Japan’s advertising industry is paying a price for the country’s economic decline.

Japan's continuing economic decline affects all aspects of the country's advertising industry.

“The market is soft and forecast to decline a further 3.2% this year, much in line with the uncertainties surrounding the Japanese economy,” says Max Gosling, president of McCann Erickson in Japan. (Picture right) .

 

Total advertising spend dropped 0.9% last year (2001) to Y6,058bn (#32bn), a surprisingly small decline considering the severity of the country’s economic problems. But the aggregate figure masks a grimmer picture. While spending on sales promotions was almost unchanged, media advertising dropped by 2.1%. “The market is soft and forecast to decline a further 3.2% this year, much in line with the uncertainties surrounding the Japanese economy,” says Max Gosling, president of McCann Erickson in Japan.

“The biggest issue is the lack of consumer demand, there’s a real need for the government to find ways to give people the confidence to spend money again,” added Gosling.

The rapid-fire introduction of new or improved products no longer prompts people to spend. Instead, advertisers are trying to extract more value from smaller product ranges. Brand building is now the key issue facing management in Japan. “Japanese companies used to rely on the company name to provide an umbrella brand for all their product lines,” said Hotaka Katahira, professor of Marketing Science at Tokyo University. Though this approach continues to work for a few companies, such as Sony, and Honda, “for most it has become an increasingly outmoded approach,” Katahira said. In a research study of well-known Japanese companies, Katahira found that nearly 60% said they were focusing on brand building.

The intention may be there, but an evening spent watching Japanese television does not suggest many Japanese agencies have solved the problems of putting brand building into practice.

For example, though fewer Hollywood stars grace Japan’s television screens, the majority of commercials continue to feature well-known Japanese talent. Undoubtedly consumers enjoy the entertainment values, but within the 15-second format that dominates commercial time the stars are often overpower the brands. “A key reason for the popularity of such commercials is that using talent makes it easy for advertisers to develop the campaigns to provide POP support for retailers and adapt them for use by distributors,” says Mr. Toshiaki Nozue, Dentsu’s Executive Director.

Old habits die hard. The complexities of Japan’s distribution system have long encouraged marketers to focus much of their efforts on the trade simply to get their wares on display. Building relationships with choosy consumers is a much newer game.

In Nozue’s view, the time constraints of an unaided 15’ spot do not lend themselves readily to building brands that will endure and so the agency has been developing more 30’s than before. But the tide has yet to turn.

There’s greater interest in working with international agencies that have more experience of building brands. McCann Erickson Japan earns half of its annual revenue from Japanese clients, including Japan Airlines, Asahi beer and Tokyo Disney World, and vies with one or more of Japan’s top three agencies, Dentsu, Hakuhodo, Asatsu-DK, on most new business pitches. International agencies, such as McCann, are also taking the lead in developing relationship marketing, healthcare advertising, and other specialist communication practices.

Perhaps in reaction to grim times, many Japanese commercials sparkle with humour. Japan’s sense of humour helped earn it the title of most creative nation in Asia-Pacific, according to the second annual Gunn Report. Regionally, the nation topped the list of most-awarded countries, while Dentsu emerged as the most-awarded agency. The agency’s “Running Woman” television spot for Wowow TV was the second most-awarded commercial in Asia-Pacific last year. The spot shows a woman who runs away from a prospective suitor and pushes a man off a bridge in her rush to get home to watch Wowow.

Even so, “few Japanese advertising campaigns travel outside Japan, except to awards festivals. It is much more common to shoot a pool of footage which agencies in a number of countries will use,” says Nozue. Would Japanese humour strike a chord with consumers in other countries? Nozue is sceptical: purely visual humour may travel, but humour bound up in the niceties of language and culture usually does not work well in different cultures, he says.

Finding ways to persuade people to spend money is difficult when unemployment is rising, real estate values are falling, banks are paying almost zero interest, and the stock market has a worrying tendency to explore new lows. However this is not the only problem agencies face. The tradition of providing lifetime employment means that declining billings and narrowing margins are squeezing the finances of Japanese agencies more severely than of their UK or US counterparts. Not surprisingly this is leading to some restructuring.

For example, three top ten agencies, Asahi Advertising, Daiko, and Yomiko formed a media-buying consortium with Hakuhodo earlier this year. The three are partly owned by the newspapers and rely heavily on newspaper advertising, which has declined more than television. Viewed as a consolidation, the group has a media-buying share of about 18 per cent, compared with Hakuhodo’s own share of about 12 per cent and Dentsu’s 24 per cent.

Under pressure at home, many advertisers are hoping revenues earned outside Japan will make a greater contribution. And so Dentsu’s decision to take a 15% minority stake in Publicis following the latter’s acquisition of BCOM3 has been well received by clients as well as by investors, and analysts, according to Mr. Fumio Oshima, the senior managing director responsible for international. “Our international clients, such as Nestle and P&G, have also welcomed the deal,” Oshima added.

The Publicis link is expected to help Dentsu expand its own presence in Europe and the Americas as well as helping Publicis in Japan and Asia. The role of the Dentsu, Young & Rubicam joint venture in Asia remains unchanged. “ We remain committed to it. DY&R is working successfully for a number of our Japanese clients and makes money,” said Oshima.

Dentsu now has the strongest international presence of all Japanese agencies. Hakuhodo, which has no major international partnership, continues to make small acquisitions overseas, while Asatsu-DK struggles to turn a profit from its own small international network.

by David Kilburn