More firms try to get closer to customers via subscription services
The growth of subscription-based businesses in Japan has been slower than in other major economies partly due to regulatory barriers, but the number of companies drawn to the business model is rising as more consumers prefer personalized and often cost-effective ways to use products with recurring fees.
While the trend is evident for high-priced items, companies are realizing that encouraging repeated use of their products through subscription, rather than aiming for a one-off sale, helps build direct relationships with consumers and provides a more efficient way of keeping up with changing markets, analysts say.
Tien Tzuo, founder and CEO of Zuora Inc, a leading subscription management platform provider serving more than 1,000 companies around the world, says that consumers are increasingly getting used to subscriptions following the rise of companies like Netflix and Spotify.
For products and services suited to the subscription business model, ownership has already been pushed to the background of consumption, he says.
“So our expectations now are we want everything to work like…subscriptions. That demand is causing companies to say we need a shift,” Tzuo said in a recent interview with Kyodo News.
Even though the subscription business is not a new concept, the traditional subscription model is still “stuck in the product,” says Tzuo.
The modern model “understands your needs and preferences,” he said. “Every subscription is customized for the individual.”
“So there is an actual relationship that builds upon itself between the subscriber and the provider,” he said, adding, his company sees a lot of room for expansion in Japan, which is the second-largest subscription market behind the United States.
According to the Yano Research Institute, the Japanese market of subscription services, covering eight industries, including fashion, eateries and entertainment, was estimated at some 562.74 billion yen ($5.18 billion) in fiscal 2018 that ended last March.
The institute said the market is projected to reach 777.80 billion yen in fiscal 2021 and 862.35 billion yen in fiscal 2023.
Among new entrants in the subscription business, Shiseido Co has started providing skin moisturizers to be used with a home dispenser at 10,800 yen a month, targeting women in their 30s to 40s.
The dispenser capable of automatically blending moisturizers in 80,000 patterns based on data sent from smartphones, such as the owner’s skin and health conditions, outside temperature and humidity.
“There is demand for subscription services, and we don’t expect to see a reversal of this trend,” Shiseido CEO Shigekazu Sugiyama told reporters.
For products like cars, “The growing awareness about environment and resources, especially among young consumers, is driving the trend from owning to using,” said Takuya Ichikawa, senior researcher at the Daiwa Institute of Research.
Toyota Motor Corp. became the first Japanese automaker to introduce a subscription-based car leasing service. Hyundai Motor Co, Porsche AG and Ford Motor Co already offer subscription services overseas.
In Toyota’s “Kinto” services, launched this year in Japan, a subscriber can rent popular models such as Prius from around 50,000 yen a month and Lexus from around 200,000 yen, with insurance, maintenance, 24-hour emergency assistance, and taxes included.
Tzuo said automakers can gain more information about users through subscription services than sales through dealers by establishing direct communication.
In the beverage industry, Kirin Brewery Co’s “Home Tap” service delivers four liters of fresh, direct-from-the-factory beer to homes, for a monthly fee of 8,100 yen.
The company attempted to reach consumers willing to pay more for a higher quality product, rather than those wanting to save costs, but it temporarily had to stop accepting orders for Home Tap due to strong demand.
In the services sector, Yasuhiro Shiomi, associate professor at Ritsumeikan University, conducted a trial bus service in the western prefecture of Shiga, where a passenger can ride some 50 different routes at a fixed cost of 7,500 yen a month.
Compared to a traditional commuter pass, available for one route, Shiomi said the subscription allowing freedom in choosing routes may encourage commuters to use buses for purposes other than commuting and benefit the local economy.
“If we set the right fee, both passengers and bus companies will see the merit,” he said.
But there were also cases where the subscription model did not work out very well.
Apparel retailer Aoki Holdings Inc. ended its subscription business less than a year after the launch, and a Japanese sake subscription service, Sakelife, by venture company Clear Inc., was also unsuccessful.
“If you try to look at the lessons between successful companies and unsuccessful companies…they (unsuccessful ones) don’t start with the customer,” Tzuo said.
“We have a saying (that) a success in subscription service is not determined when you launch, it’s determined (as you continue engaging the customer) after,” he said.
Daiwa Research’s Ichikawa said incorporating customer feedback is important in subscription services not only to meet demand but “to prevent subscribers from getting bored.”
“Today, companies need to make more effort to grasp the customers’ demands and preferences, and firms failing to do so are at risk of lagging behind or losing out,” Ichikawa said.
A good book on the subject is : Subscribed by Tien Tzuo, available on Amazon : https://amzn.to/2K5b253