approach is not based on channel ownership, but rather on exclusive cooperation with local partners that feed data into the centralized IT-System and receive accurate information in return. Different local distribution centers provide storage facilities for specific types of products (e.g. frozen, cold, warm products) to guarantee speedy and easy delivery (so called Temperature-Separated Combined Distribution System). In addition, the number of deliveries per day to the retail stores has been decreasing.
Manufacturers often have to work together with retailers of wholesalers in order to place their products on the shelves. Direct distribution models are not relevant in the Japanese market. On the contrary, the changes in the distribution and retail systems in the 1990s have led to a decrease of power of manufacturers as medium-sized retailers were rising (Dawson & Larke, 2005). Nonetheless, their rise has not led to unified national supply chains; the regional character of distribution systems in Japan is still intact.
Outlook and Possible Changes
Although the Japanese distribution model with high complexity and great power of wholesalers has only changed slowly over time, a development can be seen and the trend of e‑commerce (and, as a subcategory, m-commerce) is about to lead to changes in the environment. As has been noted earlier, the major retailers have had a late start into the online world and large online retailers such as Rakuten and Amazon are leading the market (Salsberg & Morita, 2012) followed by kakaku and Yahoo (Statista, 2015). The e-commerce efforts of the major retailer cannot be found in the top 10 of the market.
This development has several reasons. Japan has one of the highest internet usage rates worldwide at 93.3% (Worldbank, 2015) and the acceptance of credit card as a secure online payment method is rising (Euromonitor, 2016). Nonetheless, more Japanese online platforms allow for offline payments in convenience stores or even at delivery. In addition, the infrastructure and delivery services in Japan guarantee easy and high quality shipment of products to the end consumers, which is crucial to live up to the market’s expectations.
From a manufacturer’s and seller’s point of view the new online platforms are highly attractive as they allow them to reach their customers in a trusted environment without having to deal with the high entry barriers and complications of the offline retail business (Mehra, 2016). Even though the market conditions seem to be favorable, it remains to be seen if online platforms will be able to gain a substantial market share in the Japanese market.
Should these platforms be able to get a foot in the door and compete with offline retailers in the long term, it can be expected that the distribution system as a whole will start changing. Not only will the amount of intermediaries that stand between the platform or delivery facilitator and the manufacturer be reduced due to price pressures that occur online, but a move to strongly integrate vertically into the delivery segment by these online platforms would be far from surprising, as seen in the US (Palladino, 2016).
Branding in Japan
After having analyzed the distribution system, the following chapter will now highlight how products and services are marketed to the customer or consumer. First, the patterns of branding in the market and the motivations behind and reasons for these patterns will be described. Afterwards, further explanations for this behavior will be analyzed by looking at cultural reasons.
Strategic Branding Priorities
The scarce English literature that is available on the field of branding in Japan approaches the topic by comparing the East-Asian system with the Western branding approach. Different areas such as consumer perception, market pressures and company-internal structures are analyzed to find reasons for the clear difference between the different regions.
The main difference between branding in Japan and in Western markets is the clear dominance and reinforcement of corporate brands throughout the company’s product portfolio (Tanaka, 1993). Authors argue that this difference can be attributed to the microenvironment of Japan with its history of strong corporate brands, history, culture and distribution systems.
More relevant, Tanaka argues that different priorities in Japanese companies are the main reason for this choice. Japanese companies have long shown a preference for measuring success in terms of market share and that launching new products with very short product life-cycles would help them succeed in achieving this goal (Wharton, 2007). Western companies, on the other hand, had their focus on sustaining product life-cycles and gaining profits. Long life-cycles allow for the creation of stable and, thus, long living and self-sustaining brands. In contrast, a rapid succession for new product releases dilutes a brand. As a logical consequence, the only asset of stability in terms of branding is the corporate brand.
A similar development of corporate brands can be seen in fast moving markets in the western world as well. Companies in the IT-industry have a strong focus on their umbrella brands as this allows for a great amount of experimentation (e.g. Google, Amazon). On the other hand, should a company have built a strong brand, they are happy to push this sub brand without the umbrella — this is especially true for recent acquisitions (e.g. WhatsApp, Instagram, YouTube, Nest). So, one could argue that Japanese companies mainly adapt to their market environment when using corporate brands, as the FMCG market actually is fast moving in Japan.
