Winning in Japans Consumer Electronics Market

8/3/2019 Winning in Japans Consumer Electronics Market

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Aligning your marketing strategywith the Consumer Decision Journey

Winning inJapans consumer

electronics market

McKinsey Asia Consumer and Retail


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Paul McInerney

Brian Salsberg

Ian St-Maurice

Kotaro Ueda

McKinsey Asia Consumer and Retail

March 2009

Winning in Japansconsumer electronics marketAligning your marketing strategywith the Consumer Decision Journey

Contact for distribution

Evelyn Lu - Phone: +886 (2) 8758 6765, Email: [email protected]


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Contents

Introduction 6

I. Summary of ndings 8

II. The industry context:

Japans consumer electronics market 12

III. The consumer decision journey:How Japanese consumers buy electronics 16

IV. A call to action: Market to consumers at

every stage of the decision journey 24

V. Opportunities for retailers 28

VI. Research background and methodology 32


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Introduction


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McKinsey Asia Consumer and RetailWinning in Japans consumer electronics market

77

Japans consumer electronics

(CE) manufacturers are facing

unprecedented challenges due to a

combination of forcesdepressed

consumer demand, rapid unfavorable

shifts in exchange rates, increasing

retailer consolidation, and product

commoditization. Despite growth in

sales of newer-generation products

like at-panel TVs and new gaming

systems, growth in Japans CE market

has been difcult for the last decade

and is expected to slow even further

in light of the global economic crisis.

In such an environment, the imperative

for CE manufacturers is to win the war

for market shareand doing so will

require superior marketing and channel

management. The need for Japans CEmanufacturers to boost returns on their

marketing spend has never been greater,

and yet the challenge of developing

an effective marketing strategy has

never been more complex: media and

marketing vehicles have proliferated,

the Internet has made information and

opinions about brands and products

easily accessible (e.g., via online

reviews and blogs), and consumers

are increasingly making purchase

decisions based on information from a

very wide gamut of sources. If they are

to gain market share, CE companies

must deepen their insights into exactly

how consumers are learning about and

choosing brands and products, and align

their marketing strategies accordingly.

It is for precisely this reason that we

have undertaken proprietary research

on consumers shopping behavior

in a number of product categoriesand geographies, including CE in

Japan. Our research has given us a

more thorough understanding of the

consumer decision journey, the

process by which a consumer decides

which brands and products to purchase.

We have developed a conceptual model

of this journey, breaking it down into

distinct stages and dening the critical

junctures that marketers must focus

on to convert the consumer into a

buyer. The model takes into account

the many sources of information to

which a consumer is exposed during

the journeynot just proactive

communication from marketers (e.g.,

advertising) but also more passive

inuences like word of mouth. We have

also developed a set of tools to help CE

players determine potential actions

they can take to inuence consumers

at various stages of the journey.

In Japan, our research has highlighted

a number of opportunities that CE

manufacturers can capitalize on to meet

their performance objectives and gain

market share, even amid a challenging

industry context. We have also identied

opportunities for Japans CE retailers.

This report, in which we discuss our

initial ndings and recommendations,

is divided into six parts:

I. Summary of ndings

II. The industry context: Japans

consumer electronics market

III. The consumer decision journey:

how Japanese consumers buy

electronics

IV. A call to action: market to

consumers at every stage of the

decision journey

V. Opportunities for retailersVI. Research background and

methodology


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I. Summary of findings


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9Winning in Japans consumer electronics marketMcKinsey Asia Consumer and Retail

Product innovation is, and will continue

to be, a necessary differentiator in

the consumer electronics category,

as evidenced by the success of

newer technologies such as two-way

communicators as well as ground-

breaking improvements to existing

products such as Apples iPod and

Nintendos Wii. However, given the rapid

pace of follow-on or imitator products

and the ever-shortening shelf lives of

new technologiesnot to mention the

sheer difculty of inventing the next

great breakthrough technologyproduct

innovation is no longer sufcient. Rather,

CE manufacturers must nd ways to

innovate commercially. They must

build the capabilities to generate deeper

insights into consumers decision-making

behavior and, because consumer behaviorevolves over time, continually tailor their

marketing plans based on these insights.

In our recent research on Japanese

consumers shopping behavior in the CE

space, we sought a deeper understanding

of what we have come to call the

consumer decision journey (CDJ)the

process that a consumer undertakes

when deciding what brand or product to

buy. We designed the research to ensure

the right combination of qualitativemethodsin this case, half-day shop-

alongs with Japanese consumers at the

start of their CE shopping journeyand

quantitative research, consisting of an

extensive consumer survey with separate

modules for ve major CE categories,

namely FPTVs, PCs, mobile handsets,

digital cameras, and refrigerators. The

results of this work are relevant to CE

manufacturers (and, to some extent,

CE retailers), pinpointing opportunities

to improve their ability to inuence

the consumer at key moments in their

decision journey. Highlights of our

ndings include the following:

Being part of a consumers

initial consideration set

signicantlyincreasesthe

likelihoodofpurchase.In

most CE categories, 72 percent to

80 percent of Japanese consumers

have at least one brand in their initial

consideration set (ICS), which is the

set of brands that a consumer favors

at the very beginning of the shopping

journey. There are usually only one or

two brands in this set, and between

67 percent and 78 percent of the

time consumers purchase a brand

from their ICS. Manufacturers must

therefore understand the drivers to

getting into the ICS and more fullydevelop and employ the tools to

inuence them.

