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

Management:
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.

No. 22: Three Functions of a Product

Management:

Aston Martin, a long-established automaker in Great Britain, has launched a compact car named Cygnet. This car is basically the same as Toyota’s IQ. To differentiate its car from Toyota’s IQ, Aston Martin used a lot of expensive pure hide in the interior. Toyota’s IQ is priced at 20,000 dollars, while Aston Martin’s Cygnet has a price tag of 50,000 dollars. Aston Martin is very famous for expensive cars. Actually, it is a beloved car of James Bond who can enjoy a gorgeous life with limitless money that comes from tax. The latest Aston Martin DB5 is as expensive as 280,000 dollars.

That is, Aston Martin markets its gorgeous compact car with British flavor for the price of two times higher than the Japanese original. The price difference seems to be too big for the two cars sharing the same performance and component. At the same time, it is necessary to note that the incentive is very important for salespeople of car dealers. A big difference in car price automatically means a big difference in incentive. Even if salespeople get a higher percentage on incentive for a Cygnet than for a DB5, the difference in real income remains great.

A product has three functions. They are (1) basic function, (2) supplementary function, and (3) emotional function. The basic function is what a company has to guarantee with the product. In the case of car, it is made up of such factors as running performance, fuel mileage, quietness, and solidness and durability of the body. The supplementary function is the function to upgrade the product. In the case of Aston Martin’s Cygnet, it is the leather interior that makes it more attractive and gorgeous. The emotional function is the image that the product appeals to the customers. It is James Bond in the case of Anton Martin.

In today’s marketing, it is growing more important to keep the balance between the three functions. People watch the real value of a product closely. They examine the balance of the three functions unknowingly. In this sense, it is not too much to emphasize the importance of the basic function that is the biggest factor of the three. In the case of Aston Martin’s Cygnet, the basic function is smaller than the remaining two functions combined. It should be noted that 20,000 dollars for the basic function and 30,000 dollars for the remaining two functions. It seems that many people are reluctant to pay 30,000 dollars for the two functions.

What is more important is that a company has to keep innovating and upgrading a product constantly. No one-time-only product succeeds in the market. Nearly 30 years ago, Rover of Great Britain used the same strategy as Aston Martin. Rover’s Sterling was basically the same as Honda’s Acura. Rover advertised its Sterling extensively, saying “Great Britain can make a car comparable to Honda’s Acura.” It is true that the Sterling was a very good car with fancy styling. However, Rove was not able to introduce a car that succeeded the Sterling, and the Sterling was wiped out from the market. 

The emotional function mentioned above can be divided into (1) external image, (2) internal image, and (3) environmental image. The external image excites the senses, and it is created by such factors as color, design, and naming. The internal image can be said essential image of a company, and it is created by such factors as safety and durability that a company has built throughout its history. The environmental image reflects a company attitude toward ecology. This image has been growing more important lately. This is epitomized by the disaster in the Fukushima nuclear power plant.

No. 21: Hardware or Software? No, it is Marketing (April 1, 2011)

Management: 
Electronic books attracted wide attention worldwide, but they are far from being successful at this time. In Japan, the year of 2010 was dubbed the first year of e-books, but every publisher that launched the e-book business has found the e-book business in a sorry plight. The same is true of e-magazine and e-newspaper. Neither of them succeeds in creating impressive profits. Presumably, the situation is almost the same in other countries. Manufacturers of apparatus attribute the slow business to shortage of software, while publishers blame them for slow-moving apparatus. Another dispute over hardware and software has arisen.

You can store more than 1,000 books even in a small USB memory. However, owning 1,000 books is one thing, and reading and utilizing them is quite another. You can find information and conduct analyses using the 1,000 books. However, you can get necessary information and conduct analyses faster and more easily on the Internet for free. A publisher offered an e-magazine that allows the user to read a total of more than 30 newspapers and magazines for a monthly subscription fee of 300-400 yen, but it is still unsuccessful in getting a good number of subscribers. Who can read as many as 30 media every month? Such smart people who wish to read 30 media every month are small in number. Human is not a computer. You can increase the capacity of your PC by replacing it with a new powerful PC. However, no human brain is replaceable.

You can easily find disputes over hardware and software in business. Think about the dispute between VHS and Beta in the videocassette format. Some say that VHS achieved success because it offered a far larger number of software titles than Beta. But the difference in the number of software titles is not the problem but the result. The real problem is that Sony made a mistake in positioning Beat. Unquestionably, Beta was higher in performance than VHS, but VHS was enough for the home market in terms of performance. Beta was more suitable for the industrial market than the home market.

The same is true of Panasonic’s 3D Real video game machines that ended in a disaster. Panasonic tried to cover various age groups by incorporating several functions in the 3D Real. Accordingly, it was initially introduced for more than 50,000 yen (US$500). Back then, the largest customers of video game machines were children up to 15 years old, and the purchasers were their parents, to be specific, their mothers. Which mother can buy a game machine priced at more than 50,000 yen for her children? Panasonic made a mistake in positioning the 3D Real. History repeats itself. 

The Japanese e-book market was about 60 billion yen in 2009. Surprisingly enough, however, 80% of the sales came from comics for teens. Believe it or not, they are mostly love affair comics, meaning that love affair comics for teenage girls dominate the market. Who could have imagined this situation? Product positioning in marketing is very important. No product can be evenly accepted by all consumers. Unless you position your product precisely beforehand, your product will fly to the direction that you never imagine.

