Dear CMO:
You may have heard rumors that there are potential customers for your products outside the borders of the United States. These reports, unsettling as they may be, are true. Their potential, however, is up for debate. Many do not speak English, may require more of you than your current customers do, and may need to be wooed in a radically different manner. As such, they have no chance of becoming your customers unless you act. Thus, “potential” may be too strong a word.
There is business out there in the great beyond. You may think civilization ends somewhere around Dallas. But the last few “Five Year Plans” on your credenza have failed to mention that there are another four and a half billion people that you have overlooked. They are out there, buying other products, and they frankly don’t care whether you talk to them or not.
I am a firm believer in sharing best practices. The “Five Stages of International Market Entry” are as follows:
Denial: “No, there are no customers outside the borders of the United States. The only reason we ship to Hawaii is the mac nuts we get from the rep.”
Anger: “What? Those ungrateful bastards don’t like our brochures?”
Depression: “What do you mean our power cords’ three prong plugs don’t fit in the walls of their huts?”
Negotiation: “Maybe if we went crazy native and printed the brochures in the local patois these pesky country managers would stop leaving me voice mail messages.”
Acceptance: “Holy Smokes! There are four and a half BILLION potential customers outside the borders of the United States?! Why didn’t Smithers tell us this in his last Five Year Plan?”
We can focus on the last two points as you are already superbly well-versed in the first three.
Europe doesn’t really count. It may be ‘foreign’, but to be honest, it’s pretty close to what you see everyday in the US. The retailers’ names are different, but the business model is pretty similar. So let’s go a bit further afield into the hinterlands of global business and start with a market that few American brands outside of Coca Cola seem to know well, Japan.
What does it take to get into Japanese retail? You need guts in this market, because it’s not for the faint of heart. It will take years for you to turn a profit in Japan. Don’t start if you aren’t ready to commit to this. Because if you bail out, your erstwhile channel partners will neither forget nor forgive. I had distributors bring up technical problems with products that happened a decade ago. Long memories.
If you’re in the electronics world, understand you’ve got competition the likes of which you’ve never seen before in any market, anywhere. There are competitors you have heard of, like Sony, and those you haven’t, like Rasta Banana. The Japanese consumer not only likes very high quality, but very low prices, very good customer service, and lots of information on a very, very small and over-engineered package. If you’re a premium brand in Japan, your product not only has to be exceptional in quality, but drop-dead gorgeous and supported by brand building above and below the line.
Japanese retail, especially the key players in the highly urban centers (Tokyo) are pretty much described as multi-storied, floor-to-ceiling, left wall to right wall, packed with inventory. The big names are BIC Camera, Yodobashi Camera, Sakuraya, and mass merchants like Yamada, Kojima, and a few regional players. Walking through a Yellow Hat auto parts store in Shibuya, I saw enough inventory of cellular headsets to stock 20 Best Buy stores in the US. Considering that a Yellow Hat store could fit in one of Best Buy’s TV planograms, this gives you an idea of the density of product and store format you will find doing business in Japan.
As a result of dense product assortments and a strong belief in Sam Walton’s “stack them high and let them fly” mentality, the packaging is also uniquely Japanese. Packaging footprints are small and dense. Product presentation is important; you’ll spend double on packaging the same product for Japan that you would elsewhere. Slipping product is not accepted, nor is bent insert cards, mis-aligned stickers, poor print quality, excess flash on the clamshell, etc., etc. This is an aesthetically driven market, so do it right. The packaging is also insanely copy intensive. And the copy is on the front, sides and back. You will find a complete breakdown of exactly what your product is compatible with on the back of a Japanese SKU the likes of which most US websites fail to comprehend.
Most merchandising in the electronics space — the displays that bulk up your in-store inventory — needs to roll. Yes, roll. Most merchandising is rolled out of the store onto the *sidewalk* during business hours and then get rolled back in when the stores close. Think of this as a movable speed table at a vertical Best Buy.
The channel has a few particularities that make it very different from what you’re used to. The good news is that you can get into Japanese retail quickly. There are no planogram set dates. The buyer likes your stuff, you’re in. The bad news is that you’re out just as fast if the guy in the lobby has a better deal.
Promotion is limited to offering items that are 10% or less than the value of the host product. No breakage models in Japan — you don’t offer up a free movie ticket and expect that 95% of the people will lose it. Can’t do it in Japan. You can do hard-bundled on-packs, though. Further, many retailers run their own loyalty programs, where a percentage of your total cash register ring is put in an in-store accrual for your next visit.
