Looking Inside the Hearts, Minds & Wallets of the Japanese Consumer

October 19, 2007

Speaker
Debbie Howard, Chairman, American Chamber of Commerce in Japan; President, Japan Market Resource Network

Presider
Lisa Finstrom, First Vice President, Citigroup, Inc.

Debbie Howard of Tokyo-based Japan Market Resource Network (JMRN) spoke about consumer attitudes in Japan today.

"Basically I spend my days and nights listening to Japanese consumers, from behind a one-way mirror," Ms. Howard explained, "sometimes in one-on-one interviews but mostly in focus-group discussions. These sessions, typically two hours long and led by a trained moderator, make it possible to study consumers' deep-seated values," she said.

"What we are seeing now is that consumer confidence has picked up almost to bubble-era levels, and there's really a much nicer mood in Japan since about 2004," she said.

The "lost decade," representing some 13 years of economic stagnation, had a profound effect on the Japanese psyche, Ms. Howard observed. Lifetime employment virtually ended, performance-based pay systems were introduced and "companies stopped hiring college graduates, which was always a given in Japan."

People started to wonder "what's going on here--can I really depend on the government like I used to, can I really depend on corporate Japan to take care of me like I used to?"

The consequence is the emergence of greater individualism, greater independence and a greater sense of being responsible for oneself, Ms. Howard indicated.

One example of this change is that more women are now working; even among women with children age three to five, 60 percent are working either part time or full time, she said. By the same token, JMRN's research finds women going back to work not just for financial reasons, but more for "self-fulfillment." In focus groups, Howard has heard women explain that they don't want to be called okaa-san (mother) any more; instead, they want to be called by their real name.

Many younger workers, age 15 to 34, are sticking to part-time and temporary jobs by choice, she noted, with 2 million such workers as of 2002, double the number in 1992. "There are more companies hiring now in Japan, but many of those who are available don't necessarily want to go to work as a salaryman." There is also more job-hopping in all age groups, even over 65, and there are an increasing number of single households. "Even the elderly are starting to say 'I want to live on my own; I don't want to live with my kids'."

Men are changing, too. "What we're hearing in our focus groups mirror is young fathers, for example, saying 'I want to have a relationship with my kids like I didn't have with my own father.'" And whereas back in the early 1990s "there were only teenagers smoking cigarettes in family restaurants, nowadays there are actually families there. So it's actually a really nice change on the home front in Japan."

Regarding the impact on industry, financial services, cash and deposits are down to 51 percent in 2006, from 54 percent in 1997, so they're still a huge share of household assets, but stocks and mutual funds are beginning to move upward, Ms. Howard observed.

With the fluctuations in Japanese stock prices during September and October, she said, "of course we're all kind of worried about what that will do to Japanese consumer sentiment--will they retrench and put their money back in less-than-1 percent-savings accounts at the post office?"

Howard thinks not. "I would stake my market research career on this," Ms. Howard declared. "This is a firm trend. We've been watching it for five years. The money has started to move, and nothing else has changed to make Japanese consumers feel safe, so they really are being forced to become more self-responsible, and that's creating product opportunities; there's "more open-mindedness about foreign products, because Japanese consumers know that foreign products offer higher return."

"Packaged retirement investment products, and any product that makes it easy for a beginning investor to invest, are probably going to be a winner in Japan," she said. "You might think about the Japanese consumer as being really at the very beginning on the evolutionary scale of starting to invest, kind of like we were here in the States back in the late 1970s, early '80s."

Regarding health care, Japan, which has a national health system, has "always had pretty reasonably priced health care," but as aging demographics cause strains and co-payments rise, "consumers are beginning to pay more attention to what they're getting," Ms. Howard said.

"We're seeing more people ask for second opinions," close to 30 to 40 percent of patients, "and that's a huge change in Japan," she said.

Among the opportunities her firm sees is tele-health, the delivery of services and information through the Internet, which creates a bond between patients and the medical institution; other opportunities include "patient advocacy and patient communications, and prevention and health management products--everything from home blood pressure equipment to advanced cancer drugs and pacemakers."

