Why Japanese Brands Need to Pivot in the Age of Experience-Led Commerce

At this year’s Advertising Week Asia 2019, Isobar senior VP & global managing partner Shawn Mishra and Emmanuel Flores, Dentsu Isobar head of transformation, spoke to a packed crowd about the critical importance of experience-led commerce.

Commerce is the most connected it has ever been. Regardless of channels, time or location, this ongoing disruption shows no sign of slowing down. In terms of global sales, it accounts for about 15.2%, and the total sales growth from eCommerce alone is 18%, a significant number that will continue to increase.

But commerce is not just about consumer products or retail; its influence can be felt across every industry. More importantly, it is changing the behaviour of people because while technology changes exponentially, people change linearly. What we are seeing now is humanity catching up and creating this disruption.

But not every market world-over is experiencing the same level of disruption and change.

In the United States for instance, retail is primarily driven by direct-to-consumer commerce and marketplaces like Amazon or eBay, and 62% of these consumers are influenced digitally before they even decide to go and buy. China on the other hand is all about marketplaces powered by mobile platforms like WeChat. In Europe retail is flat, but commerce has become a force that drives growth. For APAC (excluding China) there is maturity in omnichannel and in Latin America, Brazil, Argentina and Mexico are key markets leading this growth. 

The big geographic picture reveals some countries continue to have market size expansion while others seem to have already reached a maturity where the only way to generate growth is by expanding their basket size. In the Japanese market today, product categories show a continuous growth instead of its number of consumers, and key infrastructure already in place makes it ready for a bigger basket. For businesses that hold various product categories, this is an important element to remember for they will require an accelerated expansion to avoid cannibalisation.

Observing these changes by category tells a bigger story. Food and beverages are now the fastest growing category in global commerce largely due to the emergence of online grocery shopping. But even so, they only account for about 3% of all online sales. If a business or organisation belongs in the 10 main merchandise categories, it is imperative to at least aim to grow as much as the category average. If they are not growing, this will call for a much bigger question as to why and what can be done to get there.

What is driving the disruption? 

Ecommerce has consistently grown and forecasts suggest it will account for over 60% of all online interactions by 2020. The source of this growth is predominantly been marketplaces, accounting for 50% of global online retail sales. Over the last 3-4 years, this marketplace growth has been a boon to CPGs driving their commerce growth in double digits. The value of some categories has seen an increase, turning marketplaces into a ground where brands and consumers find each other, communicate and engage in transactions. This has built a 1.8 trillion-dollar online business industry and it is expected to continue expanding grow to 2.1 trillion in the coming years.

However, starting in 2018, marketplaces have started to face certain challenges that have impacted the growth of their CPG sellers. These are now becoming saturated due to slowdown in consumer penetration. Product differentiation is becoming more difficult for brands that are constantly competing against other retailers who re-sell their own products, making it more expensive to be in the top of marketplace listings. This has also increased by several fold the cost of customer acquisition. 

How is Japanese consumer behaviour changing?

With a 94% online penetration rate, Japan is as connected as it can be, and in this connected society, 82% of purchases are influenced by reviews before transactions take place. The web serves as a map to navigate purchases supported by the strength of mobile shopping where one out of every three people shop.

There are four considerations to have for the Japanese market in terms of direct-to-consumer commerce:

• Online Spend & Category Expansion: While there will be minimal population growth, online spending per person will continue to increase.

• Connected Commerce: Mobile commerce is expected to leap from 7% to 50% by 20218. Higher investment will be required for speedy logistics.

• Omnichannel: A need for seamless omnichannel experiences to provide a “buy everywhere, ship anywhere” orchestration.

• High Touch: Customer expectations are amongst the highest, meaning businesses must excel across channels.

What is the path forward?

Taking into consideration these key trends – the incredible growth opportunity that commerce continues to provide, the challenges faced by marketplaces, and the change in Japanese consumers behaviour - what is the path forward for these CPG and retail businesses to continue to deliver commerce growth?

What Isobar recommends to CPG companies and retailers is to embrace diversifying their strategy and invest in direct-to-consumer omnichannel platforms. Isobar is also witnessing a number of global CPG and Retail brands embrace this shift in strategy over the last one year or so.

While marketplaces provide a quick win in terms of sales, they also strip brands with the necessary data that is needed to truly understand who they are selling to, making them less able to build closeness and direct customer relationships.

While businesses cannot control the behaviour of consumers however, they can control the kind of experience to provide on each touchpoint. They need to be selective and find the best elements for the journey to deliver their brand experiences. With direct-to-consumer commerce, businesses hold the power to drive their brand positioning, their product pricing and value that emancipates them from marketplaces.

As brands invest in DTC omnichannel commerce, they can begin to build a 360-degree view of the customer. It is key to move away from segmented silos and towards 1-to-1 personalisation with a clear understanding of consumers using information that marketplaces are unable to provide. Even if two people belong to the same segment, a DTC approach will deliver a unique experience for each and create powerful experiences through the sense of discovery they get out of them.

Let’s not forget retail because it is not going anywhere anytime soon. Direct-to-consumer can drive online-to-offline engagement to digitally influence retail stores and drive growth. Consumers do not wake up thinking about the right platforms from where to buy the things they need, but instead shop as they like meaning businesses cannot be channel centric: They need to be where the consumer is and not the other way around.

How should brands proceed now?

With a DTC blueprint in place, brand strategy and insights can be visualised. Next is the identifying customer experiences and a strategy that can serve to develop a commerce strategy for brands to grow and create end to end experiences with speed, agility and at a good cost. Then comes technology, defining what makes sense and is needed. Launching a minimum viable product (MVP) should happen within the first eight months to get your direct-to-consumer knowledge that can serve to set KPIs and measurement. 

Commerce is extremely transformational, and brands need to collaborate to break their own silos. Preparing them and their partners is important to move this process forward with stakeholders.

So, what does experience-led commerce look like?

We helped Zwilling deliver a customer experience with all the right ingredients. The idea from the data insight was to look at their brand purpose to bring the chef out of you, not just selling knives. Getting the passion for cooking out of people to enable and support them to be what they wanted.

More importantly, we were able to bring four businesses together into commerce, transforming the organisation into something remarkable.

Here’s four key pointers for you to consider when writing their experience-led transformation strategy:

• Commerce will continue to grow.

• Businesses should diversify beyond marketplaces and choose what is good for their brand.

• Go Direct to consumer: It is not a channel, it is a mindset and that needs to be activated.

• Starting the journey. Quick wins can be kept coming but looking at the bigger picture will generate the most value out of your brand.