In Japan, multinationals rediscover a forgotten market

The slowdown of markets like China and the realisation that overheated growth projections are unachievable in countries like Indonesia is prompting a number of multinationals to look at Japan with renewed interest.

That does not mean, of course, that China is paling into insignificance. As one would expect, for most major foreign companies, Chinese advertising spend still dwarfed investments in Japan last year, according to Nielsen. The biggest spending foreign brand in Japan, Coca-Cola, shelled out US$216 million against nearly $757 million in China; Apple spent just under $130 million compared with nearly $363 million; McDonald’s, $65 million to $483 million.

Nonetheless, the appetite to derive new growth from Japan appears to be there. The shifting focus is not simply a default reaction. While optimism in Japan is cautious, it has grown noticeably thanks to stronger (although controversial) national leadership and the prospect of hosting major sporting events.

In addition, with jitters around Brexit, investors are seeing the yen as something of a safe haven. Takeshi Miyazawa, managing director of UM Japan, suggests that the Trans Pacific Partnership (TPP) will encourage US brands to enter or invest more in the market, particularly in sectors such as food, telecoms and entertainment. Miyazawa also notes that companies like Mondelez are regaining control from distributors and investing in Japan as centralised global brands. At the same time, consumer spending dropped following the sales tax rise in 2014 and remains sluggish.

Decreasing mystique

Magna Global, part of IPG Mediabrands, forecasts growth of 2.5 percent in Japan’s advertising market in 2016 to 4.1 trillion yen (nearly $40 billion). That’s still behind China, which is predicted to reach $53 billion, but observers note that while Japan does not promise spectacular growth, it does offer a degree of stability, which is attractive at a time of such global uncertainty. It’s also important to remember that the purchasing power of the average consumer still far exceeds that in any other Asian market of comparable scale.

Ross Rowbury, president and CEO of Edelman Japan, points to a core group—the children of the baby boomers—of 20 million with considerable wealth. But he also notes that, given that they are not “aspirational” in the same way that their parents were, they need to be treated in an entirely different way. Exactly how is something brands that have neglected the market for the past decade to chase growth in China now need to learn—fast.

While not claiming to have all the answers, Rowbury says foreign brands need to discard their preconceptions about Japan. Mistakes are still common. He points to a piece of work by an FMCG brand last year that could have been from the 1950s, featuring a 30-something housewife waiting for her husband to return from work.

“That lady doesn’t exist any more,” Rowbury says. He urges brands to “really do the work to understand” the consumers they are trying to speak to.

So how are companies responding? Satoki Sano, managing partner of The Observatory, a consultancy, says he sees foreign brands relying more heavily on local leaders, rather than expats, to build local understanding and insights. The marketing talent pool, however, remains somewhat limited, and that is not something that is going to change overnight, although investing in development is likely to help in the long-term.

At the same time, understanding the ‘new’ consumer might be easier than some imagine.

“Japanese consumers increasingly resemble their Western peers,” says Greg Paull, principal of R3, pointing to a normalisation of the market. “For companies that have long regarded selling in Japan as different and difficult, this may be welcome news…I believe the days when Japan justified a unique product range are coming to an end. [Today’s] Japanese consumer is also more open to foreign-made products, especially Chinese.”

Yasu Katagi, chairman of McCann Worldgroup Japan, even thinks the country has moved closer to ASEAN markets in terms of culture and business. The message is clear: Japan is more accessible than it has been for a long time, perhaps than it’s ever been.

Winning still means committing

Of course, Japan’s famously aging population will continue to represent a major opportunity as well as the core segment of wealthy professionals, and companies would be foolish to think this segment is not interested in brands or consumption—still a common misconception.

Katagi sees luxury experiences, including cruises and domestic travel, as a major growth area fueled by this segment. He also sees potential not only in conventional healthcare, which continues to grow, but also in nursing care, which has not typically invested much in branding but will need to start as competition intensifies. In general terms, Paull says he sees foreign brands paying more attention to the “silver segment” with “more customised and targeted products and services”.

Japanese consumers may be more “Western” than ever, but they still want to be recognised as being Japanese. If foreign brands are serious about Japan, they are advised to invest more in real localisation, rather than simply adapting global advertising work. Japanese tourists make up the bulk of visitors to Marina Bay Sands, an upscale Singapore resort and casino. Yet for its first large-scale marketing effort for Japan earlier this year, the brand chose simply to make minimal modification to a campaign featuring David Beckham that had launched globally in 2015.

Certainly it’s easier to dip a toe in the water rather than go in with both feet and fully commit. But doing so with the aim of really building differentiation and credibility within the local market could pay off in a big way. It doesn’t have to cost the earth. Stephen Berkov, managing director of Mindshare Tokyo, advocates focusing on digital channels to “woo” rather than “target”, saying consumers have reached the stage where they are tired of brands “shouting”.

No one has ever said that Japan is an easy market to succeed in as an outsider. But consumer appreciation is clearly there for foreign brands that offer something genuinely differentiated—not necessarily just high-end. Apple, for example, continues to inch up the national rankings in Campaign’s Asia’s Top 1000 Brands report, this year moving into third place overall; Amazon’s marketing efforts seem to be paying off too. Having spent around $40 million on advertising in Japan last year, the company now sits 22nd in the report—20 places above domestic rival Rakuten.

Perhaps most important, particularly for American companies, is to have realistic expectations. Economic growth is not likely to suddenly accelerate, and neither is the pace of society.

“Quick success never happens” regardless of the amount invested, says Katagi. “It takes time and energy, but [if you commit], you will enjoy stable, sustainable growth."

This article was first published on Campaignjapan.com