Winning in Japans Consumer Electronics Market
Transcript of Winning in Japans Consumer Electronics Market
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Aligning your marketing strategywith the Consumer Decision Journey
Winning inJapans consumer
electronics market
McKinsey Asia Consumer and Retail
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Paul McInerney
Brian Salsberg
Ian St-Maurice
Kotaro Ueda
McKinsey Asia Consumer and Retail
March 2009
Winning in Japansconsumer electronics marketAligning your marketing strategywith the Consumer Decision Journey
Contact for distribution
Evelyn Lu - Phone: +886 (2) 8758 6765, Email: [email protected]
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Contents
Introduction 6
I. Summary of ndings 8
II. The industry context:
Japans consumer electronics market 12
III. The consumer decision journey:How Japanese consumers buy electronics 16
IV. A call to action: Market to consumers at
every stage of the decision journey 24
V. Opportunities for retailers 28
VI. Research background and methodology 32
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Introduction
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McKinsey Asia Consumer and RetailWinning in Japans consumer electronics market
77
Japans consumer electronics
(CE) manufacturers are facing
unprecedented challenges due to a
combination of forcesdepressed
consumer demand, rapid unfavorable
shifts in exchange rates, increasing
retailer consolidation, and product
commoditization. Despite growth in
sales of newer-generation products
like at-panel TVs and new gaming
systems, growth in Japans CE market
has been difcult for the last decade
and is expected to slow even further
in light of the global economic crisis.
In such an environment, the imperative
for CE manufacturers is to win the war
for market shareand doing so will
require superior marketing and channel
management. The need for Japans CEmanufacturers to boost returns on their
marketing spend has never been greater,
and yet the challenge of developing
an effective marketing strategy has
never been more complex: media and
marketing vehicles have proliferated,
the Internet has made information and
opinions about brands and products
easily accessible (e.g., via online
reviews and blogs), and consumers
are increasingly making purchase
decisions based on information from a
very wide gamut of sources. If they are
to gain market share, CE companies
must deepen their insights into exactly
how consumers are learning about and
choosing brands and products, and align
their marketing strategies accordingly.
It is for precisely this reason that we
have undertaken proprietary research
on consumers shopping behavior
in a number of product categoriesand geographies, including CE in
Japan. Our research has given us a
more thorough understanding of the
consumer decision journey, the
process by which a consumer decides
which brands and products to purchase.
We have developed a conceptual model
of this journey, breaking it down into
distinct stages and dening the critical
junctures that marketers must focus
on to convert the consumer into a
buyer. The model takes into account
the many sources of information to
which a consumer is exposed during
the journeynot just proactive
communication from marketers (e.g.,
advertising) but also more passive
inuences like word of mouth. We have
also developed a set of tools to help CE
players determine potential actions
they can take to inuence consumers
at various stages of the journey.
In Japan, our research has highlighted
a number of opportunities that CE
manufacturers can capitalize on to meet
their performance objectives and gain
market share, even amid a challenging
industry context. We have also identied
opportunities for Japans CE retailers.
This report, in which we discuss our
initial ndings and recommendations,
is divided into six parts:
I. Summary of ndings
II. The industry context: Japans
consumer electronics market
III. The consumer decision journey:
how Japanese consumers buy
electronics
IV. A call to action: market to
consumers at every stage of the
decision journey
V. Opportunities for retailersVI. Research background and
methodology
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I. Summary of findings
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9Winning in Japans consumer electronics marketMcKinsey Asia Consumer and Retail
Product innovation is, and will continue
to be, a necessary differentiator in
the consumer electronics category,
as evidenced by the success of
newer technologies such as two-way
communicators as well as ground-
breaking improvements to existing
products such as Apples iPod and
Nintendos Wii. However, given the rapid
pace of follow-on or imitator products
and the ever-shortening shelf lives of
new technologiesnot to mention the
sheer difculty of inventing the next
great breakthrough technologyproduct
innovation is no longer sufcient. Rather,
CE manufacturers must nd ways to
innovate commercially. They must
build the capabilities to generate deeper
insights into consumers decision-making
behavior and, because consumer behaviorevolves over time, continually tailor their
marketing plans based on these insights.
In our recent research on Japanese
consumers shopping behavior in the CE
space, we sought a deeper understanding
of what we have come to call the
consumer decision journey (CDJ)the
process that a consumer undertakes
when deciding what brand or product to
buy. We designed the research to ensure
the right combination of qualitativemethodsin this case, half-day shop-
alongs with Japanese consumers at the
start of their CE shopping journeyand
quantitative research, consisting of an
extensive consumer survey with separate
modules for ve major CE categories,
namely FPTVs, PCs, mobile handsets,
digital cameras, and refrigerators. The
results of this work are relevant to CE
manufacturers (and, to some extent,
CE retailers), pinpointing opportunities
to improve their ability to inuence
the consumer at key moments in their
decision journey. Highlights of our
ndings include the following:
Being part of a consumers
initial consideration set
signicantlyincreasesthe
likelihoodofpurchase.In
most CE categories, 72 percent to
80 percent of Japanese consumers
have at least one brand in their initial
consideration set (ICS), which is the
set of brands that a consumer favors
at the very beginning of the shopping
journey. There are usually only one or
two brands in this set, and between
67 percent and 78 percent of the
time consumers purchase a brand
from their ICS. Manufacturers must
therefore understand the drivers to
getting into the ICS and more fullydevelop and employ the tools to
inuence them.
