3 ways to kickstart subscription business models in Japan
This article was originally published in CFODive.
While Japan may be ahead technologically on many fronts, it has lagged behind other Asia Pacific nations when it comes to subscription model adoption. Many of the country’s biggest enterprises are staffed by life-long employees and historically take years to come to a consensus on big changes. B2B subscription models in particular have simply not surged in popularity in Japan in the way they did in other Western countries – but now, the tide seems to be turning.
Both B2C and B2B businesses are beginning to understand the potentials of charging customers a recurring fee rather than a one-time lump sum. Subscription models come with many benefits for Japanese businesses, including increased customer loyalty, more accurate forecasting, and better customer insights.
So it’s no surprise that subscription models in areas such as automobiles, ecommerce, and home rentals are picking up steam in Japan. In fact, the Yano Research Institute estimated that the Japanese market of subscription services, covering eight industries, including fashion, eateries and entertainment, was worth ¥562.74 billion yen ($5.18 billion) in 2018, and will reach ¥862.35 billion yen in 2023.
With this shift to subscription-only just underway, what can businesses do to further speed up adoption in Japan?
Build brand awareness now ahead of mass adoption
Brand recognition and trust are often more important to Japanese consumers and business customers than affordability, and many won’t make purchases from a brand that they don’t know well. According to the 2017 Edelman Trust Barometer, Japan ranked 26th out of 28 nations surveyed for their level of trust in institutions – especially in those with headquarters outside of Japan – and this translates into people’s trust in businesses trying to sell to them too.
Subscription-based businesses should strategically market their product or service to their target audience to become more recognizable, using clear descriptions and avoiding buzzwords to minimize any ambiguity around what the product or service does. This creates simplicity in the messaging, making the brand seem relatable and capable of solving real-life needs. These businesses can leverage marketing tools like testimonials and customer ratings and reviews, which will help build trust amongst potential customers.
And while brand trust may come up top in Japanese buyers’ list of priorities, that also means charging an honest price too. By offering a fair pricing model to all customers, Japanese buyers will take note and will be more likely to stay loyal to the product or service that they feel isn’t trying to squeeze them out of every penny.
Educate internally on the potential of the subscription model
One big hurdle to successful subscription adoption within Japanese companies is internal support for the switch. Many stakeholders within the company may be apprehensive to make such a radical change to the business model and will need convincing by strategic change-makers within the company’s leadership.
This Citibank survey of 580 senior executives in the Asia Pacific region found that nearly half of those surveyed believe that the subscription-based model will be widespread in their industries within three years, with some stating that it will be the industry standard by then. However, the same survey found that a lack of alignment on subscription objectives with organizations was hindering progress, with one of the most widespread concerns being a short-term decline in revenue.
Business leaders in Japan must address these concerns and provide evidence and forecasting of the return on investment that a subscription model can provide. They can start preparing the company for the change by demystifying subscription models and drawing comparisons to popular news subscription services like Newspick and Yahoo Finance VIP.
It will be necessary to embed the subscription model into company culture from day one. This means crafting a vision for the new norm by over communicating on where the company is going and how it will get there. Businesses should also make sure to implement the model with absolute clarity, with transparency around timelines and new incentives that better align with the subscription model. For example, they might adapt their sales compensation plans, project KPIs, and bonuses.
In order to gain consensus, businesses may also start running the subscription model alongside their existing model, and compare the performance metrics and profit margins of each approach in real-time to make the case for the switch to subscription. Once implemented, they could craft a feedback loop to understand the response and build consensus at all levels of the organization. All of this will create ample evidence and reason that going the subscription route holds great promise for the business.
Leverage technology innovations to make subscription a success
Businesses seeking to kickstart their subscription model must make sure to have the right technology in place to make it a success and offer value-adding innovations to outstrip competitors.
As a bare minimum, companies moving to a subscription model should have customer service technology and automation tools to make payment processes easy for both business and customer, and to be able to provide more targeted offerings based on their usage of the product or service. Companies may also consider investing in a platform that optimizes the entire payment process in one place, while also integrating with other third-party systems to unify workflow.
In addition to that, companies can attract customers by offering innovative solutions to their services that they are unlikely to find elsewhere. For example, Japanese cosmetics company Shiseido has created a subscription-based IoT solution that allows users to assess their skin condition. Customers don’t need to manually order more cartridges as this is done automatically once their previous ones are almost empty.
Japanese companies that fight the tide of subscription-based business are unlikely to be able to keep up with those that embrace change, especially given the initial success of existing subscription-based offerings. In order to drive momentum behind the subscription model in Japan, organization leaders should focus on increasing brand awareness, making the case internally, and leveraging the top technology innovations to streamline processes and add value for customers.