Souiden at al. propose a further strategic reason for the choice of corporate branding by mentioning the internal corporate structure (Souiden, et al., 2006). It is argued that the pyramidal organizational structure within the organization will lead to an orientation towards the top, thus, the corporate brand, whereas western companies tend to have a product-based organizational structure where brands are independent from the corporate brand. Although this argument is supported by other Japanese authors (Tanaka and Iwamura) no final conclusion could be drawn.
Consumers and Branding Choices
No matter the strategic objectives of the companies, the customer is the one who will buy the product and most probably has the biggest influence on branding choices of corporations. Here, Tanaka argues that Japanese customers tend to base their decision making on familiarity with a product rather than the direct reward or benefit (Tanaka, 1993). Familiarity is a clear sign of trust and quality in a product or brand — and the more often products are released, the more essential a brand will become to support the customer in the decision making process (Souiden, et al., 2006). To support this argument, Souiden et al. find that customers tend to be more loyal to corporate brands than to independent brands. The reason behind this can be the strong focus of Japanese brands on the “wa” (harmony) in order to make the customer more comfortable with the brand and gain their trust.
But how will these branding methods work with the Japanese customer in the future? As current sources on brands are scarce, a short theoretical outlook will be made: As was already noted in the chapter “Outlook and Possible Changes” the next big trend in the customer market is e-commerce. The main reason why brands are of high importance online is the factor trust. Customers cannot test, interact, touch and experience products and services as easily online, which makes trust one of the core decision factors online (especially if a monetary transaction is involved). Besides customer reviews, a known brand is seen as the core decision making criteria for a large amount of customers (Nielsen, 2015).
This situation should give established Japanese brands a core competitive advantage in the e‑commerce arena. But, every positive comes with a negative: The more products are branded with one corporate brand, the harder it is to control damage to the brand. A high degree of brand diversification therefore might be the better strategic choice.
Advertising in Japan
As could be seen in the chapter on the Japanese Consumer and Branding Choices, Japanese marketing has very distinct and unique characteristics. The following chapter will first describe the situation in terms of advertising in Japan followed by an analysis of the structure of the advertising market in Japan.
Characteristics of Japanese Advertising
The main characteristic of Japanese advertising besides visual differences in terms of color and ambience is the soft-sell character of Japanese ads (Okazaki, et al., 2010; Johansson, 1994). This implies that the main focus of the ads is not so much highlighting direct product benefits, USP, price or a comparison with the competition, but much more focused on creating an environment that reflects the brand and the ideal experience of using the product. As a consequence, ads are more aimed at the emotional decision maker rather than the rational and function-oriented customer (Tanaka, 1993). In her paper on advertising appeals in the Japanese and American market, Mueller distinguishes soft- and hard-sell the following way:
Soft Sell Appeal: Mood and atmosphere are conveyed through a beautiful scene or the development of an emotional story or verse. Human emotional sentiments are emphasized over clear-cut product related appeals.
Hard Sell Appeals: Sales orientation is emphasized here, stressing brand name and product recommendations. Explicit mention may be made of competitive products, sometimes by name, and the product advantage depends on performance. This appeal includes such statements such as “number one” and “leader.” (Mueller, 1986)
Johansson describes four different approaches that might explain the usage of soft-selling ads in the Japanese market: a cultural, social, institutional and an economic approach. Each of them will be described shortly in order to get an impression of the ads and, partially, of the Japanese consumer market (Johansson, 1994).
The cultural argument is mainly based on the relationship between buyer and seller. In Japan, the customer is not only “king”, but rather “god” and the seller is graceful that the time is spent to consider the product (Melin & Wikström, 2007). Moreover, the sender of the message is almost sorry to interrupt the main flow of content (be it a television program or a stream on a web service). In addition, Japanese education is more oriented towards memorization than rational analysis, thus stating the obvious characteristics of a product is not as important as creating a memorable mood (Nemoto, 1999, p. 86).