Informationgatheringisoften
along,multichannelexercise.
The typical Japanese consumers
information-gathering stage takes
between two and three months, during
which time the consumer tends to
get information from many sources,
including multiple retail store visits,
online searches, and word of mouth.
Although most consumers have an
ICS, across most CE categories
20 percent to 28 percent of consumers
do not have a specic brand in mind
before they start to gather information,
and between 22 percent and
33 percent of consumers who
begin with a brand preference end
up purchasing a different brand.
Manufacturers must therefore
have a multichannel marketing
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strategy aimed at maintaining a
brands connection and relevance
with target consumers over
an extended time period.
Therealbattleofthebrands
takesplaceinsidethestoreand
theretailsalesspecialistcan
beyourbestfriendoryourworstenemyatthemoment
ofpurchase. Many Japanese
consumers (37 percent to 77 percent,
depending on the CE category) make
their nal decision about which brand
to buy while in the retail storethe
very place where manufacturers
struggle to have any inuence over
the shopping experience. Further
consolidation among retailers will
only make it more difcult for
manufacturers to exert control over
the retail sales oor.
Truebrandloyaltyisrare.
Across CE categories, 21 percent to
46 percent of consumers say their
current brand is their primary choice
for their next purchase although they
will consider other brands, while
49 percent to 75 percent say
their current brand is only one of
many brands they will consider.A mere 3 percent to 10 percent
of consumers (depending on the
CE category) say their current
brand is the only one they will
consider for future purchases.
Manufacturers can undoubtedly
do more to build brand loyalty by
connecting and communicating
with consumers post-purchase.
Twolargeconsumersegments
representingmorethanhalfthe
marketaredisproportionately
inplayduringthejourney.
Our analysis identied four distinct
segments of consumers based on
how they make decisions about CE
brands: sophisticated explorers, value
maximizers, brand loyalists, and
basic buyers. The rst two segments
account for more than half of volume
and value in CE categories, and they
are disproportionately in play, as
they tend to consider more brands
(3 brands on average versus 2 brands
for brand loyalists) and are less loyal
to their current brand (only
12 percent to 16 percent would
prefer to buy their current brand
versus 35 percent to 50 percent forbrand loyalists). The key to winning
these two segments is to connect
with them during the information-
gathering stage, which is when they
tend to make their brand decisions.
Those CE manufacturers that best
understand the consumer decision
journey and focus their marketing efforts
(and dollars) accordingly can win more
of the important battles mentioned
above. They should then be able totriumph in the ultimate endgame: the
war for market share.
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II. The industry context:Japans consumerelectronics market
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The Japanese CE market is the third
largest in the world, with manufacturer
sales of $69 billion in 2007 and intense
competition among both manufacturers
and retailers (Exhibit 1). Despite
numerous new product introductions,
growth in overall industry sales has
been relatively slow over the last ten
years. Consolidation among CE specialty
retailers has accelerated, resulting in
a handful of national retailers (e.g.,
Yamada Denki, Yodabashi Camera)
with a customer base large enough
to command signicant bargaining
power with CE manufacturers. This
environment, combined with decreased
consumer spending both at home
and abroad as a result of the current
economic crisis, is putting signicant
pressure on both the top and bottom line
for CE manufacturers. As a February
2009Economistarticle stated, Once the
epitome of Japans post-war success, its
electronics rms are in crisis.1
In most CE categories, three or four
Japanese manufacturers control the lions
share of the market. However, most ofthese companies sell a very wide range
of products that are, to most consumers,
relatively undifferentiated. Further
consolidation and category shakeouts
remain possibleas evidenced by the
recent Panasonic-Sanyo merger and
the exit of Pioneer from the at-screen
businessand perhaps even necessary,
given that virtually all (if not all) of
Japans CE companies appear to have
Exhibit1: Japan is the third largest CE retail market
Source: Euromonitor
24
28
28
38
42
46
48
69
110
187
Size of top 10 consumer electronics retail markets
$ billion; 2007
US
China
Japan
UK
France
Germany
Brazil
S. Korea
Russia
Italy
CAGR*
%;1998-2007
4
16
5
11
10
6
11
11
8
3
1 Unplugged: Japans electronics giants, The Economist, February 5, 2009.
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lost money in 2008 or are expected
to post losses this year. In the most
commoditized CE product areas, foreign
manufacturers have either given up or
signicantly decreased their efforts in
Japan. For example, a major Korean
manufacturer retired from the Japan
CE market at the end of 2007, citing low
protability and intense competition; and
one of the largest mobile-handset makers
announced in 2008 that it would no
longer offer its handsets to Japans two
major mobile-phone operators, Docomo
and Softbank.