Informationgatheringisoften

along,multichannelexercise.

The typical Japanese consumers

information-gathering stage takes

between two and three months, during

which time the consumer tends to

get information from many sources,

including multiple retail store visits,

online searches, and word of mouth.

Although most consumers have an

ICS, across most CE categories

20 percent to 28 percent of consumers

do not have a specic brand in mind

before they start to gather information,

and between 22 percent and

33 percent of consumers who

begin with a brand preference end

up purchasing a different brand.

Manufacturers must therefore

have a multichannel marketing


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10

strategy aimed at maintaining a

brands connection and relevance

with target consumers over

an extended time period.

Therealbattleofthebrands

takesplaceinsidethestoreand

theretailsalesspecialistcan

beyourbestfriendoryourworstenemyatthemoment

ofpurchase. Many Japanese

consumers (37 percent to 77 percent,

depending on the CE category) make

their nal decision about which brand

to buy while in the retail storethe

very place where manufacturers

struggle to have any inuence over

the shopping experience. Further

consolidation among retailers will

only make it more difcult for

manufacturers to exert control over

the retail sales oor.

Truebrandloyaltyisrare.

Across CE categories, 21 percent to

46 percent of consumers say their

current brand is their primary choice

for their next purchase although they

will consider other brands, while

49 percent to 75 percent say

their current brand is only one of

many brands they will consider.A mere 3 percent to 10 percent

of consumers (depending on the

CE category) say their current

brand is the only one they will

consider for future purchases.

Manufacturers can undoubtedly

do more to build brand loyalty by

connecting and communicating

with consumers post-purchase.

Twolargeconsumersegments

representingmorethanhalfthe

marketaredisproportionately

inplayduringthejourney.

Our analysis identied four distinct

segments of consumers based on

how they make decisions about CE

brands: sophisticated explorers, value

maximizers, brand loyalists, and

basic buyers. The rst two segments

account for more than half of volume

and value in CE categories, and they

are disproportionately in play, as

they tend to consider more brands

(3 brands on average versus 2 brands

for brand loyalists) and are less loyal

to their current brand (only

12 percent to 16 percent would

prefer to buy their current brand

versus 35 percent to 50 percent forbrand loyalists). The key to winning

these two segments is to connect

with them during the information-

gathering stage, which is when they

tend to make their brand decisions.

Those CE manufacturers that best

understand the consumer decision

journey and focus their marketing efforts

(and dollars) accordingly can win more

of the important battles mentioned

above. They should then be able totriumph in the ultimate endgame: the

war for market share.


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II. The industry context:Japans consumerelectronics market


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The Japanese CE market is the third

largest in the world, with manufacturer

sales of $69 billion in 2007 and intense

competition among both manufacturers

and retailers (Exhibit 1). Despite

numerous new product introductions,

growth in overall industry sales has

been relatively slow over the last ten

years. Consolidation among CE specialty

retailers has accelerated, resulting in

a handful of national retailers (e.g.,

Yamada Denki, Yodabashi Camera)

with a customer base large enough

to command signicant bargaining

power with CE manufacturers. This

environment, combined with decreased

consumer spending both at home

and abroad as a result of the current

economic crisis, is putting signicant

pressure on both the top and bottom line

for CE manufacturers. As a February

2009Economistarticle stated, Once the

epitome of Japans post-war success, its

electronics rms are in crisis.1

In most CE categories, three or four

Japanese manufacturers control the lions

share of the market. However, most ofthese companies sell a very wide range

of products that are, to most consumers,

relatively undifferentiated. Further

consolidation and category shakeouts

remain possibleas evidenced by the

recent Panasonic-Sanyo merger and

the exit of Pioneer from the at-screen

businessand perhaps even necessary,

given that virtually all (if not all) of

Japans CE companies appear to have

Exhibit1: Japan is the third largest CE retail market

Source: Euromonitor

24

28

28

38

42

46

48

69

110

187

Size of top 10 consumer electronics retail markets

$ billion; 2007

US

China

Japan

UK

France

Germany

Brazil

S. Korea

Russia

Italy

CAGR*

%;1998-2007

4

16

5

11

10

6

11

11

8

3

1 Unplugged: Japans electronics giants, The Economist, February 5, 2009.


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lost money in 2008 or are expected

to post losses this year. In the most

commoditized CE product areas, foreign

manufacturers have either given up or

signicantly decreased their efforts in

Japan. For example, a major Korean

manufacturer retired from the Japan

CE market at the end of 2007, citing low

protability and intense competition; and

one of the largest mobile-handset makers

announced in 2008 that it would no

longer offer its handsets to Japans two

major mobile-phone operators, Docomo

and Softbank.

