Selling to the post-recession consumer
Once prepared to pay a premium for quality and convenience, shoppers are now looking for bargains and cutting back on spending.
The result is an increasing number of consumers turning to lower cost private label goods, such as the own-brand food and drink sold by supermarket chains. More people are also taking their lunch to work – a trend that has spurred the term bento-danshi (lunch-box man).
Exemplifying these changes, over 50% of respondents in a September 2009 MyVoice survey said they were ready to “spend time to save money”. Only 13% would still “pay to save time”.
Meanwhile, of the 14,000 consumers polled, over 70% said they were either economising or resisting buying non-essential items.
And though value hunting has its roots in recession, it will likely survive any economic recovery, says Brian Salsberg, principal at management consultancy firm McKinsey & Company Japan.
“When consumers finally make the leap to value, their internal compass for these things tends to get permanently reset,” he says.
But spending habits aren’t the only thing being reset. Changes are afoot in the way people shop too.
Taneo Moriyama, managing director of Insight Inc., a Tokyo-based market intelligence firm specialising in food and distribution, says today’s consumer is increasingly consuming online.
“Japanese consumers now have more options for shopping and more ways of getting and sharing information on products and services,” says Moriyama, who is also the Japan representative for market research firm Planet Retail.
Professor Michiko Sano of Takachiho University, a member of the Japan Association for Consumer Studies, says the shift has helped drive sugomori – the recent trend for Japanese to stay at home.
Besides shopping online, common sugomori behaviour includes opting to rent a DVD instead of heading to the cinema, or calling for a delivery dinner rather than go to a restaurant.
In part this is a cost-cutting reaction to the lingering economic malaise, but Sano says it is also a result of consumers turning their homes into comfortable spaces to feel shielded from the stresses of modern life.
But sugomori isn’t the only social change affecting consumption – Sano believes a generation gap is coming to the fore.
“You can think of today’s consumers in terms of two groups: those who have experienced high economic growth and those – born after 1970 – who haven’t,” she says. “Those born after 1970 tend to be conservative in the way they consume, while past generations would consume regardless of whether they could afford to or not.”
“Younger Japanese are happier with more simple things – they are less materialistic,” adds Moriyama.
They are more environment- minded too – something which hasn’t gone unnoticed by one of the most recognisable European companies operating in Japan.
“People are much more critical about material choices and their environmental impact,” says Lars Petersson, president and CEO of IKEA Japan. “The traditional view of Japan as a country where everything is over-wrapped, for example, is diminishing. For both cost and environmental reasons customers increasingly appreciate simple, functional packaging.”
The success of Coca Cola Japan’s ILOHAS bottled water is a case in point. Launched in 2009, the recyclable bottle weighs just 12g, 40% less than normal bottles, which reduces the amount of C02 produced in Coca Cola’s manufacturing process by an estimated 3,000 tons annually.
Additionally, the water is bottled locally to reduce the environmental burden of transport, while the reduction in material also cuts waste. Those eco-friendly selling points have helped make ILOHAS Japan’s top-selling single-serve bottled water.
Incentives to go online
So what can companies do to benefit from these changes? To begin with, they can embrace the internet, says Ernest Higa, chairman and CEO of Higa International, which operates Domino’s Pizza Japan.
Doing so would allow them to tap Japan’s 31 million broadband subscribers, a figure that makes Japan the world’s second-largest broadband market behind the US. It would also help them penetrate a domestic internet retail market expected to expand from under $20bn to anywhere between $40bn and $60bn by 2015.
“People in Japan are getting more comfortable using the net – how you can leverage that is the key,” says Higa. “First you have to incentivise people to go online. We did that initially by offering a 5% internet discount on orders; then we realised we needed more added-value.”
Now Domino’s uses the internet to better highlight its range of products, and has made ordering online an interactive experience. It also has a GPS system customers can use to track their orders online.
Today, over 35% of Domino’s orders are via the net. Higa says the company has been able to use its online presence to create and target new market segments without cannibalising its traditional customer base.
“Our traditional telephone customers are housewives, but now we can also better reach young male customers through their PCs and young women via their cell phones,” says Higa.
In a recent McKinsey report on Japanese consumer trends, Salsberg suggests that with Japanese consumer behaviour moving closer to that of shoppers in Europe and the United States, retailers and manufacturers should look to those markets.
As well as online shopping, he says, that could mean experimenting with such things as new-for-Japan store formats. It could also include new ways to build and retain customer loyalty.
Some notable examples are McDonald’s Japan with its 17 million member-strong mobile phone-user database, and Amazon Japan’s Amazon Prime membership programme.
Other companies operating in Japan have even started taking advantage of the growing popularity of social media to build new communication channels and loyalty with consumers, says Sano of Takachiho University.
Many companies are tapping into Mixi; with 28 million users it is the most popular Japanese-language social networking service (SNS). Noodle maker Acecook, for example, has set up a Mixi community through which it gets instant noodle flavour ideas and marketing slogans from members.
Yahoo! Japan reaches 244,000 followers through its account on Twitter.jp. Even Japan’s politicians are using SNS to engage with the public. Prime Minister Yukio Hatoyama regularly tweets to almost 600,000 followers.