Selling to Japan Online

If you're a Net retailer hoping to beat the B2C odds this holiday season, why not tap the world's second-largest economy? First, though, learn how to with the Japanese eshopper.

His concerns -- convenience, variety, safety, and trust -- are typical of Japan's growing body of flexible, wired, New Economy consumers, whose growing international tastes helped fuel the near quadrupling of Japanese online spending from 1998 to 1999.

According to a comprehensive report issued in March by MITI's Electronic Commerce Promotion Council (ECOM) and Andersen Consulting, B2C spending in 1999 reached ¥248 billion ($2.3 billion), 31 percent higher than what the last report estimated and 380 percent higher than the 1998 figure.

The report, which estimates that 2 percent (about ¥5.5 trillion) of all personal consumption in Japan will be conducted online by 2004, concludes that Japan's ecommerce market is on the verge of a genuine takeoff. Yoshimitsu Hirai, ECOM's head of international relations, says he personally believes that figure is low and that "there will be much more room for growth."

Further data and recent developments support his view. A survey released in June by MediaMetrix-Japan indicates that the Rakuten Ichiba shopping portal was the ninth most popular site, with over 4.5 million unique visitors in April alone, and that it reached almost one-third of all Internet households. And with the recently announced 35 percent NTT interconnect fee reductions and the introduction of Java to cell phones (enabling secure transactions) later this year, 2004 might arrive sooner than we expect.

But -- who exactly are the Japanese eshoppers fueling this boom? Aside from the generalities common to all eshoppers, what's unique to them? How do you turn them on, or off? Where do they live and shop? Statistically, what's the age/gender breakdown? Most important, what's the most effective way to reach them? The answers, considering the size of Japan's economy, will interest not just the culturally curious, but any foreign etailer smart enough to go after this huge market this holiday season.

First a look at the numbers: Japan's 19.4 million wired citizens (24.6 percent population penetration, according to the Internet Association of Japan) are rapidly gaining confidence in ecommerce. According to IDC, 46.5 percent of male and 44.3 percent of female home Internet users have either made a purchase online or subscribed to a service within the past six months. Despite the cell phone's bright future as an m-commerce device and the current hype surrounding it, the majority of online purchases in Japan are still made via PC (over 95 percent). Just over 41 percent of Japan's eshoppers use the Net to buy personal items, versus only 1.4 percent for work stuff. Interestingly, in both genders those aged 30 and higher have more Web shopping experience than younger Net users. Perhaps the social experience of shopping and the "being seen" dividend are more important to younger Japanese than to older.

Even more surprising, Japanese women, while far behind men in terms of high-tech education, are apparently making up for it in high-tech application. And while male Net users are evenly distributed across age categories, younger women are clearly leading the technology push over older women. "Younger women 'get' the Internet," says Kevin Williams, IDC research manager, Internet and ebusiness. "They understand it as a useful communication tool and therefore adopt technology faster than their male counterparts."

Female online shoppers buy clothes (30.5 percent), food (28.2 percent), or games/toys (18.9 percent), while men go for computer hardware (24.5 percent), books (23.3 percent), and software (22.9 percent). Overall, the most popular item (21.6 percent) among Japanese e-consumers is food, on which they spend an average of ¥7,300 per transaction. Clothing draws ¥11,300, books ¥5,500, and software ¥17,000. Toys/games/hobbies beat them all to the tune of ¥20,800 per click. In addition, the bulk of Internet users and presumably eshoppers are in the affluent urban areas of Tokyo (47 percent), Osaka/Kyoto (18 percent), and Tokai (11.4 percent), where, according to Williams, "the marketing efforts of IT companies are concentrated."

Of course, success as a Japan etailer requires more than translating your site into Japanese and giving it "city girl" appeal. Outstanding customer service, for example, is a must. In Japan, customers are treated with the utmost respect. Etailers that fail to satisfy Japanese consumer demands and tastes will lose out quickly to those who do. "Japanese consumers are loyal, and retailers should treat the relationship with respect," Williams says. "Once the consumer feels the respect is tarnished or lost, they may never come back." Considering the impersonal nature, constant change, and even perceived danger of the Net, success requires a very balanced touch of business smarts, cultural acumen, and awareness of how Japanese use the Web.