On the retail front, the fact that Japans

top ten CE specialty retailers control

an estimated 70 percent of sales puts

margin pressure on manufacturers

(Exhibit 2). Retailer consolidation maycontinue, and the current economic

situation could result in some retailer

bankruptcies. In any case, the overall

retail situation as it relates to CE

manufacturers is likely to stay relatively

unchanged in the short term.

In the medium to longer term, CE

manufacturers should keep an eye out

for two potentially game-changing retail

developments. First, online sales in Japan

are likely to grow, as evidenced by theincreasing number of consumers who are

spending part of their shopping journey

online in search of information. Today,

online CE retailers have a market share

of 3 to 5 percent in Japan, compared

with between 10 and 15 percent in the

US despite similar Internet penetration

rates in the two countries. This suggests

that e-commerce is still in its early days

in Japan and is poised to take off

particularly since many of the concernsthat Japanese consumers have about

buying online (e.g., lack of customer

service, high shipping costs) have been

Exhibit2: CE specialty retailers dominate the market

Kojima 6

* Retail sales baseSource: RIC; team analysis

35

69

65

31

8.7

2000

8.6

2007

Other

Top 10specialtystores

Top 10 players share in CE retail sales*

%; trillion

2007 revenue share

%

Edion 10

Yodobashi 8

Bic 7

Ks 6

Best 5

Joshin 4

Nojima 2

Denkodo 1

Yamada 20

100% = trillion


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successfully addressed in other markets.

There is therefore an opportunity for

a new online player to compete with

the leading brick-and-mortar retailers.

Second, while some domestic general-

merchandise retailers may decide to

exit the category, global GMS players

could attempt to leverage their scale to

compete on price with specialty retailers.

That said, as long as some Japanese

retailers continue to tolerate low

returns, competing solely on price will

be challenging even for the major global

retailers.


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III. The consumer decision journey:How Japanese consumersbuy electronics


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Our extensive research in Japan as well

as elsewhere in the world suggests that,

at least for high-involvement product

categories, there is a more nuanced way

to illustrate the consumer decision-

making process than the traditional

brand funnel, which portrays each

buying decision as a linear progression

that starts with awareness and ends

with a purchase. We have developed

a conceptual model of the consumer

decision journey (Exhibit 3) that

represents a departure from current

marketing norms and mindsets in three

important ways. First, it more accurately

depicts the journey as an ongoing cycle

rather than a linear continuum. Second,

it acknowledges the variety of brand

touchpoints and inuences to which

consumers are exposed throughout thejourney. Third, it provides a clearer

map of the battlegroundsthat is,

the distinct stages in the journeyin

which marketers will have to defeat

competitors to win the consumer.

In general, the journey begins with

the ICSa nite number of brands

that the consumer thinks he or she

might buy. The consumer then goes

into a sometimes lengthy stage of

active evaluation, which consists of

information gatheringwhether through

online research, discussions with friends

and family, or other ways of learningabout product optionsas well as actual

shopping. The information gathering

continues up to the moment of purchase.

But the journey does not end there. The

post-purchase experience has an effect

on the consumers next purchase and

often dictates whether or not the brand

will be in the ICS the next time around. A

positive post-purchase experience creates

a loyalty loop, with the consumer

bypassing the ICS and active evaluation

stages entirely, and automatically optingto repurchase the same brand.

Through a yearlong research effort

that included consumer shop-alongs,

interviews with CE sales representatives,

Exhibit3: The consumer decision journey model


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and an in-depth survey of more than

2,000 Japanese consumers who

recently purchased one or more of ve

different types of CE products, we have

tested and rened the CDJ model and

identied the touchpoints that make

the most impact on target shopper

segments. We have since duplicated

this work in the Korean CE market

and are in the process of doing more

research across a large number of other

consumer categories and geographies.

Our ndings in Japans CE market,

summarized earlier, are explained in

more detail here:

Being part of a consumers initial

considerationsetsignicantly

increasesthelikelihoodof

purchase.In most CE categories,72 percent to 80 percent of Japanese

consumers have at least one brand

in their initial consideration set

(ICS), which is the set of brands that a

consumer favors at the very beginning of

the shopping journey. There are usually

only one or two brands in this set, and

across all CE categories approximately

73 percent of consumers who have an ICS

end up purchasing brands in their ICS.

In other words, a brand in the ICS is

two to three times more likely to getpurchased than a brand that is not in the

ICS. Among our survey respondents,

69 percent of PC shoppers and 77 percent

of TV shoppers who began their journey

with an ICS ultimately bought a brand in

their ICS. It appears that the ICS plays a

lesser role when it comes to refrigerators,

with 41 percent of shoppers not having

one at all, but even in that category those

shoppers who had an ICS purchased

brands from their ICS 67 percent of

the time.