On the retail front, the fact that Japans
top ten CE specialty retailers control
an estimated 70 percent of sales puts
margin pressure on manufacturers
(Exhibit 2). Retailer consolidation maycontinue, and the current economic
situation could result in some retailer
bankruptcies. In any case, the overall
retail situation as it relates to CE
manufacturers is likely to stay relatively
unchanged in the short term.
In the medium to longer term, CE
manufacturers should keep an eye out
for two potentially game-changing retail
developments. First, online sales in Japan
are likely to grow, as evidenced by theincreasing number of consumers who are
spending part of their shopping journey
online in search of information. Today,
online CE retailers have a market share
of 3 to 5 percent in Japan, compared
with between 10 and 15 percent in the
US despite similar Internet penetration
rates in the two countries. This suggests
that e-commerce is still in its early days
in Japan and is poised to take off
particularly since many of the concernsthat Japanese consumers have about
buying online (e.g., lack of customer
service, high shipping costs) have been
Exhibit2: CE specialty retailers dominate the market
Kojima 6
* Retail sales baseSource: RIC; team analysis
35
69
65
31
8.7
2000
8.6
2007
Other
Top 10specialtystores
Top 10 players share in CE retail sales*
%; trillion
2007 revenue share
%
Edion 10
Yodobashi 8
Bic 7
Ks 6
Best 5
Joshin 4
Nojima 2
Denkodo 1
Yamada 20
100% = trillion
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15Winning in Japans consumer electronics marketMcKinsey Asia Consumer and Retail
successfully addressed in other markets.
There is therefore an opportunity for
a new online player to compete with
the leading brick-and-mortar retailers.
Second, while some domestic general-
merchandise retailers may decide to
exit the category, global GMS players
could attempt to leverage their scale to
compete on price with specialty retailers.
That said, as long as some Japanese
retailers continue to tolerate low
returns, competing solely on price will
be challenging even for the major global
retailers.
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III. The consumer decision journey:How Japanese consumersbuy electronics
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Our extensive research in Japan as well
as elsewhere in the world suggests that,
at least for high-involvement product
categories, there is a more nuanced way
to illustrate the consumer decision-
making process than the traditional
brand funnel, which portrays each
buying decision as a linear progression
that starts with awareness and ends
with a purchase. We have developed
a conceptual model of the consumer
decision journey (Exhibit 3) that
represents a departure from current
marketing norms and mindsets in three
important ways. First, it more accurately
depicts the journey as an ongoing cycle
rather than a linear continuum. Second,
it acknowledges the variety of brand
touchpoints and inuences to which
consumers are exposed throughout thejourney. Third, it provides a clearer
map of the battlegroundsthat is,
the distinct stages in the journeyin
which marketers will have to defeat
competitors to win the consumer.
In general, the journey begins with
the ICSa nite number of brands
that the consumer thinks he or she
might buy. The consumer then goes
into a sometimes lengthy stage of
active evaluation, which consists of
information gatheringwhether through
online research, discussions with friends
and family, or other ways of learningabout product optionsas well as actual
shopping. The information gathering
continues up to the moment of purchase.
But the journey does not end there. The
post-purchase experience has an effect
on the consumers next purchase and
often dictates whether or not the brand
will be in the ICS the next time around. A
positive post-purchase experience creates
a loyalty loop, with the consumer
bypassing the ICS and active evaluation
stages entirely, and automatically optingto repurchase the same brand.
Through a yearlong research effort
that included consumer shop-alongs,
interviews with CE sales representatives,
Exhibit3: The consumer decision journey model
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and an in-depth survey of more than
2,000 Japanese consumers who
recently purchased one or more of ve
different types of CE products, we have
tested and rened the CDJ model and
identied the touchpoints that make
the most impact on target shopper
segments. We have since duplicated
this work in the Korean CE market
and are in the process of doing more
research across a large number of other
consumer categories and geographies.
Our ndings in Japans CE market,
summarized earlier, are explained in
more detail here:
Being part of a consumers initial
considerationsetsignicantly
increasesthelikelihoodof
purchase.In most CE categories,72 percent to 80 percent of Japanese
consumers have at least one brand
in their initial consideration set
(ICS), which is the set of brands that a
consumer favors at the very beginning of
the shopping journey. There are usually
only one or two brands in this set, and
across all CE categories approximately
73 percent of consumers who have an ICS
end up purchasing brands in their ICS.
In other words, a brand in the ICS is
two to three times more likely to getpurchased than a brand that is not in the
ICS. Among our survey respondents,
69 percent of PC shoppers and 77 percent
of TV shoppers who began their journey
with an ICS ultimately bought a brand in
their ICS. It appears that the ICS plays a
lesser role when it comes to refrigerators,
with 41 percent of shoppers not having
one at all, but even in that category those
shoppers who had an ICS purchased
brands from their ICS 67 percent of
the time.