"We have definitely found that the Japanese online consumer is incomparable to the American online consumer," says Maxwell Thomas. Thomas is CEO of

US-Style.com, a onetime online retailer that moved up the value chain to provide technology and customer service solutions for other retailers in Japan, most notably Barnes & Noble, Hollywood.com, and New York specialty food retailer Dean & Deluca. When working with a client, the first thing Thomas advises is to "Cut out about 80 percent of the existing product line and focus in on the 10 to 15 percent that is great." What makes the cut in Japan? In particular, "We have found that items that are very identifiable with a particular place in America have been popular" -- other clients include Omaha Steaks and Santa Fe Turquoise -- "as are any items tied to an event, like a major movie release." When Star Wars: Episode I was released last summer, Hollywood memorabilia did extremely well. "True to Japanese consumer form," says Thomas, "they weren't purchasing just one or two, but 10, 20, or 30 of the same item."

It's no surprise that Japanese shoppers like Western products, but retailers have to find the right mix. "Japan is very materialistic, and quality comes before price," Williams says. "Many consumers do like the image of the US lifestyle (free, relaxed, inexpensive, et cetera) but are also very sensitive to their own culture. US retailers need to find a delicate balance." Depending on the niche and the business plan, this is not always obvious. REI has been selling its outdoor books, clothing, and equipment in Japan for over 10 years. It started with a low-risk catalog business, through which it built a base of over 80,000 Japanese members. Cultural considerations and the company's "clicks and bricks" strategy are causing it to rethink its product line. It launched its Japanese site in June 1999, which, according to representative Devony Hastings, made it the third foreign ecommerce site in Japan, after Dell and Music Boulevard. Only last year did REI cement its presence by opening its flagship Tokyo store, complete with climbing pinnacle. It's currently in the process of recalibrating its product lines "to match what we have in our retail store. Then we'll build the online section from there. We wanted to build a place for our Japan customers that had a product selection that we designed for them," says Hastings. REI has even gone to the lengths of finding Japan-specific products that it doesn't sell anywhere else.

But the real lesson to be learned from REI is not so much in its search for the killer ice-axe, but rather in its demonstrated commitment to the Japanese market. "Starting up an operation in Japan is not about launching a site," says company rep Jennifer Lind. "It's about building a business. We didn't just take REI.com or REIOutlet.com and translate them. We actually looked at some of the features and advantages those sites offered, but we catered everything to the Japanese consumer." A recent customer poll revealed that the most important features requested are pricing in yen and fast fulfillment. Simple enough, but for the past 10 years, REI has been pricing in dollars and shipping from the US. In so doing, it avoided differences in exchange rates, accounting systems, and tax systems, but at the possible cost of alienating shoppers. That will change in the next few months when the company consolidates its Japan operations with its site, stores, and Yokohama-based warehouse. Says Hastings: "One of the big value propositions of the Internet is the convenience, and part of that convenience is ordering a product and getting it within a few days. We weren't able to do that shipping from the US, and our customers will see a [price] difference as a result."

Japanese consumers are very demanding, and expect a great deal of support -- bordering on hand holding. Car dealers, for instance, will drive a particular car to your house to make the sale, and department stores may take longer to wrap your present than you did to select it. Customers are spoken to in an extremely polite form of Japanese, which the half-structural, half-tonal politeness of English cannot immediately duplicate.

Native Japanese language customer service, then, preferably in-country, is a must. Drawing on his past experiences, US-Style's Thomas explains that, "Given the high quality of Japanese customer service support standards, there were usually a lot of complaints: The wrapping was inadequate, an item is a different shade of green than on the site, the order arrived later than expected, et cetera. These are to be expected, but in general we found that US customer service departments are not at all prepared to deal with the quality expectations of the typical Japanese consumer." Williams believes companies need to have adequate local support. For Japanese eshoppers, he says, "It's bad enough having to calculate time differences, only to have the person on the other end speak in native-speed English."

The same consideration must be given to jokes, word plays, and cultural references that Japanese customers would not understand -- or, worse, would be offended by. Williams tells of one company that put black borders around pictures of people on their site. In Japan, black picture frames are used only when someone has died, which turned out to be quite prophetic for this company. When considering language, common sense should prevail, but the subtle effects of cultural appeal could be just as important. Japanese consumers have very keen eyes for detail, a fact that successful retailers are using to distinguish themselves. "We hired the best Japanese nationals in the business to help us develop a site that is relevant to the Japanese consumer," says REI's Lind.

