You may have heard that the Japanese market, despite being the third biggest economy in the world, is past its prime. But with a more detailed analysis and segmentation of the Japanese market, massive opportunities reveal themselves in Japan. This reminds me of discussions around ten years ago, about a concept known as ‘peak oil’ that were, well, peaking.
The peak oil misconception and the Japanese market
Though never a mainstream theory, its proponents included educated and experienced geologists and engineers. The theory of peak oil posits that there is a certain point in time beyond which the world’s oil producers will not be able to achieve any overall increase in crude oil production. This would be the point after which new discoveries cannot outpace depletion of existing wells.
Thereafter oil production would fall gently but steadily away, placing relentless and ultimately devastating pressure on the world’s carbon-based economies. The most famous early proponent of peak oil theory, Marion King Hubbert, was able to model the decline of US oil production as a bell-shaped curve with startling accuracy. It was felt that other major producers would eventually follow a similar pattern. Some theorized that global society would collapse under the inevitable economic and social pressure well before the oil ran out.
The Japanese population is shrinking, the Japanese market is not
But, in reality, (and what I’m afraid is no good news for climate change!), US oil production has not dwindled in the last decade. In fact, the opposite is true. US oil production has never been higher and the nation is close to being energy independent. However, this increase in production has not come from continuing to draw oil from the same sources and in the same way that it was being drawn twenty years ago. Rather, new drilling and extraction technology has allowed oil companies to draw oil by methods through which it was previously thought to be impossible.
I am reminded of the theory, or rather the apparent myth, of peak oil when I hear people say the Japanese market has peaked in its opportunity profile.
To be sure, the Japanese population is shrinking – just as are conventional oil reserves. But, in the case of oil, our ability to extract is often confused with the actual level of oil, of which there is still plenty. In the same vein does a declining Japanese population point to a declining ability to extract economic value? Just as if we were still using the same drilling techniques as in the past, if we were using the same approaches in Japan that we always did to find opportunities in the market, the answer would be yes. But this need not be the case.
Therefore I would like to challenge everyone to look for those symbolic and significant pockets of oil in the Japanese market with a more sophisticated approach to segmentation.
Segmentation as a tool to extract the most out of the Japanese market
Just as techniques in oil extraction have advanced, so must our approach to marketing. We can no longer simply drill a figurative hole into the market and hope to hit a big gusher. The oil industry for its part has now started doing things like drilling horizontally – allowing it to access pools of oil that were never accessible before. Processes like fracking, justifiably controversial as they may be, are changing our reality.
Forget the idea that you are selling to a monolithic market in Japan
In order to do the equivalent in marketing, we first need to forget the idea that we’re selling to a monolithic market in Japan. Perhaps we should stop speaking about the ‘Japan market’, rather we should realize that there are many ‘Japan markets’. If you want to launch a successful market entry in Japan in 2019, it is very useful to realize that, even within the same generational and socio-economic cohorts, there is a wide range of different needs. The diversity of these needs may not be immediately apparent. New needs might also be emerging.
And, even if you have been in the Japanese market for years it might be equally valuable to review your assumption of not only who your core buyer is, but who your growth buyer will be in the future. Market segmentation, a process of dividing a market of potential customers into groups, or segments, based on different characteristics is an established approach that can help you build an optimized strategy as a market becomes more mature, complex or saturated.
How to go about market segmentation in the Japanese market
The first thing to do when starting to think about segmentation, not just in the Japanese market, is to reflect on the fact that we are all different. We all have different needs, to a smaller or larger degree than the next person. As a brand you are never selling to an average, you are always selling to an individual. Some ambitious companies such as Amazon see their goal as selling to each customer as a segment of one. While that’s a long way off, one to one marketing is the ultimate idealistic expression of segmentation thinking.
In the market research world, when we are trying to inform marketing strategy we use tools such as representative consumer surveys. In these surveys, we ask people straight out what their needs are in a certain situation or category. If we are not taking a segmentation approach we analyze at these results in aggregate and then we calibrate the average set of needs for the average person. Indeed if you are a mass marketer and trying to sell a single product in the same way to everyone in the market, this is exactly the insight that you should base your product on. However, the days that this will be the best approach are fast drawing to a close.
Market segmentation 101
You can segment the market in a multitude of different ways, starting with the most common characteristics like age, gender, place of residence and other easily observable traits. Known as geographic and demographic segmentation, these are fairly straightforward to work out. Firms with large databases on their customers’ behaviour can also segment on this basis and overlay this with their customers’ demographic profile.
“A market research specialist’s job is to find a district significant need set that can be specifically addressed in a brand’s marketing strategy.”
However, if you want to frack like a pro, you look at traits that cannot be captured by simple observables e.g. attitudes, lifestyles, purchase behaviours and values. Intangible or internal factors ultimately create needs. Understanding these needs and what underlies them is the first stage of generating the ideas to meet them. A market research specialist’s job is to find a district significant need set (or sets) that can be specifically addressed in a brand’s marketing strategy.
