Title
by
David Kilburn
Takashi Shoji who became president of Japan's second largest advertising agency, Hakuhodo Inc on [date] takes
the helm at a time of far reaching change in Japan. Hakuhodo's, indeed the whole industry's, billings have been
falling for three years during Japan's worst recession. For its 1993 fiscal year, ending November 30th 1993,
Hakuhodo billed Y 526,300 million 7.3% below their 1990 peak of Y 567,500 million, while total industry
billings slumped similarly.
It is also a time when advertisers are taking a fresh look not only at how much they spend, but also at their
relationships with agencies. In February 1992, Nissan abruptly announced it was consolidating most its advertising
budget with Hakuhodo, severing long standing links with Dentsu. Last year, Toshiba Corp, Japan's ninth largest
advertiser reduced its agency roster from a total of 25 shops in order to work more intimately with three - Dentsu,
Hakuhodo, and Asatsu. This year, Japan's largest securities firm, Nomura Securities appointed a foreign agency,
McCann Erickson Inc, to launch a vital campaign to rebuild the company's business.
Change has not been limited to the world of advertising and marketing. Last year, the Liberal Democratic Party
was voted out of power after over 40 years as Japan's ruling political party in the general election that ushered in a
coalition government in which the socialists were the largest party. Though the coalition's first administration, under
PM Hosokawa lasted a mere 8 months before scandals caused it to resign, the coalition government remains
committed to a package of electoral and regulatory reform which observerss say will slowly make Japan a more
open society.
These different changes are not totally unrelated. At their seat is an important change in consumer values and
perceptions.
"Over the years, Japan has changed from a nation beset with shortages in consumer products and just about
everything else. We've grown into a country of plenty, of abundance, and from that [during the 1980's ] into a
country of saturation. The goals of business have changed as we've moved through these stages. Strategies have
had to change as we've shifted from a time when demand exceeded supply to one where supply exceeds demand.
When there were shortages, business led the market, and the role of an agency was only to communicate clearly
and articulately the messages emanating from business. But now we've arrived at the age of saturation, the
consumers are leading the market. So the key question [clients' ask] of an agency now is how much do they really
know about consumers, how well do they really understand them. It is this that makes the difference. There are
new demands of agencies and there's an opportunity to strengthen their role. Rather than simply passing on the
[advertiser's] message, agencies must now work hard to be more communicative, to integrate the goals of
business with the dreams, goals, needs, expectations of consumers," says Shoji.
That the consumer is now in the driving seat was demonstrated clearly this April by a court ruling that held
Matsushita Electrical Industrial Co. liable for damages caused when one of its TV sets caught fire in 1987 gutting
an apartment. Without a product liability law to protect consumer interests, Japanese courts have customarily
supported manufacturers' interests in the handful of such suits over the past 40 years. The judgement, which
Matsushita is not appealing, was seen as landmark case which is expeted to influence Japan's new product liability
legislation later this year.
Traditionally the role of agencies in Japan has been to act as a conduit helping information flow from
manufacturers to consumers, but that also is changing, says Shoji.
"I've been convinced for a long time that the role of a big advertising agency is to smoothen, to facilitate the
communication flows between businesses and consumers at large. Our role as an agency takes into account the
goals and objectives of businesses, our clients in other words. Our mission is to relate these goals with the dreams
and expectations of consumers at large, and to do so as smoothly as possible. [But] it seems to me, after the war,
though 50 years have past, ad agencies have contributed along just one stream, giving more weight to the
businesses than to consumers. This seemed to work well when there was a high growth economy. Businesses and
consumers co-existed. But now the economic bubble has burst, the balance has shifted to the consumers. This is
the first time ever that the consumer has achieved such importance. There has been a major shift in power away
from the manufacturer to the consumer. This makes it a time of adjustment, of difficult adjustment for everyone,"
Shoji explained.
Hakuhodo's priority is to understand these changes in order to help their clients react appropiately in the new
environment.
"Our main objective now is to understand the changes in the consumer's mindset. Based on our understanding of
this, we are proposing how our clients should proceed. There are radical changes under way in how companies
approach their relationship with consumers, and the role of agencies, " says Shoji.