Understanding what's relevant to Japanese consumers goes a long way toward B2C success in this country. Take Gifty Gifty, a Tokyo-based startup whose site aims to ease the process of gift-giving -- a vital component of Japanese culture. The site opened in February, coinciding with Valentine's Day, when females give chocolate to their boyfriends, husbands, bosses, and fathers -- but not the other way around. Men and boys reciprocate on White Day, a month later. Ignorance of this fact could be deadly, and it is not the only liberty that Japan has taken with Western holidays. Japan's strawberry-angel food Christmas Cake is unknown outside the nation's borders, but inside is pushed heavily at every convenience store across the land. "Japan has made adopting other countries' holidays an art form," says Williams.

Gifty Gifty is positioning itself as the gift store for both Western and Japan's traditional holidays, the two biggest of which are O-chugen in July and O-seibo in December. Gift-giving is highly revered, and it entails a certain amount of ceremony to reaffirm both status and personal and professional relationships. Foreign etailers must be aware of these and other subtleties. For example, numbers, like colors, are perceived in unique ways: Four is associated with death (as are white and yellow chrysanthemums), and nine carries connotations of suffering. And while Americans might give a set of knives for a wedding gift, Japanese might interpret that, and any other cutting tool, as a symbolic severing of friendship. Gifty Gifty president Katsunari Konya sees this level of detail as an opportunity. "There are so many customs in Japan directly related to gift giving that I thought the market would be very Japanese and very unique," he says.

Foreign etailers must demonstrate a similar level of cultural awareness in their sites and products. They must also keep in mind that Japanese culture and consumer habits are, not surprisingly, bifurcating along generational lines. As a result, companies must be very clear on who their target market is. Many older Japanese do not view Western celebrations as younger Japanese do, and vice versa. "Most of the traditional Japanese send chugen and seibo gifts in these seasons, and never send gifts for Valentine's or White Day," says Konya. "But all this is changing. Young people tend to not send gifts during chugen and seibo, so these seasons are going to become less important."

Konya is betting he can build his brand around convenience. He's well aware that price competition in online B2C is secondary to things like email addressing, bonus systems, and personal catalogs that are in effect mini bridal registries, all of which Gifty Gifty offers. While confident of his future success, he is also hedging it by selling his distribution expertise to other small and medium-sized companies on the Net, a potentially rich market given significant consumer frustration over poorly timed deliveries. Also working for Konya is the fact that, according to the Internet Association of Japan, the No. 1 reason Japanese eshoppers visit a site is to buy a present.

The fear factor still prevents many Japanese from buying online. In the US, the No. 1 reason for not completing a purchase is technological: either a network error or a dropped connection. There is enough consumer knowledge, combined with an industry track record, to give US eshoppers the confidence to share credit and personal information. In Japan, the No. 1 reason given, according to IDC, is network security and the fear of providing credit card information online. Part of a successful ecommerce campaign, then, will be clearly demonstrating safety, perhaps through a locally awarded certification or a well-publicized site explaining safe credit card use. Accepting the more familiar JCB and UC cards might help, too.

Japanese buying patterns are also shaped by infrastructure and technological limitations, especially per-minute phone charges. Not only do high costs limit the flashy content of Japanese sites, but they also drastically curtail surf time. Put simply, no one just stumbles across a Japanese ecommerce site. In fact, a recent report shows that after checking their email first, many Japanese Net users click the links that are included in their messages. Hence the rise in email newsletters stuffed with links to featured sites. (See "Meru Maga Mania," page 33, July 2000.) According to the Internet Association of Japan, this is the second most effective way of reaching shoppers. Forty-four percent say they found shopping sites by following an email lead. Search engines are somewhat of a luxury, used mostly for following up on information introduced by email.

Until rates come down, then, companies may see more success in gathering addresses and viral marketing than in registering their sites with various search engines.

Cell phones will change the balance considerably. At last count, there were more than 10 million i-mode users, some of whom are already purchasing information and news services, but not consumer goods to any extent. Secure, Java-based transaction software could change all that beginning in the third quarter, and sites like Gifty Gifty are already preparing i-mode (compact HTML), J-Phone (MML), and cdmaOne (HDML) sites through which Japanese consumers can shop safely on the go.

Catering to Japanese tastes is clearly a complex and detailed effort, but the payoff that comes from tapping the world's second-largest economy can be extraordinary. It's noteworthy that Japan has maintained its world-class shopper status through 10 years of recession, and as it continues to turn toward technology to strengthen its economy, ecommerce will play an increasingly prominent role.

In addition to the speed and business requirements demanded by the Internet, successful Japan etailers will have to crank up their Japan appeal to satisfy the world's most demanding shoppers. Consumer trends in Japan spread quickly, though, and companies that strike the right balance between business, culture, technology, and trust should be rewarded by shoppers eager to click.