Sunday, June 16, 2013

No. 32: Do not compete on price; what matters most is what products are available for 100 yen (June 17, 2013)

Customers get excited with low prices, but being cheap alone cannot keep them attracting forever. The 100-yen shop is widespread across the country because the strategy to sell every product for 100 yen hit a jackpot. The leading four 100-yen shop chains have 5,500 shops today and achieved combined sales of about 550 billion yen in 2012. They have increased the number of shops at nearly 20% per year during the past five years. One of the best selling products of the 100-yen shops is dry battery. Daiso, the market leader, sells about 150 million dry batteries per year, about six times more dry batteries sold by a leading convenience store chain. In a sense, dry battery is the product that symbolizes the 100-yen shop. As you sell more, you can get lower prices from manufacturers against a backdrop of the growing bargaining power, and subsequently the unit price will go down. This is an example of a virtuous cycle. However, the story is changing these days.

Seria that is the market follower is very energetic to develop new products in collaboration with manufacturers. They handle nearly 20,000 products, and introduce 500-600 new products per month constantly. Jointly-developed products accounted for 30-40% five years ago, but they account for nearly 90% now. Seria’s buyers go even to manufacturers’ plants in foreign countries to develop new products. Their efforts created such a noble products as cookware made of silicone, USB cable, and flashlight that uses LED. All of these products were unavailable for 100 yen in the past. Today, shoppers at 100-yen shops do not buy a product only because it is very cheap. That is, the industry has to cope with the decreasing impulse purchase. Consumers shop around and examine products by themselves, instead of stopping by at a 100-yen shop nearby to purchase a product only at a low price. Being cheap is no longer a strong merit of 100-yen shops. What matters most is what products they can make available at such a low price as 100 yen.

Today, you can find a very colorful lineup of manicure on the shelf of 100-yen shops. Do-Best supplies these manicure products to 100-yen shop chains. The company goes all the way to France to purchase the same materials used by famous French brands. Now you can purchase almost the same quality manicure sold 3,000 yen at a department store for only 100 yen at a 100-yen shop. The difference is the container and exterior package. The increased product competitiveness allowed some 100-shop chains to export their products to 15 countries including Korea and Myanmar.

The strengthened position of the 100-yen shop chains allowed them to be strict in the selection of location. For most commercial facilities, a 100-yen shop is vital to attract consumers. Seria, for example, declines a request for branching out from even a prime location. The company has established its own policy not to accept an offer unless it satisfies all their conditions, even though the offer comes from a prime location. The company examined about 300 locations and opened 60 shops in 2012. The company took away almost all the “100-yen shop” signs in its new shops to allow shoppers to enjoy shopping. The market leader Daiso also plans to change al the existing 2,700 shops to shops with posh atmosphere in five years. In addition, 100-yen shop chains are investing in logistics and an information system to prevent the out-of-stock condition.   

In the initial stage, low price is a strong weapon. Sooner or later, however, consumers get used to low prices. As manufacturers need innovations constantly, retailers need product development constantly. Offering services and products at a fixed price spread rapidly worldwide, as McDonald’s and Starbucks showed. But it is noteworthy that even these companies are exploring the way how to cultivate and develop the upmarket with upgraded products.   

The wonderful world of a 100-yen shop in Tokyo

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