Why go to all this trouble? Most of your contemporaries simply don’t. The number of non-Japanese companies doing a volume of business in Japan commensurate with its economic size could be listed on one hand, and that’s being generous. Logitech (Logicool in Japan) is a rare exception as a company doing it right, and they do it right all across Asia. But if you approach this as a stand-alone market with significant potential requiring a long term outlook, you tap into not only the world’s second largest economy but the greatest hotbed of technological and design aesthetics on earth. If that kind of thing is important to you.
How about we tackle China next? Chung Hwa, the “Prosperous Center of the Universe”. If you expected slots cut in concrete block walls staffed by unsmiling people in Mao jackets, you were right, just 15 years too late. Which is good news, by the way. Chinese retail looks like American retail from a distance, and the closer you get the more it looks like an extremely well-funded flea market.
If you’ve got 1.6 billion people, and only 5% have any real disposable income, you’ve still got a lot of people with disposable income. And understand that ‘disposable income’ in China means the equivalent of US$5K per year and up. The other piece of good news here is that they’re all pretty much in five places: Shanghai, Beijing, Shenzhen, Hong Kong and Chengdu. These 80 million or so have their act together, for the most part. They read product reviews, are internet savvy, are brand loyal, and seek you out in the market. I had a consumer walk up to me and said he was looking for a Plantronics headset because he saw a PR release that said a Swedish Counter Strike team said that the headsets were so good you could hear the enemy creeping up behind you. A guy in China talking about a US press release referencing a European gamer.
The channel is different than what you will find in the US. If Chinese business has evolved over the years as a ‘shop’ model, you understand how a major electronics market works. Glass and chrome multi-level buildings, looking like major US shopping malls, but each ‘storefront’ is owned by a distributor. The distributor sells
whatever the distributor sells. As such, there are no ‘retailers’ in China, but there are ‘retail spaces’ where entreprenuers sell their stuff. A while back, the guy selling motherboards and PC components was next to the guy selling fish who was next to the guy selling furniture. For the most part, this isn’t the case anymore. Motherboards and components are on the 5th floor, cellular phones are on the 3rd, and fish is down the block.
The embedded picture shows a great example of this ‘shop’ store format and the sheer volume it produces. This photo is from an electronics retail space in Beijing and looks like a booth — not actually a store with walls, but something that was a cross between a trade show fixture and a flea market stall — selling computer headsets. They sold one brand only. Their sell-through in a 15 foot squared booth was higher than what my company sold in roughly 200 Best Buy locations in the same time frame. And these headsets weren’t cheap — they were around US$80.
Last stop, Korea. Here, you’ve got both examples — both standard retailers like Hi-mart and D-Link, flea markets like Digital Space, and the underground of the Yongsang electronics market. You get a bit of everything in Korea. Both of the above examples hold true in this market — lessons learned in China will hold true here in the flea market segment, and lessons from the US and Japan will work in the majors.
A phenomenon worth noting all across Asia is the presence of company stores. This is different from the US in most respects apart from the odd Apple store. Samsung stores sells more electronics than any retailer in Korea. Sony, Samsung, Panasonic, and a number of majors all control their own destinies fairly well in these markets. A smaller player who gets it in Asian retail is Logitech, who executes their merchandising with the same uniform professionalism that you see across the US. They may own small stores in many markets and often own slices of other general merchants as well.
Yes, there are other markets in Asia worth discussing, from Taiwan to Thailand to Singapore and others, but the above are the majors from the ‘Asian’ point of view. Australia and New Zealand are similar to the planogrammed US model. I’m leaving India out of this because the last time I was there was 20 years ago. Kind of like saying I saw my cousin Vinnie 20 years ago and he was a cute kid back then; he’s a big guy now and whatever I remember from those days don’t necessarily hold today.
Does this sound like a lot of work? It is. You, your company, and the group of earnest young guys who prepare your Five Year Plans that so burden your credenza need to understand this. As a matter of fact, those earnest young guys are the wrong ones to address this problem. You need guys in-market, walking through the stores, talking to the distributors and listening to the end users to begin to address the needs of this four and a half billion person opportunity. You need to get your hands on the data — industry, demographic, psychographic, and every piece of English language reading material you can get your hands on, and then you need to get on a plane and see it for yourself. And if you make the decision to move, you will need to try, to test, to prod and to fail — in moderation — before you even understand your ‘unknown unknowns’.
Today, you probably don’t know how much you don’t know. You will lose money for years.
And if you’re smart, you’ll have a beachhead that your competitors can only dream about. You’ll have better volume, better cocktail party small talk, and deeper pockets than the other CMO at the buffet line.
I mean, anyone can buy in Asia. But it takes swagger to actually sell there.
Ite-rasshai, CMO-san.
Copyright (c) 2006 Stephen Denny