So how do brands get into the ICS? Our
research indicates that the key drivers
include prior experience with the brand,
in-store displays, advertisements, visits to
manufacturers Web sites, and in-person
or online reviews and recommendations
(Exhibit 4). One of our shop-alongs, for
example, was with a 40-year-old married
professional (call her Shopper A) who
was shopping for a new computer. She
had a Sony Vaio in her ICS because she
already owned a Vaio and preferred not
to have to learn how to use a different
computer. Shopper B was a 43-year old
housewife in search of her rst FPTV to
replace her CRT TV. Only one brand
Sharpwas in her ICS because she had
seen a Sharp TV in a store and liked the
picture quality.
Informationgatheringisoftena
long,multichannelexercise.Shopper
C, a 27-year old single male shopping for
an FPTV, had previously visited CE stores
more than ten times and did countless
hours of online research. He ended up
buying a brand that was not in his ICS.
We found that the typical Japanese CE
shoppers information-gathering stage
takes between two and three months,
during which time the consumer
compiles information from many sources,
including multiple retail store visits,
online searches, andmost important
word of mouth, which includes both in-
person and online recommendations and
reviews (Exhibit 5). To inuence Shopper
C and others like him, manufacturers
must have a multichannel marketing
strategy with a consistent presentation
of the brand image, a clear sense of the
target consumer segments, and a plan
for maintaining a brands connection and
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19Winning in Japans consumer electronics marketMcKinsey Asia Consumer and Retail
Exhibit4: The ICS is inuenced by a number of important drivers
51Advertisement
31In-store ad/display
29Previous purchase
from this company
22Products noticed
and liked in store
21ManufacturersWeb site
21Online review/
recommendation
20Newspaper/
magazine review
FPTV
45Previous purchasefrom this brand
28Manufacturers
Web site
25Advertisement
23Family/friend/colleague
recommendations
20Products noticedand liked in store
19In-store ad/display
19Online review/
recommendation
PC Mobile
58Previous purchasefrom this brand
25In-store ad/display
23Manufacturers
Web site
23Previous purchase
from this company
23Advertisement
20Products noticed
and liked in store
17
Family/friend/
colleague
recommendations
Source: McKinsey CE CDJ survey
% of top 3 reasons for brands being in ICS; stated
Exhibit5: Word of mouth is a critical touchpoint
3.9Salesperson recommendation during final purchase visit
3.7Viewed products in store during final purchase visit
3.4Sale/special offer in store during final purchase visit
2.2Tested using product during information gathering
2.1Online ad, sale, or special offer
2.0Read information about product during information search
6.5Recommendation from a friend
5.6Tested using product during final purchase visit
4.1Store event/demonstration during final purchase visit
1.0Picked up a brochure during final purchase visit
* How many times will the possibility increase if exposed to this touchpoint at an average rating vs. no exposure
Source: McKinsey CE CDJ survey
Impact of touchpoints on flat-panel TV brand purchase decision
Times of purchase possibility*; derived
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relevance to target consumers over an
extended time period.
Word of mouth is an especially important
lever in the CE category. One of our shop-
alongs was with Shopper D, a 29-year-old
single woman living with her parents
in Tokyo and looking for a 32-inch or
bigger FPTV. She began with Sharp butthen added Toshiba to her consideration
set because her friends convinced her
that Toshiba is just as good. Shopper
E, a 41-year-old married man, was also
looking for an FPTV and was leaning
toward Sony and Panasonic based on
magazines and online review sites such as
Kakaku.com.
Therealbattleofthebrandstakes
placeinsidethestoreandthe
retailsalesspecialistcanbeyour
bestfriendoryourworstenemy
atthemomentofpurchase.Many
Japanese consumers (37 percent to
77 percent depending on the CE category)
make their nal decision about which
brand to buy while in the retail store
the very place where manufacturers
struggle to have any inuence over the
shopping experience (Exhibit 6). Our
research shows that besides product trial
experience, specic recommendationsby salespeople are the most signicant
drivers of brand purchase in the store
(Exhibit 7). The inuence of retail
salespeople is strong in both Japan
and Korea, particularly relative to
the US and Europe. Understanding
what drives salespeople to make
recommendations and how to inuence
those recommendations is therefore
critical in Japan.
In general, manufacturers should seek
greater control over what happens on
the sales oora task that will become
more difcult if the balance of power
continues to tilt toward retailers. In
addition to using traditional levers like
manufacturer-sponsored training of retail
salespeople or store-within-a-store
strategies, Japans CE companies should
follow Apples lead and revisit the idea of
an expansion of owned stores in Japan.
(Apple, incidentally, has almost as many
company-owned stores in Japan as all the
major Japanese CE players combined.)
Given the high capital expenditures
and retail operations expertise required
to execute such a strategy, pursuing
partnerships or franchises for mono-
branded stores with one or more of
the major CE retailers is one possibleapproach, especially in light of the 2007
legislation limiting future openings
of large stores. At the same time, CE
manufacturers should be playing a
more aggressive role in the evolution
of the online channel and positioning
themselves to win in this space by, for
example, equipping their Web sites with
user-friendly e-commerce capabilities
and other value-added features.
