Signs of Change

“Japanese advertisers used to consider advertising a necessary expense, but today – at least among our own clients – they increasingly treat it as an investment and wish to know what return they get,” says Junji Narita, Corporate Senior Executive Officer at Hakuhodo Inc, Japan’s second largest agency. “This is a new development which has two important consequences. There are pressures for greater financial transparency, and for increasing accountability,” Mr. Narita added.

The new pressures frame a simple agenda for both Japanese agencies and their clients – build strong brands that will help manufacturers weather recessionary forces at home and abroad. “Japanese companies used to rely on the company name to provide an umbrella brand for all their products, but for most, it has now become an outmoded approach” explains Hotaka Katahira, professor of Marketing Science at Tokyo University.

While advertisers have not quite jettisoned corporate umbrellas, increasingly they seek to emulate Western approaches and develop brand equities that invest the hearts and minds of consumers with ideas that elevate products to an integral part of consumer life styles. The pages of Nihon Keizai Shimbun, Japan’s leading business newspaper regularly reports the progress advertisers make along this new pathway.

Building brands takes time. Meanwhile financial pressures demand rapid improvements in the cost-effectiveness of advertising and marketing programs.

Growing interest in CRM (Customer Relationship Management) is one manifestation of this need. While companies bring their databases and data collection policies into the modern world, they are also using the mobile internet as a fast track to relate to individual customers.

The 55 million Japanese using internet-enabled mobile phones create new opportunities for marketers to communicate and measure response. Most major marketers are incorporating the mobile Internet into their activities, either by running promotions or developing mobile web sites to woo consumers.

For Kanebo Ltd, a leading cosmetics manufacturer, Dentsu have integrated a mobile web site with traditional on-line activity, regular advertising, and a tailor made TV late night show. Consumers can get advice about health and beauty issues, product recommendations, and win rewards by keying the unique serial numbers printed on Kanebo products into their mobile phones.

But all told, such new services have no measurable impact on overall trends in advertising expenditure, though they do provide new veins of fee-based revenue in a declining market. Traditional mass media are where the real money goes. Here too, there is change.

With a 23% share of the Japanese advertising market, roughly twice that of its closest rival, Hakuhodo Inc., Dentsu has formidable media buying power. Overall, it buys not only about 35% of all television time but also the majority of prime TV time in the Tokyo region. Dentsu’s media clout makes it a major market force. As a matter of policy, Dentsu does not disclose the net prices it pays for media, a source of frustration for some. However the agency is seldom asked for such data by its Japanese clients who often prefer to make agencies compete to tender the lowest package price to include media, creative and anything else that might be involved in a campaign.

The appearance in recent year of media specialist agencies such as MindShare, Starcom, and Carat has had little impact on the market overall, though it has undoubtedly helped the Western clients who are the main users of such services to improve the quality of their media planning. Neither Dentsu nor Hakuhodo are blind to the rising level of media planning expertise in Japan. Both have spent significant sums on media research and developing both research, modeling techniques, tools to aid planners. According to Ms. Naoko Katayama, a strategic media planner in Dentsu’s Media Lab, “ . . . the hot zone is no longer in the development of tools and techniques but in improving the interface between planners and creatives.”

New and improved services however do not help agency managements grapple with their own problems – declining revenues in a declining market. The larger agencies continue to honour the ‘life-time’ employment pacts they struck with new recruits decades ago. Consequently there is little leeway to cut staff numbers as revenues fall. Only the most expensive early retirement packages can entice staffers to move on ahead of normal retirement ages into the bleak outside world. More agencies are hoping for foreign investment but often on terms no holding company could ever present to its own shareholders. The dreams of building large overseas Japanese agency networks have faded. Dentsu has partnered with Publicis rather than take the risks of buying BCOM3 itself, but still plans to continue its partnership with Y&R in Asia, and to develop its own network in Asia. Hakuhodo, who plan an IPO for 2004, are strengthening their own network in Asia and Europe to meet specific client requests. But the USA? “ . . . . that is an extremely difficult market for a Japanese agency,” acknowledges Tomokazu Jimbo, the Corporate Executive Officer responsible for international.

The days appear numbered for Japan’s traditional practices, but for the moment at least the advertising industry still resists the global trends that have reshaped it in Europe and the USA.

David Kilburn