So how do brands get into the ICS? Our

research indicates that the key drivers

include prior experience with the brand,

in-store displays, advertisements, visits to

manufacturers Web sites, and in-person

or online reviews and recommendations

(Exhibit 4). One of our shop-alongs, for

example, was with a 40-year-old married

professional (call her Shopper A) who

was shopping for a new computer. She

had a Sony Vaio in her ICS because she

already owned a Vaio and preferred not

to have to learn how to use a different

computer. Shopper B was a 43-year old

housewife in search of her rst FPTV to

replace her CRT TV. Only one brand

Sharpwas in her ICS because she had

seen a Sharp TV in a store and liked the

picture quality.

Informationgatheringisoftena

long,multichannelexercise.Shopper

C, a 27-year old single male shopping for

an FPTV, had previously visited CE stores

more than ten times and did countless

hours of online research. He ended up

buying a brand that was not in his ICS.

We found that the typical Japanese CE

shoppers information-gathering stage

takes between two and three months,

during which time the consumer

compiles information from many sources,

including multiple retail store visits,

online searches, andmost important

word of mouth, which includes both in-

person and online recommendations and

reviews (Exhibit 5). To inuence Shopper

C and others like him, manufacturers

must have a multichannel marketing

strategy with a consistent presentation

of the brand image, a clear sense of the

target consumer segments, and a plan

for maintaining a brands connection and


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Exhibit4: The ICS is inuenced by a number of important drivers

51Advertisement

31In-store ad/display

29Previous purchase

from this company

22Products noticed

and liked in store

21ManufacturersWeb site

21Online review/

recommendation

20Newspaper/

magazine review

FPTV

45Previous purchasefrom this brand

28Manufacturers

Web site

25Advertisement

23Family/friend/colleague

recommendations

20Products noticedand liked in store


19Online review/

recommendation

PC Mobile

58Previous purchasefrom this brand


23Manufacturers

Web site

23Previous purchase

from this company

23Advertisement

20Products noticed

and liked in store

17

Family/friend/

colleague

recommendations

Source: McKinsey CE CDJ survey

% of top 3 reasons for brands being in ICS; stated

Exhibit5: Word of mouth is a critical touchpoint

3.9Salesperson recommendation during final purchase visit

3.7Viewed products in store during final purchase visit

3.4Sale/special offer in store during final purchase visit

2.2Tested using product during information gathering

2.1Online ad, sale, or special offer

2.0Read information about product during information search

6.5Recommendation from a friend

5.6Tested using product during final purchase visit

4.1Store event/demonstration during final purchase visit

1.0Picked up a brochure during final purchase visit

* How many times will the possibility increase if exposed to this touchpoint at an average rating vs. no exposure


Impact of touchpoints on flat-panel TV brand purchase decision

Times of purchase possibility*; derived


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relevance to target consumers over an

extended time period.

Word of mouth is an especially important

lever in the CE category. One of our shop-

alongs was with Shopper D, a 29-year-old

single woman living with her parents

in Tokyo and looking for a 32-inch or

bigger FPTV. She began with Sharp butthen added Toshiba to her consideration

set because her friends convinced her

that Toshiba is just as good. Shopper

E, a 41-year-old married man, was also

looking for an FPTV and was leaning

toward Sony and Panasonic based on

magazines and online review sites such as

Kakaku.com.

Therealbattleofthebrandstakes

placeinsidethestoreandthe

retailsalesspecialistcanbeyour

bestfriendoryourworstenemy

atthemomentofpurchase.Many

Japanese consumers (37 percent to

77 percent depending on the CE category)

make their nal decision about which

brand to buy while in the retail store

the very place where manufacturers

struggle to have any inuence over the

shopping experience (Exhibit 6). Our

research shows that besides product trial

experience, specic recommendationsby salespeople are the most signicant

drivers of brand purchase in the store

(Exhibit 7). The inuence of retail

salespeople is strong in both Japan

and Korea, particularly relative to

the US and Europe. Understanding

what drives salespeople to make

recommendations and how to inuence

those recommendations is therefore

critical in Japan.

In general, manufacturers should seek

greater control over what happens on

the sales oora task that will become

more difcult if the balance of power

continues to tilt toward retailers. In

addition to using traditional levers like

manufacturer-sponsored training of retail

salespeople or store-within-a-store

strategies, Japans CE companies should

follow Apples lead and revisit the idea of

an expansion of owned stores in Japan.

(Apple, incidentally, has almost as many

company-owned stores in Japan as all the

major Japanese CE players combined.)

Given the high capital expenditures

and retail operations expertise required

to execute such a strategy, pursuing

partnerships or franchises for mono-

branded stores with one or more of

the major CE retailers is one possibleapproach, especially in light of the 2007

legislation limiting future openings

of large stores. At the same time, CE

manufacturers should be playing a

more aggressive role in the evolution

of the online channel and positioning

themselves to win in this space by, for

example, equipping their Web sites with

user-friendly e-commerce capabilities

and other value-added features.