In terms of social persuasion, Johansson argues that the group orientation of Japanese society (Rosenberg, 1986) will lead to more soft-selling advertising. The brand will rather want to build an image of a product fitting a certain lifestyle and group within society, therefore focusing on the feeling that is connected with the usage of the product — similar to the western approach of product experience marketing.
The institutional structure of the Japanese advertising industry is another possible explanation for the lack of hard-selling and directly competing ads. As will be elaborated later in the chapter on the Advertising Market Structure, the market is focused on a small amount of agencies that have a portfolio of a wide range of competing products. A hard hitting ad, therefore, is likely to hit a colleague within the same company, which is not desirable. In addition, the lack of competition within the industry gives the agencies a position to exert power on the brand owners to push the type of ad that is favorable to the agency’s interest (Johansson, 1994).
The last explanation that is proposed by Johansson is the economic function of ads in the Japanese market. Whereas the informational function is seen as one of the core reasons for creating an ad in the West (Santelli, 1983), this function is often fulfilled at the retail level in Japan. This does not mean, that certain advertising formats are not used to communicate information to customers, but the likelihood of this happening is much smaller than in Western, especially the US, markets (Ahmed, 2000, p. 30). This might also help to explain, why Japanese ads might be perceived as irrelevant from a Western perspective (Tanaka, 1993).
Advertising Market Structure
As has been mentioned in the previous chapter, the structure of the advertising market in Japan is built around a few core players. Dentsu and Hakuhodo are the dominating market players, but new online focused companies such a Cyber Agent are playing catch up (Doland, 2015; Hollow, 2014).
The basic principle behind the structure of the Japanese advertising market is that the big agencies buy media space in advance, thus locking out all competitors from direct access to the final broadcasting medium (Mooney, 2000, p. 64). In addition, they have direct and often exclusive access to celebrities that are of high importance for creating ads in Japan (Hollow, 2014). Coming from this strong position the agencies are built to be full service providers to brand owners. They have in-house market research, event planning and even production (although the creative part often is outsourced).
Small advertising agencies have to go through the big agencies in order to place their ads in the media. Adding to that is the fact that the big agencies also own the market research companies that track the success of ads.
As the whole industry is built around a few very influential players, there is a very strong and often long-term relationship between agencies and their clients. This also means that a single agency often manages several competing accounts. As has been discussed previously, this disincentivises competing ads, and will hinder the innovation of the business, as a low-cost success of a campaign would lead to all other clients requesting the same (Doland, 2015). Whether or not the top agencies will be able to stick to this model when online advertising will be the dominant channel remains to be seen. Access to media space will not be the core competition factor, but the agencies will be able to benefit from their long standing relationships with clients and celebrities.
After having described the most relevant aspects of marketing and selling products in the online market, we will now try to give an outlook on where the market is heading. The chapter on distribution systems already showed that a big shift in the market is very likely. With the rise of e-commerce retailers and marketplaces, the current complex distribution system has a very competitive player in their field. B2C shipping is reliable and Japanese consumers are willing to get on board with e-commerce.
Even though retailer branding has grown to be of increasing importance in Japan (Dawson & Larke, 2005), the corporate branding efforts of the big companies has secured that their brands are trusted and highly recognized by Japanese consumers. This might be one of the most valuable assets that Japanese companies will have in the online arena. On the other hand, is has been pointed out that damage control is difficult if a brand is connected to a company’s complete portfolio. In the online world, where a single individual can inflict major damage upon a large brand (Deighton & Kornfeld, 2010), this unique strength of Japanese companies might become a weakness in times of crisis.
One thing, that has become very clear, is that the media and advertising industry in Japan is very vulnerable to disruption. The size and lack of innovation of the big agencies that dominate the business is one aspect that contributes to this argument. The failure of one of the big companies will then not be able to be balanced out by the competition, as they lack the resources to manage the vast amount of accounts. The continuous shift away from television will not help strengthen the position of these companies.
Overall, it can be concluded that most of the special aspects in the Japanese markets have their good reasons and are based in consumer culture. Even though Japanese firms have a stronghold in their current offline market, it remains very uncertain if these corporations will be able to stand up to the rapid development in the online market and possible cultural changes that come with this restructuring of the market.