Feature... Reinventing Japanese retail strategy

Science fiction author William Gibson famously said that when he wanted to see what the world in five years would be like, he would visit Tokyo. Gibson may have had style and technology in mind when he made his statement, but the same sentiment could just as easily be applied to the country’s high street retail market.

New brands, new products and new variations of existing products are keeping the country consistently ahead of the curve in terms of mass retailing. Any international brand looking to see the global future of this sector could do much worse than to look at Japan.

That said, the country has traditionally been a difficult environment for foreign brands to traverse. Failing to understand the power of Japan’s retailers and the idiosyncrasies of its consumers has meant that many overseas companies have had to learn the hard way, watching helplessly as their products fail to make an impact.

Increasingly though, the tide is turning, if only slightly. The number of overseas success stories in Japan is rising. In some categories - consumer electronics in particular - foreign competitors are even challenging the traditional stronghold of Japan’s corporate giants such as Sony and Panasonic.

So what has changed? Is Japan going through a major shift in consumer preferences or are global brands entering the country with a more open mind and adopting a more local approach to marketing? The answer, unsurprisingly in a country where the concept of duality is part of everyday life, is a littleof both.

Innovation

Japanese high street retailing is driven almost exclusively by variety and innovation. Across practically any retail category - from soft drinks to automobiles - manufacturers and marketers are continually under pressure to keep coming up with something new. This near-obsession with the new is something that runs deep in the psyche of Japanese consumers. 

“Toyota coined a word, kaizan, meaning ‘continuous improvement’, that describes this type of thinking,” says Blair Currie, CEO for Japan and Korea at Aegis Media. “Simply by adding the words shin-hatsu-bai - which means ‘newly-launched’ - to a product, you can almost guarantee a surge of interest, because Japanese consumers don’t want to be left out of the loop in case their friends have already tried the product.”

The most obvious manifestation of this is seen in the sheer variety of products - many of them seasonal or limited edition releases - that find their way onto the country’s retail shelves.

Highly influential retail outlets, with limited shelf space, force brands to re-invent themselves at regular intervals, or else run the risk of being pulled off the shelves completely. For most manufacturers, this means launching a new variant every three months - across each category in which the company is active.

“Consumers tend to get tired of things quite easily. To stay on the shelf, you need to be a very strong brand or must produce many variants,” says Satoki Sano, CEO of JWT Japan.

The pressure on manufacturers is also coming from Japan’s sophisticated consumers. The younger generations, in particular, have grown up in a world where choice is the norm and where quality is expected.

“In most markets, people say they cannot afford to switch brands because the alternative may not be as good,” say Dave McCaughan, executive VP and director of strategic planning, McCann Erickson Japan. “In Japan they cannot afford to take the risk of not changing because the alternative might be better. The risk is not to try something different.”

The constant innovation of products and what this means to consumers is a vital element of retailing in the country and tuning in to this phenomenon is crucial to any company that wishes to break into the market.

“Product innovation is absolutely fundamental to the Japanese market,” says Jonny Shaw, a partner at Naked Comms, Japan. “If you can’t keep up with product innovation, you are not really in the game.”

If a brand fails to innovate, it is in danger of being ignored. With consumers expecting something new, a product that does not innovate is seen as untrustworthy. “Innovation is not just a brand-led thing,” adds Shaw. “It is a contract between consumer and brand. Consumers demand it, which in turn means retailers demand it. Brands that don’t innovate just fade away.”

Success stories

Most foreign brands that have managed to be successful in Japan - or even survive - are doing so through joining in the innovation push, says McCaughan. “In a market of constant innovation, you survive by constantly innovating.”

One brand that has learned this lesson, and perhaps serves as a blueprint for any company looking to break into the market, is the KitKat chocolate bar. Nestlé has seen sales of its KitKat brand soar over the past five years, thanks in part to its policy of rapid product innovation.

KitKat flavours on sale in Japan have included everything from passion fruit to green tea. Nestlé even releases regional variants, such as its mango-flavoured bar available only in Kyushu and Okinawa.

Similarly,  Coca-Cola reportedly replaces an estimated 20 per cent of its products in Japan each year,  introducing roughly 200 new products or varieties. Coke also pioneered vending machines in the country at a time when  its retail trade was being hit by restrictions from convenience store owners. Vending machines are now ubiquitous through Japan. “The company continues to be profitable through continuous product innovation,” says Currie.

But while product innovation is crucial to success in the Japanese market, innovative marketing approaches can also go a long way to help lift a brand above the product clutter.

Tetsuya Honda, managing director of BlueCurrent Japan, even goes as far as suggesting that consumers are becoming increasingly immune to the constant roll-out of new products and the formulaic ads that support them. “Companies need to innovate their marketing methods - communication, what to say rather than just the product itself,” he says.

Nestlé, for example, did not get by on product innovation alone. Just as crucial to the success of KitKat has been its long-term marketing strategy. In 2003, JWT Japan leveraged the brand name’s similarity with the Japanese phrase kitto kattsu (‘surely win’) and ran a campaign that positioned KitKat as a lucky charm for students preparing to take the high school examination. Samples were handed out at hotels where students stayed before taking the exams, while KitKat advertising dominated the buses and trains that students used to travel to the exam halls.

More recently, Apple has  been able to break into the Japanese market through a combination of new products and a more innovative approach to communications and retail. The company, which previously failed to resonate its computer products with the Japanese mass market, last year introduced a localised campaign for its iMac and is, for the first time, engaging with the Japanese consumer direct. 

The iMac has experienced a resurgence over the last six months, beating out rivals such as NEC and Fujitsu. In addition, according to latest data, Apple’s iPhone is now the ninth most- admired product in Japan - even before it has gone on sale in the country. Apple’s growing success is especially troubling for one of Japan’s largest electronics manufactures - Sony.

“The gap in perception between Apple and Sony is quite wide; much wider that the real gap (product function, product specifications). It is a question of image and Apple do this better,” says Honda.

But international companies should not get too carried away with Apple’s marketing success. For every iMac, after all, there is an Xbox. Microsoft’s gaming console is a prime example of a global product that failed spectacularly to connect with the Japanese market. As Microsoft found out, redicting success is difficult at the best of times, but especially so in a country such as Japan, where contradictions are everywhere, even in the retail market.

Marketers need also to be aware that even innovation and variety can sometimes go too far. “Change is certain, so you have to be both comfortable with this fact and find ways to rule change,” says Currie.
 

“But I  also think there is a part of the Japanese people that is unchanging and resistant to change.

“Marketers always think they need to change things to make them better. Very few have the courage to not change. I guess the trick is in knowing what to change and what not to change. And you can learn this lesson in Japan.”