Truebrandloyaltyisrare.Across CE

categories, 21 percent to 46 percent of

consumers say their current brand is their

primary choice for their next purchase

although they will consider other brands,

while 49 percent to 75 percent say their

current brand is only one of many brands

they will consider. A mere 3 percent to

10 percent of consumers (depending on

the CE category) say they will consider

only their current brand for future


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Exhibit6: When do Japanese consumers decide which brand to buy?

%

19

25

27

13

6

3

5

4

6

17

25

16

26

5

4

5

2

4

3 20

17

11

9

15

59

38

40

30

41TV 606

1

93

98Digital

camera

Refrigerator

100% =

607PC

Mobile 610

* Including purchase at online store or through TV shopping channels

** Consumers who made brand decision in a retail store during information gathering or final visit (excluding online stores

& TV shopping)Source: McKinsey CE CDJ survey

Decision timing of purchased brand

Decisionat retail

store**

52

37

50

52

77

Initial con-sideration

Information gathering stage

Advertisements/events

InternetWord ofmouth

Retailstores

Final visit*

Exhibit7: Retail salespeople exert strong inuence

%Conversion rate


X

26

37

100

74

37 325

Influence of salesperson for consumers who made brand decision during final visit

29

46

2025

71

100

5

35

42

100

65

23 20

Not recom-

mended brand

by salesperson

Recent CE

buyers who

made branddecision during

the final visit

Spoke to

salesperson

Recommended

brand by

salesperson

3

Did not talk

to sales-

person

Did not pur-

chase recom-

mended brand

Purchased

recommended

brand

88

80

91

FPTV

PC

Mobile

N = 250

N = 171

N = 244


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purchases. In fact, during our shop-

alongs we did not come across a single

consumer who made this claim. This is

due in part to product commoditization,

relatively long repurchase intervals,

and generally low switching costs.

(Exceptions to this phenomenon of low

brand loyalty are recent purchasers of

Apples Mac computer, many of whom

say that they have made the switch to

Mac permanently.) Manufacturers can

undoubtedly do more to connect with

their consumers post-purchasefor

example, by offering them special

discounts on product upgrades.

Twolargeconsumersegments

representingmorethanhalfthe

marketaredisproportionately

inplayduringthejourney.Whileall manufacturers (and many retailers)

have their own unique consumer

segmentations, our analysis identied

four distinct segments of shoppers

based on how they make decisions

about CE brands. The four segments

are sophisticated explorers, value

maximizers, brand loyalists, and basic

buyers. These segments are characterized

across two axes: rst, how much research

they do before they make a purchase

decision, and second, the importance

they ascribe to a products basic functions

and features (what we call rational

benets) versus quality and design

(emotional benets). Manufacturers

and retailers can use this simple and

pragmatic segmentation to develop

targeted strategies and campaigns to

inuence the consumer decision journey

(Exhibit 8).

The rst two segments, sophisticated

explorers and value maximizers, tend

Exhibit8: The four segments are consistent across categories

2025

2623 23

28 28 29

27 24 24

604

TV

606

PC

24

611

Mobile

Sophisticatedexplorers

Brandloyalists

Valuemaximizers

Basic buyers

100% =


Extensiveresearch

Limitedresearch

Care aboutquality and design

Brand loyalistsSophisticated

explorers

Basic

buyers

Value

maximizers

Dont care aboutquality and design

While segment size slightly differs

by product category . . .

%

. . . The attitudes are very similar along key attitudinal

dimensions

FPTV

PC

Mobile


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to consider more brands (3 brands

on average versus 2 brands for brand

loyalists) and are less loyal to their

current brand (only 12 percent to

16 percent would prefer to buy their

current brand versus 35 percent to

50 percent of brand loyalists). They

account for more than 50 percent of

volume and value in CE categories.

The key to winning these two segments

is to connect with them during the

information-gathering stage, as

37 percent to 62 percent of them

make their brand decisions during

this time. Online channelsincluding

manufacturers Web sites, third-

party review sites, and blogsare

very important when targeting these

segments, as they tend to use the Internet

for information gathering (60 percentto 86 percent of sophisticated explorers

and 80 percent to 92 percent of value

maximizers). The current economic crisis

is likely to yield an increase in value

maximizers, although it is important

to note that we refer to this segment as

value maximizers, not value seekers,

because they typically are not looking

only for the lowest price. Importantly, the

four segments appear to be very similar

across CE categories and even across

geographies.