Truebrandloyaltyisrare.Across CE
categories, 21 percent to 46 percent of
consumers say their current brand is their
primary choice for their next purchase
although they will consider other brands,
while 49 percent to 75 percent say their
current brand is only one of many brands
they will consider. A mere 3 percent to
10 percent of consumers (depending on
the CE category) say they will consider
only their current brand for future
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21Winning in Japans consumer electronics marketMcKinsey Asia Consumer and Retail
Exhibit6: When do Japanese consumers decide which brand to buy?
%
19
25
27
13
6
3
5
4
6
17
25
16
26
5
4
5
2
4
3 20
17
11
9
15
59
38
40
30
41TV 606
1
93
98Digital
camera
Refrigerator
100% =
607PC
Mobile 610
* Including purchase at online store or through TV shopping channels
** Consumers who made brand decision in a retail store during information gathering or final visit (excluding online stores
& TV shopping)Source: McKinsey CE CDJ survey
Decision timing of purchased brand
Decisionat retail
store**
52
37
50
52
77
Initial con-sideration
Information gathering stage
Advertisements/events
InternetWord ofmouth
Retailstores
Final visit*
Exhibit7: Retail salespeople exert strong inuence
%Conversion rate
Source: McKinsey CE CDJ survey
X
26
37
100
74
37 325
Influence of salesperson for consumers who made brand decision during final visit
29
46
2025
71
100
5
35
42
100
65
23 20
Not recom-
mended brand
by salesperson
Recent CE
buyers who
made branddecision during
the final visit
Spoke to
salesperson
Recommended
brand by
salesperson
3
Did not talk
to sales-
person
Did not pur-
chase recom-
mended brand
Purchased
recommended
brand
88
80
91
FPTV
PC
Mobile
N = 250
N = 171
N = 244
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purchases. In fact, during our shop-
alongs we did not come across a single
consumer who made this claim. This is
due in part to product commoditization,
relatively long repurchase intervals,
and generally low switching costs.
(Exceptions to this phenomenon of low
brand loyalty are recent purchasers of
Apples Mac computer, many of whom
say that they have made the switch to
Mac permanently.) Manufacturers can
undoubtedly do more to connect with
their consumers post-purchasefor
example, by offering them special
discounts on product upgrades.
Twolargeconsumersegments
representingmorethanhalfthe
marketaredisproportionately
inplayduringthejourney.Whileall manufacturers (and many retailers)
have their own unique consumer
segmentations, our analysis identied
four distinct segments of shoppers
based on how they make decisions
about CE brands. The four segments
are sophisticated explorers, value
maximizers, brand loyalists, and basic
buyers. These segments are characterized
across two axes: rst, how much research
they do before they make a purchase
decision, and second, the importance
they ascribe to a products basic functions
and features (what we call rational
benets) versus quality and design
(emotional benets). Manufacturers
and retailers can use this simple and
pragmatic segmentation to develop
targeted strategies and campaigns to
inuence the consumer decision journey
(Exhibit 8).
The rst two segments, sophisticated
explorers and value maximizers, tend
Exhibit8: The four segments are consistent across categories
2025
2623 23
28 28 29
27 24 24
604
TV
606
PC
24
611
Mobile
Sophisticatedexplorers
Brandloyalists
Valuemaximizers
Basic buyers
100% =
Source: McKinsey CE CDJ survey
Extensiveresearch
Limitedresearch
Care aboutquality and design
Brand loyalistsSophisticated
explorers
Basic
buyers
Value
maximizers
Dont care aboutquality and design
While segment size slightly differs
by product category . . .
%
. . . The attitudes are very similar along key attitudinal
dimensions
FPTV
PC
Mobile
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23Winning in Japans consumer electronics marketMcKinsey Asia Consumer and Retail
to consider more brands (3 brands
on average versus 2 brands for brand
loyalists) and are less loyal to their
current brand (only 12 percent to
16 percent would prefer to buy their
current brand versus 35 percent to
50 percent of brand loyalists). They
account for more than 50 percent of
volume and value in CE categories.
The key to winning these two segments
is to connect with them during the
information-gathering stage, as
37 percent to 62 percent of them
make their brand decisions during
this time. Online channelsincluding
manufacturers Web sites, third-
party review sites, and blogsare
very important when targeting these
segments, as they tend to use the Internet
for information gathering (60 percentto 86 percent of sophisticated explorers
and 80 percent to 92 percent of value
maximizers). The current economic crisis
is likely to yield an increase in value
maximizers, although it is important
to note that we refer to this segment as
value maximizers, not value seekers,
because they typically are not looking
only for the lowest price. Importantly, the
four segments appear to be very similar
across CE categories and even across
geographies.