Market segmentation for pros
The best way to start looking at needs is to understand their sheer breadth and start to map them out. In order to do this it is extremely valuable to spend time face to face with buyers: in their home, office, leisure and/ or consumption environment. A qualitative market research method called ethnography is a hybrid observation and interviewing approach that lets you spend real time with real people. Observing and probing differences allows you to place people on a hypothetical and multi-dimensional map of needs. It’s not obligatory to do this in the ‘wild’ – we can also interview people in our studios but, in my opinion, the more natural the setting, the more chances for new learning exist.
As we build to a business case, it is usually time to start quantifying segments and the opportunities they represent. Here again, a representative consumer survey is a tool that can be used.
Qualitative research first, quantitative research later
Some clients like to dive right into the segmentation survey, but we usually recommend to do the aforementioned exploratory work first. Quantitative segmentation, specifically the questionnaire used as the key instrument to drive it, is ideally based on insights and language that come from the world of the consumer rather than the world of the marketer. As time-consuming as it is, I will almost always advise doing exploratory face-to-face work before you launch a quantitative survey. Follow the maxim that you don’t know what you don’t know.
But once we do field a quantitative survey and we gather our data, we use a range of modeling techniques to isolate groups in our survey sample that have a unique, common (and interesting) perspective on their needs in the category. The segments that we find will usually be multidimensional in the sense that they incorporate needs, demography, and psychographics.
Often it is being able to see a different point of view standing from the shoes of a smaller consumer group that before then may have been submerged in the average that provides the fuel to innovate and differentiate. Important to realize is that you are not always innovating for everyone, you are innovating with especially interesting and valuable group (or groups) as your muse.
Most market segmentation is hard work
Despite its attractiveness conceptually, segmentation is somewhat difficult and complex to implement. In my experience from time to time we see that even if marketers can identify a compelling opportunity, their bosses or boards are uncomfortable with committing resources to address groups that exist only in theory.
Even if the financial decision-maker in the business can accept that a segment is real (or reasonably credible), they find it hard to agree on which is a key segment to be focused on and which segments can be ignored. In practice, even though marketing resources are always limited and probably best focused on people who are best likely to engage meaningfully with you, it is very hard to walk away from a wide definition of your market – especially if you are a large company.
However, for the brave, there are entire businesses that are based on this sort of thinking. In some ways, segmentation thinking inherently suits brave start-ups and adventurous new market entrants particularly well.
WeWork: Focusing on a single segment
Although the business model itself and Softbank’s stalwart support of the business in recent months is controversial, WeWork is a good example of a business that comes from segmentation thinking.
The serviced office market is nothing new and is well supplied with established players, yet WeWork came into the market to meet a different need. WeWork’s target customer has the same lack of need for permanent space and draconian lease contracts as their competitors’ customers at Regus or Servcorp. Where WeWork’s customer differs is that they have a social, forward-thinking focus, and can easily see how they can derive value from the interactions with the other tenants in the space.
They view WeWork as a community and multiplier of creativity, more than simply a shared office. So although WeWork’s core business model is not new (and has been undoubtedly over-hyped) there is a distinct psychographic segment need that is being addressed within a larger industry. This is where the brand’s value is derived.
Large scale tourism case study: Addressing multiple segments
For larger businesses, the Japanese market segmentation challenge is harder, for the reasons I already outlined. But let’s look at two wildly successful examples: Tokyo Disneyland and Universal Studios Japan.
These businesses offer a wide breadth of experience and entertainment over multiple needs: thrill-seekers, dreamers, holiday-makers, escapists – you name it. Their success comes of being able to address via their product mix as well as brand communications, a wide range of distinct needs e.g. think of a young family with toddlers vs what a group of 16-year-old boys vs. a retired couple might be looking for. These businesses manage to do this while maintaining consistent, clear and attractive brand positionings.
Integrated resorts will need to understand segmentation in Japan
Facing a similar challenge to large scale theme parks are the up and coming integrated resorts that will enter Japan, if things go as planned, around 2025.
The savvier players in that world stand a fighting chance in Japan because much more than just gambling and casinos, integrated resorts in places such as Las Vegas and Macau have long understood that they offer value to varied segments, ranging from the business sector holding conventions to gamblers, families, shoppers, and clubbers, spanning multiple age groups and lifestyles.
There are many successful examples of segmentation, and I welcome your feedback on some of your favorites in the comments section. However, over and above the case studies, the principle that I would like to emphasize is that the Japanese market for outsiders represents an opportunity for blank slate segmentation without the same issues that might exist in the home market. It is in the segmentation approach to the market where I strongly believe a shrinking but wealthy market can still provide a cornucopia of opportunities.