Our research also yielded ndings about

Japans older populationspecically,

consumers aged 50 to 65. There are

differences in how younger and older

Japanese consumers make buying

decisions, and CE manufactures can home

in on these differences. Older consumers

are more loyal to their current brand

(56 percent of the 50-to-65 age group

versus 37 percent of the 18-to-39 age

group say their current FPTV brand is

their only or primary choice for their

next FPTV purchase), making them

harder to capture but very valuable once

they purchase your brand. They are the

most likely to make their brand decision

during the nal store visit, perhaps in

part because they are less likely to use

the Internet for information gathering;

only 55 percent of FPTV shoppers aged50 to 65 did online research versus 89

percent of the 18-to-39 demographic.

Ideas to better inuence this group

include customizing products to older

consumers (e.g., mobile handsets with

larger screens), working with retailers

on more intuitive in-store displays, and

promoting easy-to-use technologies

(e.g., simple remote controls).


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IV. A call to action: Market toconsumers at every stageof the decision journey


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25McKinsey Asia Consumer and Retail

Winning in Japans consumer electronics market

To win the war for market share, it is

critical that a CE manufacturer inuence

every part of the consumer decision

journey. Manufacturers must therefore

understand their relative performance at

each stage of the journey (Exhibit 9). Our

research suggests that, at a minimum, CE

manufacturers should seek to answer the

following questions:

How does your brand perform

versus others in the primary

stages of the consumer decision

journey? Are you spending your

marketing dollars appropriately

to enhance this performance?

Do you have a multichannel marketing

strategy with consistent messaging and

explicit links across channels? What

are you doing to inuence word of

mouth? How is your brand perceived

on the Internet?

What is your strategy to capitalize

on inuential in-store touchpoints?

Do you know what salespeople

in the major specialty chains are

saying about your brand and why?

Have you considered developing

an owned-store strategy?

What are you doing to create brandloyalty among your current users?

As a starting point for addressing

these questions, CE manufacturers

should act on the following four

imperatives relating to various stages

of the consumer decision journey:

Shiftfrombrand-levelinsights1.

todecision-levelinsights.

Most CE manufacturers invest

disproportionately in image-orientedadvertising campaigns, which appear

to be inuential drivers for getting

Exhibit9: The CDJ scorecard: assessing a at-panel TV brands

relative performance in the four battlegrounds

* Loyalty here is defined as people who answered I will consider buying this brand as my primary choice for mynext purchase.


Manufacturer A

Average

Best

Initial consideration set

Active evaluation

Moment of purchase

Loyalty loop/post-purchase experience*

Among recent purchasers, howmany are loyal to my brand?

Among those who consideredmy brand during info gathering,how often do they purchasemy brand?

Among those who didnt con-sider my brand at the beginning,how often do they consider mybrand during info gathering?

How often do people considermy brand at the beginning?

Status

Yellow

Green

Red

Green

Manufacturer As scorecard

Percent; among top 5 players

27 29 530 100

2139 1000

33 42 510 100

0 1004946 57


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26

into the ICS. But with a deeper

understanding of the distinct stages

in the CE consumer decision journey

and the most inuential touchpoints

in each stage, manufacturers can

begin to assess their strengths and

weaknesses across the entire journey,

not just the ICS. We have developed

a methodology and scorecard for

evaluating and comparing how

different brands perform across the

critical touchpoints (Exhibit 10).

Manufacturers can then build on

their strengths and address their

shortcomings, developing an overall

marketing strategy that aligns with

the consumer decision journey

for their particular categories and

segments, and ultimately leads to

market share improvements.

Trackandleverageonlineword2.

ofmouth.Consumers growing

reliance on the Internet during

the information-gathering stage

suggests that CE manufacturers can

no longer leave to chance how their

brands are perceived and discussed

online. CE manufacturers should

proactively monitor the rich insights

available on the Web, and leverage

these insights for various activities,

including product development and

promotion. The unvarnished opinions

that consumers express on Web sites

are a window into customers needs

and preferences, and systematically

mining them can help companies

react to the market more quickly and

appropriately. By using the Opinion

Observer, a proprietary McKinsey

Exhibit10: The touchpoint performance scorecard at-panel TV example

* How many times will the possibility be increased if exposed to this touchpoint at an average rating vs. no exposure

** Each touchpoint is rated on a 5-point scale from -2 to 2Source: McKinsey CE CDJ survey

Performance of Brand A

Positive top-box rating** ratio

Status

Brand A

Best in class

0 10020 40 60 80

Yellow

Green

Impact of touchpoints on FPTV

brand purchase decision

Possibility*; derived

Recommendation from afriend

6.5

Tested using product duringfinal purchase visit

5.6

Store event/demonstrationduring final purchase visit

4.1

Salesperson recommendedduring final purchase visit

3.9

Viewed products in storeduring final purchase visit

3.7

Sale/special offer in storeduring final purchase visit

3.4

Tested using product duringinformation gathering

2.3

Online ad, sale, or specialoffer

2.2

Important

Red

Implications for Brand A

Word of mouth is most

important touchpoint, and

brand A performs well on it

Must investigate what is

causing the significant

difference for product trial

experience and determine

what to do about gaps for

sales/special offers

Green

Yellow

Green

Yellow

Yellow


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tool for searching and analyzing online

opinions, a maker of ink-jet printers found

that much of the positive online buzz about

its newest model had to do with its printing

speed, a feature that it subsequently decided

to emphasize in promotional campaigns.

