No. 26: The importance of pursing the strongly established business domain to compete in the global market (April 30, 2013)

Management:

Suntory is very active in expanding the Southeast Asian market. The company currently has sales of several tens of billion yen in this market and plans to increase the sales to 100 billion yen in three years. Focusing on the Southeast Asian market is part of Suntory’s strategy to become a global company in the true sense of the word. The target company is Nestle of Switzerland. It is a long way to catch up with Nestle. Nestle has sales of 9,300 billion yen, while Suntory’s sales are 1,850 billion yen.   

Suntory grew rapidly by expanding the whisky business around 1930 by taking advantage of the westernization of Japanese dietary life. Actually, whisky characterized the company for a long period. In the 1980s and 1990s, its whisky business dwindled because it failed to understand the change of consumer behavior precisely. Realizing that youths do not drink hard drinks as much as their parents did, the company reorganized the business portfolio drastically and set the soft drinks business as the mainstay. Soft drinks increased the share in its business from 20% to more than 50% today. In fact, profit from soft drink sales accounts for 60% of its total profits. The company has established its business domain with the catch phrase “Suntory lives with water.” Its natural water sold about 6,400,000 cases, two times as many cases sold by the runner-up. In the soft drink market, Suntory has 22% share following the Coca-Cola group.

Suntory is also successful in the beer business. The company is now the third larger beer company, surpassing the Sapporo Beer. It has 16% share in the period between January and March 2013. Consumer behavior and taste change rapidly, and every company has making strenuous efforts to keep abreast of these changes. Even today’s bestselling products are destined to be one of the obsolete products sooner or later. The company will construct a laboratory staffed with 250 researchers in 2015. No company can maintain its competitive edge forever. Developing highly competitive new products needs a different approach free from the traditional way of thinking, the company reckons.  

Suntory’s traditional ad strategy in a new product launch is ad blitz with a decreased product price. The company spent about 450 billion yen on promotion and advertising in 2012. It spends about 24% of sales on promotion and advertising, as against competitors including Kirin spend between 11% and 15%. It is not too much to say that future of a company depends on new product launch. Suntory’s famous company attitude – Go for it – will help the company continue growing.    

Suntory’s canned coffee CMs starring Tommy Lee Jones

  

No. 25: Do not forget market and customer segmentation, anytime (March 27, 2012)

Management

Such gloomy news items as the failure of Elpida Memory and the heavy deficit of leading consumer electronics makers are widely discussed in media, and these miserable results are attributed to the overemphasis on the selection and concentration strategy. However, the misery of the leading consumer electronics makers is because of the lack of market and customer segmentation. It provides a good lesson that unless a company divides products, markets, and customers into segments before implementing the selection and concentration strategy, it will get involved in price competition and have it results badly damaged. Hitachi, once dubbed as a sinking big ship, has recovered dramatically because it abandoned unprofitable business fields and concentrated its resources only on profitable and highly prospective business fields. This is the selection and concentration strategy in the true sense of the word.

The same is true of Elpida Memory. The company put its resources exclusively to produce high-performance and high-quality products at a low cost to satisfy the requirements imposed by the former NTT group companies. Today, consumer electronics and semiconductors are highly commoditized. Doubtlessly, highly commoditized products have a tough game in the age of global competition even through they are high in quality and performance. It is hardly possible for Elpida Memory to compete successfully with competitors from the countries where labor costs are terribly lower than in Japan. In addition, data and information of a product race around the world instantaneously to allow them to underprice their products, like it or not.  

It is totally the geocentric theory centered by Japan to think that high-performance and high-quality products offered at a low price will be readily accepted by consumers worldwide, enabling a company to achieve a sales increase. The Japanese market is just one of the markets on the earth, and the global market does not go around the Japanese market. As Samsung of Korea is doing, companies competing in the global market have to station their employees in countries around the world to know the requirements local consumers in an honest way. Samsung’s great presence in the global market is the results of these efforts. Highly appreciated Japanese yen is just one of the factors that deteriorated the results of Japanese home electronics makers.