Our research also yielded ndings about
Japans older populationspecically,
consumers aged 50 to 65. There are
differences in how younger and older
Japanese consumers make buying
decisions, and CE manufactures can home
in on these differences. Older consumers
are more loyal to their current brand
(56 percent of the 50-to-65 age group
versus 37 percent of the 18-to-39 age
group say their current FPTV brand is
their only or primary choice for their
next FPTV purchase), making them
harder to capture but very valuable once
they purchase your brand. They are the
most likely to make their brand decision
during the nal store visit, perhaps in
part because they are less likely to use
the Internet for information gathering;
only 55 percent of FPTV shoppers aged50 to 65 did online research versus 89
percent of the 18-to-39 demographic.
Ideas to better inuence this group
include customizing products to older
consumers (e.g., mobile handsets with
larger screens), working with retailers
on more intuitive in-store displays, and
promoting easy-to-use technologies
(e.g., simple remote controls).
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IV. A call to action: Market toconsumers at every stageof the decision journey
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25McKinsey Asia Consumer and Retail
Winning in Japans consumer electronics market
To win the war for market share, it is
critical that a CE manufacturer inuence
every part of the consumer decision
journey. Manufacturers must therefore
understand their relative performance at
each stage of the journey (Exhibit 9). Our
research suggests that, at a minimum, CE
manufacturers should seek to answer the
following questions:
How does your brand perform
versus others in the primary
stages of the consumer decision
journey? Are you spending your
marketing dollars appropriately
to enhance this performance?
Do you have a multichannel marketing
strategy with consistent messaging and
explicit links across channels? What
are you doing to inuence word of
mouth? How is your brand perceived
on the Internet?
What is your strategy to capitalize
on inuential in-store touchpoints?
Do you know what salespeople
in the major specialty chains are
saying about your brand and why?
Have you considered developing
an owned-store strategy?
What are you doing to create brandloyalty among your current users?
As a starting point for addressing
these questions, CE manufacturers
should act on the following four
imperatives relating to various stages
of the consumer decision journey:
Shiftfrombrand-levelinsights1.
todecision-levelinsights.
Most CE manufacturers invest
disproportionately in image-orientedadvertising campaigns, which appear
to be inuential drivers for getting
Exhibit9: The CDJ scorecard: assessing a at-panel TV brands
relative performance in the four battlegrounds
* Loyalty here is defined as people who answered I will consider buying this brand as my primary choice for mynext purchase.
Source: McKinsey CE CDJ survey
Manufacturer A
Average
Best
Initial consideration set
Active evaluation
Moment of purchase
Loyalty loop/post-purchase experience*
Among recent purchasers, howmany are loyal to my brand?
Among those who consideredmy brand during info gathering,how often do they purchasemy brand?
Among those who didnt con-sider my brand at the beginning,how often do they consider mybrand during info gathering?
How often do people considermy brand at the beginning?
Status
Yellow
Green
Red
Green
Manufacturer As scorecard
Percent; among top 5 players
27 29 530 100
2139 1000
33 42 510 100
0 1004946 57
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26
into the ICS. But with a deeper
understanding of the distinct stages
in the CE consumer decision journey
and the most inuential touchpoints
in each stage, manufacturers can
begin to assess their strengths and
weaknesses across the entire journey,
not just the ICS. We have developed
a methodology and scorecard for
evaluating and comparing how
different brands perform across the
critical touchpoints (Exhibit 10).
Manufacturers can then build on
their strengths and address their
shortcomings, developing an overall
marketing strategy that aligns with
the consumer decision journey
for their particular categories and
segments, and ultimately leads to
market share improvements.
Trackandleverageonlineword2.
ofmouth.Consumers growing
reliance on the Internet during
the information-gathering stage
suggests that CE manufacturers can
no longer leave to chance how their
brands are perceived and discussed
online. CE manufacturers should
proactively monitor the rich insights
available on the Web, and leverage
these insights for various activities,
including product development and
promotion. The unvarnished opinions
that consumers express on Web sites
are a window into customers needs
and preferences, and systematically
mining them can help companies
react to the market more quickly and
appropriately. By using the Opinion
Observer, a proprietary McKinsey
Exhibit10: The touchpoint performance scorecard at-panel TV example
* How many times will the possibility be increased if exposed to this touchpoint at an average rating vs. no exposure
** Each touchpoint is rated on a 5-point scale from -2 to 2Source: McKinsey CE CDJ survey
Performance of Brand A
Positive top-box rating** ratio
Status
Brand A
Best in class
0 10020 40 60 80
Yellow
Green
Impact of touchpoints on FPTV
brand purchase decision
Possibility*; derived
Recommendation from afriend
6.5
Tested using product duringfinal purchase visit
5.6
Store event/demonstrationduring final purchase visit
4.1
Salesperson recommendedduring final purchase visit
3.9
Viewed products in storeduring final purchase visit
3.7
Sale/special offer in storeduring final purchase visit
3.4
Tested using product duringinformation gathering
2.3
Online ad, sale, or specialoffer
2.2
Important
Red
Implications for Brand A
Word of mouth is most
important touchpoint, and
brand A performs well on it
Must investigate what is
causing the significant
difference for product trial
experience and determine
what to do about gaps for
sales/special offers
Green
Yellow
Green
Yellow
Yellow
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27Winning in Japans consumer electronics marketMcKinsey Asia Consumer and Retail
tool for searching and analyzing online
opinions, a maker of ink-jet printers found
that much of the positive online buzz about
its newest model had to do with its printing
speed, a feature that it subsequently decided
to emphasize in promotional campaigns.