A common complaint online was about

the models poor connectivityan issue

that became a top priority for the product

development team.

Seektoinuencethemomentof3.

purchase.All CE manufacturers spend a

lot of time and resources ensuring that their

products get into retail stores, and rightly

so. But few manufacturers pay as much

attention as they should to inuencing what

happens once their products are in the stores.

Manufacturers can play a much bigger role

in the moment of purchase; they must lookfor opportunities to deliver a distinctive

in-store brand experience. Commonly used

tactics (e.g., manufacturer-provided sales

training, use of trade spending toward more

attractive displays or in-store high-denition

connectivity) can only go so farparticularly

when all manufacturers are employing

similar techniques. CE manufacturers can

look to consumer packaged goods (CPG)

companies for inspiration. Certain CPG

manufacturers actively partner with retailers

to launch innovative occasion-specic

merchandising approaches (e.g., special

displays and promotions tied to holidays or

major sporting events). But for full control

of the customer experience at the moment of

purchase, CE manufacturers should consider

both opening their own stores and building

e-commerce capabilities. Whichever tack

they choose, the point is that manufacturers

must not leave the selling to retailers.

Reinforcetheloyaltyloop.4. Few CE

companies make any effort to reach outto consumers who have purchased their

products. With little to no post-purchase

contact (beyond transactional messages

such as notices of warranty expiration),

it is not surprising that the loyalty loop is

weak in the CE industry, with the majority

of consumers going through every stage of

the consumer decision journey instead of

automatically repurchasing their current

brand. In light of the impact that the post-

purchase experience has on the consumer,CE manufacturers must emulate Japans

cosmetics and luxury goods companies,

many of which excel at managing customer

relationships and building brand loyalty.

Cosmetics and luxury goods manufacturers

capture consumer information at the point of

sale, both at their own stores and via data-

sharing agreements with department stores

and other retailers, and use these data to

send customers exclusive offers, discount

coupons, or invitations to special events.

CE manufacturers can also take a page from

software companies, which frequently offer

existing customers special deals on product

upgrades or trade-ins.


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V. Opportunities for retailers


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Thus far, we have focused on implications

for CE manufacturers. But our research

has also highlighted lessons and

opportunities for CE specialty retailers

and general-merchandise stores (GMS).

In Japan, CE is one of the few specialty

retail success stories. Category leader

Yamada Denki has approximately20 percent of the total Japan CE market

and is the No. 3 retailer in the country.

Yamada was the rst CE retailer to

introduce the point card system, a

loyalty program that rewards shoppers

with points for each store purchase.

The company has been so successful at

home that it is now focusing its attention

abroad and moving into new categories

including toys, over-the-counter drugs,

and even food and fast-moving consumergoods. In our survey, Yamada received

high marks from customers on price,

selection, and its point card system.

Japanese consumers have a very high

awareness of all the CE specialty players,

particularly the top ve. But Yamada

aside, Japans CE brick-and-mortar

specialty retailers struggle to differentiate

themselves from one another. Price is

a top driver of CE retailer selection in

Japan, and the three most importantfactors affecting price perception are

whether the retailer offers a large point-

back percentage in its point card system,

has promotions and discounts, and is

generally perceived as a leader among CE

retailers. But we found little difference

in price perception among the top ve

CE specialty retailers (again with the

exception of Yamada, which got the most

votes as the low-price leader).

To stand out from the competition, CE

specialty retailers should look beyond

traditional levers such as competing

on price and assortment. Based on our

research ndings, we believe Japans CE

specialty retailers can increase trafc,

conversion rates, and loyalty by targeting

specic shopper segments. For example,

we know from our research that older

consumers make CE purchasing decisions

faster and rely much more heavily on

the in-store part of their journey. At the

same time, they are the ones who feel

most lost and confused by the in-store

experience. Catering to the needs of this

segment (e.g., through better-trained or

older sales reps and larger-print point-

of-sale materials) is an opportunity.

Also, given how much time the younger

generation and the sophisticated explorersegment spend searching for information

online, CE specialty retailers should think

of ways to steer online trafc to their

stores (e.g., Internet coupons, online ads

promoting store events). In addition, CE

specialty players must continue to look

for ways to deal with market saturation,

including exploring new formats such

as mono-branded franchises with CE

manufacturers.

And what about Japans large general-

merchandise retailers? In our view, they

face a number of signicant challenges.