In addition, it is absolutely necessary to study if the new market is suitable to a company. Kodak is said to have failed because of the overemphasis on the selection and concentration strategy. However, the real cause of Kodak’s failure is that the printer market is too small for such a big company as Kodak to do business. A company cannot achieve good results in a market that is too small in comparison to its company size. In a similar way, a company cannot do well in a market that is too big in comparison to its company size. As proverb goes, the crab makes a hole suited to its shell (Cut your coat according to your cloth). It is vital to study the strength of your company and the size of a new market carefully before cultivating or participating in a new market.

Even in today’s severe business environment, Iris Ohyama and Kobayashi Pharmaceutical are growing quite rapidly. These two companies focus on how to avoid excessive competition. That is, they set up a business domain not from the industrial field but from the phrase “the business to create something new that consumers want to have in their life. The business domain of these companies is neither the manufacturing industry nor the pharmaceutical industry. Coincidentally, they are ex-wholesalers. It may be said that they know well how to understand the needs of consumers because they used to be wholesalers.

The days have come to define the business domain of a company as they show. In the past, NEC achieved a dramatic growth with the help of its famous business domain “C&C (Computer and Communication)” that means the business based on the merger between computer and communication. NEC, however, has deteriorated its results drastically partly because it was not able to create a new business domain to succeed the C&C. It is rather hard to increase sales only in the business domain of the home electronics manufacturing in today’s business environment where globalization is developing fast, like it or not.

No. 24: Change of Thought: from a commodity to something beyond a product (January 4, 2012)

Management:

Articles on stagnant economy prevail in media, and people cannot erase the indescribable feeling of insecurity in view of the ongoing world economy. The current Japanese government that promised to realize too many dreams is in the middle of snake dancing in face of harshness of reality. In a school athletic meet, teachers correct the snake dancing and let students parade straight. In the political world, however, there is no teacher who corrects the snake dancing. Most Diet members try to protect their own interests and internal rivalry precedes the consensus and agreement. The budget screening featured by the historic statement “Why can’t you be satisfied with second place?” has ended in the whack-a-mole game. One government-subsidized organization has gone, and one government-subsidized organization is born. The current situation is well predictable in advance. 　

It goes without saying that the infrastructure business in newly industrialized countries grows dramatically. As a country grows affluent, it naturally gives the highest priority to infrastructure improvement. Support from the political leader is vital to such a large project as infrastructure construction. The president of Korea took the leadership and got an order for the construction of a nuclear power plant in United Arab Emirates. In the past, we Japanese had a prime minister who took no action seeing the Toyota’s case in the U.S. saying that it was not a political issue, and a prime minister who declared “Goodbye to Nuclear Power Generation” proudly for sentimental reasons. The difference of the Korean leader and two Japanese leaders is enormously great. It is not too much to say that this hopelessly great difference creates the difference in the presence in the global market of the two countries.   

Now, we have to change the thought that a home electric appliance is a product to make living more comfortable. We are in the middle of the days that businessmen in advanced countries and those in newly industrialized countries alike are involved in the global business holding a smartphone with in one hand. Naturally, price competition grows harder. That is, it is extremely hard to compete with countries that introduce hardware at an incredibly low price in the global market if you market your products as commodities. An American solar panel maker that went bankrupt due to the inability to compete with incredibly low-priced import products epitomizes the current situation. It is the time that companies should market a product not as a commodity but as something beyond a product. Something can be defined as a product coming with such added value as the mindset and cultural heritage of the producer.  

Komatsu, a Japanese world-class construction equipment maker, has eight plants worlwide, but it has only one engineering drawing for each model that should be shared by the eight plants. Instead of building a model specific to a local market, the company holds a world content annually in Japan for engineers worldwide. It asks engineers and machinists coming from all over the world to think and take action to build a product in the Komatsu way. Yamato Transport, Japan’s leader of the home delivery business, is expanding business in foreign countries asking local employees to understand the Japanese culture and traditional concept. On the other hand, Fanuc makes strenuous efforts to develop its competitive edge through technological innovation in Japan and ship their state-of-the-art products from Japan, instead of building a plant in a foreign country. This is also a correct strategy.

The correct strategy, of course, depends on the company. What is important is to ship not commodities but products based on the tradition and cultural heritage of the producer to the global market.

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.