A common complaint online was about
the models poor connectivityan issue
that became a top priority for the product
development team.
Seektoinuencethemomentof3.
purchase.All CE manufacturers spend a
lot of time and resources ensuring that their
products get into retail stores, and rightly
so. But few manufacturers pay as much
attention as they should to inuencing what
happens once their products are in the stores.
Manufacturers can play a much bigger role
in the moment of purchase; they must lookfor opportunities to deliver a distinctive
in-store brand experience. Commonly used
tactics (e.g., manufacturer-provided sales
training, use of trade spending toward more
attractive displays or in-store high-denition
connectivity) can only go so farparticularly
when all manufacturers are employing
similar techniques. CE manufacturers can
look to consumer packaged goods (CPG)
companies for inspiration. Certain CPG
manufacturers actively partner with retailers
to launch innovative occasion-specic
merchandising approaches (e.g., special
displays and promotions tied to holidays or
major sporting events). But for full control
of the customer experience at the moment of
purchase, CE manufacturers should consider
both opening their own stores and building
e-commerce capabilities. Whichever tack
they choose, the point is that manufacturers
must not leave the selling to retailers.
Reinforcetheloyaltyloop.4. Few CE
companies make any effort to reach outto consumers who have purchased their
products. With little to no post-purchase
contact (beyond transactional messages
such as notices of warranty expiration),
it is not surprising that the loyalty loop is
weak in the CE industry, with the majority
of consumers going through every stage of
the consumer decision journey instead of
automatically repurchasing their current
brand. In light of the impact that the post-
purchase experience has on the consumer,CE manufacturers must emulate Japans
cosmetics and luxury goods companies,
many of which excel at managing customer
relationships and building brand loyalty.
Cosmetics and luxury goods manufacturers
capture consumer information at the point of
sale, both at their own stores and via data-
sharing agreements with department stores
and other retailers, and use these data to
send customers exclusive offers, discount
coupons, or invitations to special events.
CE manufacturers can also take a page from
software companies, which frequently offer
existing customers special deals on product
upgrades or trade-ins.
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V. Opportunities for retailers
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29McKinsey Asia Consumer and Retail
Winning in Japans consumer electronics market
Thus far, we have focused on implications
for CE manufacturers. But our research
has also highlighted lessons and
opportunities for CE specialty retailers
and general-merchandise stores (GMS).
In Japan, CE is one of the few specialty
retail success stories. Category leader
Yamada Denki has approximately20 percent of the total Japan CE market
and is the No. 3 retailer in the country.
Yamada was the rst CE retailer to
introduce the point card system, a
loyalty program that rewards shoppers
with points for each store purchase.
The company has been so successful at
home that it is now focusing its attention
abroad and moving into new categories
including toys, over-the-counter drugs,
and even food and fast-moving consumergoods. In our survey, Yamada received
high marks from customers on price,
selection, and its point card system.
Japanese consumers have a very high
awareness of all the CE specialty players,
particularly the top ve. But Yamada
aside, Japans CE brick-and-mortar
specialty retailers struggle to differentiate
themselves from one another. Price is
a top driver of CE retailer selection in
Japan, and the three most importantfactors affecting price perception are
whether the retailer offers a large point-
back percentage in its point card system,
has promotions and discounts, and is
generally perceived as a leader among CE
retailers. But we found little difference
in price perception among the top ve
CE specialty retailers (again with the
exception of Yamada, which got the most
votes as the low-price leader).
To stand out from the competition, CE
specialty retailers should look beyond
traditional levers such as competing
on price and assortment. Based on our
research ndings, we believe Japans CE
specialty retailers can increase trafc,
conversion rates, and loyalty by targeting
specic shopper segments. For example,
we know from our research that older
consumers make CE purchasing decisions
faster and rely much more heavily on
the in-store part of their journey. At the
same time, they are the ones who feel
most lost and confused by the in-store
experience. Catering to the needs of this
segment (e.g., through better-trained or
older sales reps and larger-print point-
of-sale materials) is an opportunity.
Also, given how much time the younger
generation and the sophisticated explorersegment spend searching for information
online, CE specialty retailers should think
of ways to steer online trafc to their
stores (e.g., Internet coupons, online ads
promoting store events). In addition, CE
specialty players must continue to look
for ways to deal with market saturation,
including exploring new formats such
as mono-branded franchises with CE
manufacturers.
And what about Japans large general-
merchandise retailers? In our view, they
face a number of signicant challenges.