First, while approximately 80 percent

of Japanese consumers know they can

buy consumer electronics at GMS, at

most 30 percent of these consumers

actually consider GMS when shopping

for consumer electronics, and even fewer

visit GMS during the purchase journey

(Exhibit 11). Why? While we did not

explore this question in detail, we do


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VI. Research backgroundand methodology


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When we launched this effort in June

2008, our objective was to generate

deep insights into how consumers

learn about and buy products across

multiple categories and sectors, including

consumer electronics in Japan. To

have a basis for comparison, we did the

same research in Korea. Our ultimate

aim was to develop, based on these

insights, a model that demysties the

consumer decision journey and helps

manufacturers and retailers align their

marketing strategy and budget with the

most inuential drivers of consumer

purchase decisions. In designing the

research, we received input from a

number of manufacturers and retailers.

We also leveraged McKinseys extensive

experience working with many of

the leading CE manufacturers andretailers in Japan and globally.

We undertook the qualitative research

specically, half-day shop-alongs with

24 Japanese and 21 Korean CE

shoppersin June 2008 in Japan

and Korea. These in-depth immersion

experiences helped us develop insights

and hypotheses about how Japanese

and Korean consumers shop for

consumer electronics. In September

and October 2008, in collaboration

with the research rms Intage (Japan)

and Embrain (Korea), we conducted

quantitative online surveys with 2,000

shoppers in each country. The survey

respondents were consumers who had

made a CE purchase in at least one

of the ve categories in the prior six

months. In each of the two countries,

we had more than 600 respondents

each for FPTVs, mobile handsets,

and PCs, and approximately 100 each

for digital cameras and refrigerators.

Since the survey was conducted online,

it does not represent CE purchasers

who do not use the Internet.

In addition, we conducted ofine surveys

with 500 representative consumers

in each country. In Japan we used

telephone surveys, whereas in Korea we

interviewed people randomly selected

in a street catch. The quantitative

data set was weighted to ensure that

the results were representative of

recent purchasers for each category and

to adjust for the signicant skewingtoward heavy Internet users in the

online panels. While this weighting

corrects for Internet bias, it does not

make the sample representative of the

approximately 25 percent of Japanese

consumers who do not use the Internet.

McKinseys work on CDJ is an ongoing

global initiative. We continue to rene

the CDJ model and the accompanying

tools and frameworks as we test

them across multiple categories andgeographies. The research is now

complete in Japan and Korea and is

currently in the eld in the US.


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McKinseyConsumerandShopperInsights,Japan

We established McKinsey Consumer and Shopper Insights (CSI) in Japan, in 2008

with the primary objectives of helping our clients in consumer-facing industries develop

unique insights into consumer and shopper behavior and build their own capabilities

in these areas. In addition to supporting McKinsey teams in serving clients, CSI offers

proprietary research in a number of consumer- and shopper-related areas, as well as

capability-building programs in the area of marketing and consumer insights.

Besides Japan, McKinsey Consumer and Shopper Insights currently has three othercountry focal points in AsiaChina, India, and Korea. For more information, please

contact one of the contributors below.

Contributors

Paul McInerney ([email protected]) is a principal in McKinseys Tokyo

ofce and a leader of the Asia-Pacic Marketing and Sales practice.

Brian Salsberg ([email protected]) is a principal in McKinseys Tokyo

ofce. He is a leader of the Japan Consumer and Retail practice as well as of the

Japan Consumer and Shopper Insights Center.

Ian St-Maurice ([email protected]) is a senior expert in McKinseysAsia-Pacic Marketing and Sales practice. He is based in Shanghai.

Kotaro Ueda ([email protected]) is an associate principal in McKinseys

Tokyo ofce.

Acknowledgments

This report would not have been possible without the tireless efforts of our working

team and the support of our colleagues from Japan, Korea, and around the world.

We thank Wanqiu Zhao, a consultant in our Tokyo ofce who led the work, along

with Azusa Hanai, Tomoko Hibino, Jason Hoffe (alumnus), Satoshi Erdos Kato, Yuri

Ozawa, Peter Qu, Ryosuke Saito, Arei Shirai, and Hirokazu Suzuki, all consultants in

our Japan ofce.

We also thank our partner colleagues in Japan who contributed to this effort,

including Heang Chhor, Todd Guild, Osamu Kaneda, Peter Kenevan, Ulrich Naeher,

and Hirokazu Yamanashi.

Consultants Sunny Hahn, Hyunjung Kim, Tracy Kim, Jihye Lee, and Sinhae Lee,

along with partners Richard Lee and Roland Villinger made up the team from our

Korea ofce.

In addition, we received signicant support from our McKinsey colleagues around

the world, including David Court (US), George Desvaux (France), Sandrine Devillard

(France), Dave Elzinga (US), John Forsyth (US), Prashant Gandhi (US), Yihua Jing(China), Jean-Frederic Kuentz (Taiwan), Laxman Narasimhan (India), Kevin Nuffer

(US), Shalini Rao (India), Maarten Schellekens (Netherlands), Vicki Smith (US),

Monica Toriello (US), Ireena Vittal (India), and Khiloni Westphely (UK).


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McKinsey Asia Consumer and Retail Practice

Winning in Japans Consumer Electronics Market

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