Regulatory approval is still a slow process; "there is actually a U.S. pacemaker company in the Midwest that runs a Japan Day, and they run two-year-old pacemakers on it because that's all that is approved to sell in Japan. I believe Japanese consumers deserve better."

Luxury brands. Japanese consumers, including travelers who are buying abroad, account for 40 percent of global luxury brand sales, Ms. Howard noted. Changes include an emphasis on quality over simply the brand name, as well as a focus on unique products: Japanese consumers are saying "I don't want to be a me-too, I want to be a me-first; I don't want to have the same thing as everyone else has."

People are buying a greater variety of luxury brands--"rather than dedicating themselves to one brand, consumers are dividing their brand dollar among several nowadays" and more customers are "mixing high and low. My favorite example of this is let's say the young lady in Shibuya, who's wearing Uniqlo jeans and carrying a very expensive Gucci bag."

Opportunities in this market include "higher and lower price points within the brand itself, as well as delivering an experience at every level" said Ms. Howard. "We are seeing this trend already. For example, Chanel has a gourmet restaurant located on its top floor; Bulgari has a destination spa in Bali; Baccarat Crystal has its B Bar in Roppongi. So brand marketers are creating worlds around the brands that help them to develop more emotional relationships with their customers."

***

Presider Lisa Finstrom of Citigroup, a fixed-income specialist and longtime follower of Japanese markets, began the Q&A:

Are these changes going to continue--are they sustainable?

"Living through 13 years of really bad economic times is very, very painful," Ms. Howard responded. "An entire generation saw their dads lose their jobs--and couldn't find jobs when they came out of college; Japanese people are not as sheltered, I think, nor as naïve and innocent as they perhaps were 10 or 15 years ago, and I don't think that's going to change."

Koizumi pushed for openness and reform and change, but there's a perception that the new administration has stepped back a bit--what's the impact of this?

"I like to stay away from politics and yen fluctuations," Ms. Howard said with a good-natured grin. "However, on the politics side, former Prime Minister Koizumi was fantastic for Japan. He set a tone--he himself is an example of the trend toward more individualism."

The new administration is still feeling its way; Japan is "probably going to move slower than we want it to, but they're moving faster than they used to."

"It's an extremely exciting time," commented Ms. Finstrom. "Even in currency speculative activity, it's just exploded over the last few months, and that's another very visible sign of the Japanese consumer becoming much more aggressive in terms of their appetite for risk."

Questions from the audience followed:

What are the major risks over the next few years that would jeopardize this new individualism and sense of confidence?

These aren't risks from a marketing viewpoint, but there are societal issues, "the dark side of individualism," Ms. Howard replied, "such as higher rates of divorce, increased child abuse, and self-imposed social isolation among young people who may have trouble finding their place in society."

In health care, what are some of the success stories for foreign companies in Japan?

"Pharmaceuticals are one, despite issues with pricing and with regulatory approvals," Ms. Howard noted. An area with big potential in her view is assisted living, especially for facilities attached to clinics and hospitals, although there are regulatory issues because Japan doesn't readily permit for-profit hospitals.

Another field that's expected to see huge growth in Japan is environmental services, including soil remediation for brownfields, and these are areas where foreign companies have special expertise, she said.

How would you assess the luxury market in skincare and cosmetics, where foreign competitors are going up against companies like Shiseido?

Japan is "much more open to foreign products" than they were 10 years ago, though cosmetics often must be specially formulated for the Japanese market, so clearly, foreign products have an opportunity. An example of great success is Procter & Gamble's SK-II, which is an aspirational brand for many Japanese women, replied Ms. Howard.

What are the information sources in which Japanese consumers place their trust?

"It depends on the product category," she said. "When it comes to financial services and health care, the newspaper is pretty influential." For luxury brands, fashion magazines play a big role. "The Internet is huge and growing in terms of its influence."

It's been argued that the popularity of luxury brands in Japan has been tied to a lack of individualism; but with greater individualism, will these brands decline?

"I think that Japan will always be a strong market for brands, despite the growth of individualism. However, brand marketers are having to work harder to develop and maintain relationships with their customers. Already, even the major brands are working very, very hard to create these combined architectural and cultural and lifestyle experiences" so as to attract and maintain customer loyalty, Ms. Howard responded.

--Katherine Hyde