First, while approximately 80 percent
of Japanese consumers know they can
buy consumer electronics at GMS, at
most 30 percent of these consumers
actually consider GMS when shopping
for consumer electronics, and even fewer
visit GMS during the purchase journey
(Exhibit 11). Why? While we did not
explore this question in detail, we do
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VI. Research backgroundand methodology
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33McKinsey Asia Consumer and Retail
Winning in Japans consumer electronics market
When we launched this effort in June
2008, our objective was to generate
deep insights into how consumers
learn about and buy products across
multiple categories and sectors, including
consumer electronics in Japan. To
have a basis for comparison, we did the
same research in Korea. Our ultimate
aim was to develop, based on these
insights, a model that demysties the
consumer decision journey and helps
manufacturers and retailers align their
marketing strategy and budget with the
most inuential drivers of consumer
purchase decisions. In designing the
research, we received input from a
number of manufacturers and retailers.
We also leveraged McKinseys extensive
experience working with many of
the leading CE manufacturers andretailers in Japan and globally.
We undertook the qualitative research
specically, half-day shop-alongs with
24 Japanese and 21 Korean CE
shoppersin June 2008 in Japan
and Korea. These in-depth immersion
experiences helped us develop insights
and hypotheses about how Japanese
and Korean consumers shop for
consumer electronics. In September
and October 2008, in collaboration
with the research rms Intage (Japan)
and Embrain (Korea), we conducted
quantitative online surveys with 2,000
shoppers in each country. The survey
respondents were consumers who had
made a CE purchase in at least one
of the ve categories in the prior six
months. In each of the two countries,
we had more than 600 respondents
each for FPTVs, mobile handsets,
and PCs, and approximately 100 each
for digital cameras and refrigerators.
Since the survey was conducted online,
it does not represent CE purchasers
who do not use the Internet.
In addition, we conducted ofine surveys
with 500 representative consumers
in each country. In Japan we used
telephone surveys, whereas in Korea we
interviewed people randomly selected
in a street catch. The quantitative
data set was weighted to ensure that
the results were representative of
recent purchasers for each category and
to adjust for the signicant skewingtoward heavy Internet users in the
online panels. While this weighting
corrects for Internet bias, it does not
make the sample representative of the
approximately 25 percent of Japanese
consumers who do not use the Internet.
McKinseys work on CDJ is an ongoing
global initiative. We continue to rene
the CDJ model and the accompanying
tools and frameworks as we test
them across multiple categories andgeographies. The research is now
complete in Japan and Korea and is
currently in the eld in the US.
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34
McKinseyConsumerandShopperInsights,Japan
We established McKinsey Consumer and Shopper Insights (CSI) in Japan, in 2008
with the primary objectives of helping our clients in consumer-facing industries develop
unique insights into consumer and shopper behavior and build their own capabilities
in these areas. In addition to supporting McKinsey teams in serving clients, CSI offers
proprietary research in a number of consumer- and shopper-related areas, as well as
capability-building programs in the area of marketing and consumer insights.
Besides Japan, McKinsey Consumer and Shopper Insights currently has three othercountry focal points in AsiaChina, India, and Korea. For more information, please
contact one of the contributors below.
Contributors
Paul McInerney ([email protected]) is a principal in McKinseys Tokyo
ofce and a leader of the Asia-Pacic Marketing and Sales practice.
Brian Salsberg ([email protected]) is a principal in McKinseys Tokyo
ofce. He is a leader of the Japan Consumer and Retail practice as well as of the
Japan Consumer and Shopper Insights Center.
Ian St-Maurice ([email protected]) is a senior expert in McKinseysAsia-Pacic Marketing and Sales practice. He is based in Shanghai.
Kotaro Ueda ([email protected]) is an associate principal in McKinseys
Tokyo ofce.
Acknowledgments
This report would not have been possible without the tireless efforts of our working
team and the support of our colleagues from Japan, Korea, and around the world.
We thank Wanqiu Zhao, a consultant in our Tokyo ofce who led the work, along
with Azusa Hanai, Tomoko Hibino, Jason Hoffe (alumnus), Satoshi Erdos Kato, Yuri
Ozawa, Peter Qu, Ryosuke Saito, Arei Shirai, and Hirokazu Suzuki, all consultants in
our Japan ofce.
We also thank our partner colleagues in Japan who contributed to this effort,
including Heang Chhor, Todd Guild, Osamu Kaneda, Peter Kenevan, Ulrich Naeher,
and Hirokazu Yamanashi.
Consultants Sunny Hahn, Hyunjung Kim, Tracy Kim, Jihye Lee, and Sinhae Lee,
along with partners Richard Lee and Roland Villinger made up the team from our
Korea ofce.
In addition, we received signicant support from our McKinsey colleagues around
the world, including David Court (US), George Desvaux (France), Sandrine Devillard
(France), Dave Elzinga (US), John Forsyth (US), Prashant Gandhi (US), Yihua Jing(China), Jean-Frederic Kuentz (Taiwan), Laxman Narasimhan (India), Kevin Nuffer
(US), Shalini Rao (India), Maarten Schellekens (Netherlands), Vicki Smith (US),
Monica Toriello (US), Ireena Vittal (India), and Khiloni Westphely (UK).
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McKinsey Asia Consumer and Retail Practice