The recession has not only cut advertising budgets, it has prompted most major advertisers to re-examine just
why they spend money on advertising, and how it is spent. "Company managements are asking their advertising
departments to justify their budgets, to demonstrate what benefits will be, they are asking much tougher questions
than ever before" said one agency executive. This climate is creating the right environment for Hakuhodo to
develop its own concept of marketing engineering
"Just over ten years ago we initiated the concept of marketing engineering, explained Shoji, "- its similar in some
ways to the US concept of IMC. We'll be developing this approach further. Until now, this has largely remained a
concept, but now is the time for implementation, it is a serious test of our quality, our understanding of the
consumer, and our resources. "
Hakuhodo executives customarily decline to discuss specific examples of their work for individual clients.
However the successful launch of J.League, Japan's new professional soccer league, is seen by many as one
example of Hakuhodo's approach. The launch was preceded by three years during which a Hakuhodo task force
worked with the new league's management. The league has proved a hit with consumers as well as commercial
sponsors and licensees, creating a market for League-related merchandise and services worth Y155 Billion
according to the Nippon Life Research Institute.
While he is grappling with domestic change, Mr. Shoji is also taking a fresh look at Hakuhodo's international
strategy.
"We're taking a fresh look at our international operations, and our strategy for international development is most
definitely on the agenda. There's no question that internationalization is important both to the growth and the
development of the agency" says Mr. Shoji.
Hakuhodo has an network of agencies and offices that has grown since 1960 to cover 13 countries - USA,
Brasil, UK, France, Germany, Italy, Netherlands, Thailand, Taiwan, Singapore, Malaysia, China, and Australia.
Although Hakuhodo ranks among the top ten in Singapore, Taiwan, Thailand, and 13th in Malaysia, elsewhere
the agencies have remained tiny, unable to win either major local business or big accounts from the agency's
clients in Tokyo. Although the agencies in Asia are profitable, elsewhere Hakuhodo is at best breaking even.
Overall, international contributed less than 5% [maybe even less than 3% ??] to Hakuhodo's 1993 Billings.
"We're not fully satisfied with [the international infrastructure] we have, but we haven't decided just what tangible
steps to take in order to make progress. The problems we face in the USA and Europe have their parallel in the
problems US agencies face in developing their business in the Japanese market these days. We are retaining our
networks in both the Europe and the USA, they play an important role in our understanding of those markets."
Shoji feels it is easier to frame objectives for international than to achieve them. He sees Hakuhodo's relationship
with Lintas as being of continuing importance to the agency, and expects shortly to announce expansion of
Hakuhodo's services in China, to meet the needs of clients in Japan, but any further decisions must await the
outcome of review. He feels that overseas, as in Japan, the key is now to understand the consumer.
"..... In advanced countries like Japan, Europe, and the USA, it is consumers who are at the heart of things. An
agency must be as knowledgeable as possible about consumer behavior. In going into a foreign country where
Japanese companies are doing business, we understand them, their objectives, the way they do business pretty
well, but we also need to be knowledgeable about the consumers there, which is not so easy. "
Japan's prolonged recession has cut into corporate profits and prompted many companies to find ways to reduce
staff, a procedure more difficult in Japan than in the West due to the country's 'lifetime employment' traditions.
Hakuhodo, is one of the exceptions.
"Our people are our most valuable asset, they represent an enormous amount of money. However, we are not
firing people, and we have no intention of laying people off. Instead, we've been looking at all our other costs to
see what we can do without, and how we can work more efficiently to provide a quality of service to our clients,"
says Shoji.
New technology brings challenges and change of a different sort. Just as in the USA, development of multimedia
and the Information Superhighway are hot topics in Japan. Hakuhodo were one of the software developers for
Matsushita's 3DO REAL player, the first of the new generation of multimedia machines for home use, which went
on sale in Japan on March 20th, and are also investors in one of Japan's multichannel urban cable channels. Here
too Shoji feels the way forward lies in seeing things from a consumer point of view.
"This will be a lever for many changes. But we must look at this from the standpoint of the consumer. The key
question is to what extent consumers will find these developments useful in their lives, how will consumers use this
technology, and to what extent. We must avoid being blinded by the technology."
Information Superhighway and related technologies will eventually lead to many changes in the way people live,
shop, and work, but at the same time some things will remain constant.
"By [2000] we will be living in even more advanced society in terms of technology, but the fundamentals of
communications will not have changed, nor will the fundamentals of Hakuhodo," he says.
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Originally published in
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