Thursday, October 6, 2011

No. 23: What does Tesco’s withdrawal from the Japanese market mean? (October 7, 2011)

Tesco, the world’s third largest retail chain in Great Britain, decided to withdraw from the Japanese market. Carrefour, the world’s second largest retail chain in France, already left in 2005. That is, the world’s second and third largest retail chains said and will say goodbye to Japan. As a result, Walmart, the largest retail chain in the U.S., alone is doing business in Japan in alliance with Seiyu that is a medium-sized retail chain. Given the above situation, people say that the withdrawal of the two giant retail chains is because of the idiosyncrasy of Japanese consumers. In Japan, consumers’ requirements for product quality are too high, and their shopping behavior is different from those in other countries, etc. However, they are part of the problems of their failures.

It is true that Japan is a homogeneous country. More than 95% of people living in Japan are Japanese. However, the market is highly segmentalized. It is basically segmentalized in accordance with nearly 50 prefectures. But the market is segmentalized further inside the same prefecture. For example, two major markets exist in Aomori Prefecture, the northernmost prefecture in the Honshu Island, and each market has a different history and culture. This is because of the transformation of the old system conducted by the Meiji government. In the transformation, it was not unusual that two or three clans set up by the Tokugawa government were integrated in a prefecture. Paradoxically, the Japanese market is highly segmentalized because Japan is homogeneous. From the business viewpoint, Japan is not a homogeneous country even if most people are Japanese.

When you see lots of varieties of beer, coffee, and green tea on the Japanese market, you can realize how much in detail products and markets are segmentalized and differentiated. Each of the four breweries has a wide variety of brands segmentalized according to geography, purpose (health-conscious or not, alcohol-free or not, sugarless or not, noncaloric or not), age group, gender, etc. The same is true of magazines and snacks. Let’s take a chocolate for example. Westerners may be surprised to learn there are more than 100 varieties of the KitKat chocolate in Japan, in different package sizes, in different contents, with different package designs, etc. This is the point.

It is true that Toys R Us scored a success in Japan, but it is partly because Japan did not have a big retail chain of toys when Toys R Us came to Japan. Office Depot and Virgin Megastores left the Japanese market because of stagnant sales. That is, the strategy to underprice products by virtue of economies of scale hardly worked. Whether it is in a foreign market or in the domestic market, the most critical issue for a company to develop the market is how to differentiate and segmentalize the product and market, and how to establish the distribution channel that allows for the differentiation and segmentation. Simply put, each of 10,000 stores needs to have its own distinctive face.

That is, every company has to study how to operate a store and how to market products best suitable to the respective markets and customers. In this sense, understanding the history and culture of the target market is vital to marketers active in the world market.


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  2. Thank you for your kind comment, Joe,