No. 20: Do Not Forget That Momentum Does Not Last Long (March 23, 2011)

Management: 
It is advisable to take advantage of momentum in whatever field you are involved: warfare, business, and even politics. When you create innovative ideas, you can get momentum and win a battle. The point, however, is that the momentum does not last long, and it is lost all of sudden usually because of narcissistic decisions.

Take the Battle of Midway in 1942 for example. The Japanese Navy attacked the Pearl Harbor in 1941 and got momentum in the Pacific War. However, the momentum was lost in the Battle of Midway because of the incredible mistakes on the part of the Japanese Navy. It is quite natural to think that the Japanese Navy completely lost the possibility of winning the Pacific War in the Battle of Midway. Nonetheless, the Japanese government continued the reckless battles in the Pacific Ocean. Is it too much to say that the narcissistic decisions of Japanese military elite led Japan to the devastating defeat in the Pacific War? 

You can find another example in the dramatic story of Nobunaga Oda (1534-1582) who is unquestionably the most innovative feudal lord of the Japanese history. In the age of provincial wars (1467-1615), feudal lords placed importance on establishing a solid system to rule their feuds, and the system was to integrate worriers, farmers, and merchants for the stability inside their respective feuds. Equipped with an established system, they tried to expand their feuds should if they had surplus power and ability. This means that no feudal lords, except Nobunaga Oda, thought about establishing a new system in a nationwide scale. Back then, establishing a new system to rule the entire nation was truly a revolutionary idea. Nobunaga Oda got momentum with this new idea and successfully expanded his feud. Judging from his connections with missionaries of the Society of Jesus, his idea may have originated from the absolutism then widespread in Europe.

He worked out several strategies to realize the new system. First, he completely separated warriors from farmers and created professional warriors. Back then, farmers did agricultural work in peacetime and fought in a battle in wartime. This means they ware unable to be warriors in the farming season. With the professional warriors, Nobunaga Oda got the military force to fight a battle all year round. He forced his warriors to live around his castle and established the military system to manage them. The well-organized warriors were trained to stand always ready for a battle. His warriors naturally were far more competent than part-time warriors of other feudal lords.

At the same time, he was the first feudal lord to introduce guns in Japan. Back then, a gun needed more than 10 seconds for reload. To make up for this shortcoming, he set up a team made up of three rows and asked each row to fire in shifts. This revolutionary idea allowed him to defeat horse soldiers utterly. Another point that characterized him is that he promoted human resources regardless of their personal history and background. However, his best days ended all of sudden when one of this subordinates attacked him.

A great earthquake, which is dubbed an earthquake once in 1,000 years, attacked the Tohoku and Kanto districts in Japan while the current regime is in the height of narcissism. As is often the case, disaster strikes when you least expect it. 

No. 19: Define the Ability of Your Company Precisely: Sorrow of a Venture Company

A venture company of electric vehicles in Japan announced on March 1, 2011 that it would shortly file for voluntary bankruptcy. The amount of debt is 1.1 billion yen, and the company dismissed most employees on the same day. The company got an order from Japan Post for its EVs, but Japan Post cancelled the order in January this year for fear of possible delay in delivery. Believe it or not, the number of EVs that the venture company had to deliver is 1,030 units. The contract required the company to delivery 30 units of the 1,030 units between January and February this year, but the company was not able to deliver them. This means that the company failed to deliver even 30 units of the contracted 1,030 units on schedule. Where are the delivery plan and production plan? The company seems to be dreaming the day of three cheers all employees shout together in line when it finishes delivering the 1,030 units.

It is questionable that Japan Post placed such a big order for as many as 1,030 units for 3,500 million yen with a venture company, and it is more questionable that a venture company capitalized at less than 500 million yen took such a big order. Konosuke Matsushita, the founder of Panasonic, taught us “No one can go up to the second floor in one stride,” but this company tried to “go up to the 10th floor in one stride.” Business does not end with the delivery of ordered products. Think about the business of a medical doctor. His business does not end with diagnosing his patient and writing a prescription for him. When his patient resumes his healthy daily life and shows his heartfelt gratitude to the doctor, a doctor knows that his business with the patient ends. The business of an ad agency does not end with placing an ad on the TV screen or newspaper. When the designed advertising campaign successfully increased consumer awareness of the product and made the client happy with increasing sales, the ad agency can say that the business with the client ends. 

If you think about business in the above way, you will realize how big an order the venture company took. Suppose that this company successfully executed this big order, is it realistic to think that it can get such a big order again in the future? Technological progress is growing faster and faster. Think about Sony’s Trinitron technology. It is an outstanding technology when it was introduced, but it cannot be outstanding forever. Sony forgot this fact. This is why Sony was late in entering the flat-screen TV market. Because Sony is such a big company, delay in market entry is not a big problem. Actually, it is now the world’s second largest flat-screen TVs manufacturer following Korea’s Samsung. However, medium-sized companies including venture companies should not take an example from such a big company as Sony.

Another big problem exists with this company. It does not have the main bank that usually should be one of the leading banks in Japan. As soon as the order with Japan Post was cancelled, financial institutions naturally asked the company to reimburse the loans. For all companies whether they are big or small, the last hope is always the main bank. Even more, political power should not be ignored in this business because the customer is Japan Post that is formerly affiliated with the Ministry of Post and Telecommunications. You have to remember that reemployment of retired bureaucrats is still widespread despite the new regime’s promise to eradicate it. No company can live only on ideas and technologies, however excellent they are.