The state of Japan e-commerce market 2013 - issues & logistics

This is the last instalment of this series. I hope you have found the information useful thus far.

This post will provide general issues faced in the Japan e-commerce market and logistic aspects. Lastly, I will also discuss a bit about the recent e-commerce related movements and trends, which has not been fully captured by the stats yet.

Issues

The wording here may be confusing to most audience. By trouble, I mean any issues occurred throughout the entire online shopping experience, from going to the site, ordering, receiving, calling the service centre and return. Overall, Japan has the least reported trouble rate among the top three major e-commerce markets. Some may speculate that the Japanese culture is extremely humble, thus many troubles may not have been reported leading to the lower number. On the contrary, Japan has a ridiculously high standard towards the quality of goods and services, any small mistakes would be reported by the customers and the merchant would need to compensate the customers.

The top issues identified are in the above shown order. Delayed delivery is one of the most often complained issue. Please keep in mind that Japan offers one of the best logistic infrastructure and service. Even with the degree of delayed delivery, we may be talking about at most 2-3 days as oppose to 1-2 weeks in other markets. Secondly, while broken delivery is quite common in all markets, fake goods also exist in Japan. This issue is in line with customers risking themselves by shopping at individual operated sites for lower prices. The rest of the top issues are commonly known even in different markets.

B2C Logistics

The B2C logistic volume has grown steadily in the past three years. The higher growth rate in truck transportation categories suggests more medium to large parcels and bulky goods such as furniture are transported, leading to higher volume growth in monetary term.

The B2C logistic market is extremely mature and saturated. It is almost a good case for duopoly. In the previous figure, though the mail postage volume is the highest, they are not entirely covered by Japan Post. Yamato and Sagawa offer a wider range of fulfilment service than Japan Post does. The only advantage that Japan Post has over other service is the complete deliverable coverage throughout the nation. Due to the near duopoly situation, the service and price offering don’t actually differ much between Yamato and Sagawa. Merchants often choose vendors based on price points since the service level are more or less equal. Japan Post is only used by merchants for lower cost reason or remote area delivery. 

It is worth noting that in some case, merchants can work with the logistics vendors to integrate additional service offer such as furniture assembly or bulky item recycle. 

Recent development

SNS fad

Japan market is a "successful” late adapter of the SNS boom. The introduction of Twitter and Facebook even wiped out the local grown service called mixi. Companies and brands have been fed by all the legendary SNS successful stories from the west, and tried to replicate them in this market. None has been able to increase customer satisfaction or generate sales from the SNS sources. In 2013, there has been a less focus on utilising SNS as a marketing tool, even despite the sudden increase in popularity of cute sticker centric Line app. 

Mobile sites/apps

The trend of “mobile first” has been led by Facebook and Google from 2013. More and more brand sites are making their sites to be smartphone capable. This is a necessary step for brands as Japanese use smartphone for just about anything and everything. They also spend more time surfing the web using smartphone than using PC. Unfortunately mobile site designs are still in the infancy stage. Consumers struggle to find complete product info via the mobile sites. What differentiate mobile use case from the PC is that if the user is intrigued even by the incomplete info from the mobile site, they are assumed mobile already and may likely to the take action to find the stores nearby to check out the products or services right away. 

Some brands feel that mobile sites is not attractive or invasive enough, they create apps instead to “claim" their real estate in users’ smartphone space. This approach comparing to mobile site, is very successful, but conversion is nearly impossible from the apps due to high transaction costs burdened by the merchants. All in all, the development of the mobile apps and marketing are very lagged behind relative to western markets despite the longer history and higher penetration of mobile device usage in Japan.

O2O

This is one of the hottest term rising from the second half of 2013. Whether you read it as “online to offline” or “offline to online”, you have to treat it as a mutual traffic directions. Sentimentally, the brands that own physical stores want to redirect customers from online to offline. This is because in recent years, online stores have rapidly grown and the physical stores have observed a steady decrease in revenues and average basket values. It is not hard to put the two dots together. Overall, retail brands are growing bigger in the pie size. It is mostly because the internal HR evaluation do not update to reflect the market change, which often lead to internal conflict between the online and offline businesses. From customers’ point of view, they both represent equally, as long as the customers can get what they want via either channel.

On the contrary, Japanese retailers can easily drive their offline customers to online and allow further interactions with the customer regardless the eventual conversion location. As the head of MUJI web business division once said, “the time spent with customer” is an important KPI in branding success.

O2O is still in the infancy stage for most Asian retailers. US department has begun to combine all of their channels to provide a consistent experience for the customers. Customer data is linked across each channel to better understand customers’ interactions with each property of the brand. For Japanese retailers, they create online channels because everyone else is doing so, yet only a handful has a broad view of the entire marketing strategy for all channels. 

The state of Japan e-commerce market 2013 - consumer behaviour

Continuing from the previous post, this post will be limited consumer behaviour info of the Japan B2C e-commerce market.

Starting with the general demographics of the e-commerce users. considering several general factors such as allowable incomes, internet knowledge and usage in different brackets, it can be seen that most frequent e-commerce users are in the age brackets of 30’s and 40’s for both males and females. Surprisingly, females in the 50’s age bracket are also frequent e-commerce users. This is due to the fact housewives are still very common in Japan. On a side note, online grocery shopping has become very competitive and saturated in Japan as the ageing populations grows. In terms of frequencies, shopping from a few times a month to once every three months represent the majority of the general usage. 

In terms of the average purchase amount, the range between 10K to 30K represents the most frequently purchased amount. This comes to no surprise when considering the most frequently purchased product types (refer to previous post). The purchase amount below 10K usually relates to general disposable household goods, such as razor blades or soaps. The purchase amount between 30K to 70K usually relates to computer or technology products. One notable finding is that the general average purchased amount is distinctively higher than that of the retail stores. Depending on the store, the general average purchase amount range from 2K and up. One plausible hypothesis is consumers are limited in how much actual volume they can carry, especially for general household goods, where volumes and weight can stock up quite easily, preventing additional purchase in one round.

Like many other markets, the primary reasons for shopping online is to seek cheaper prices. Other primary reasons include convenience and exclusiveness. (Japanese consumers give in easily to limited goods or services.) Other incentives to shop online include points (see previous post regarding Rakuten points), and convenience. Especially given the transportation conditions in metropolitan in Japan, where the majority do not own cars, home delivery is a huge incentives. Additionally, due to general long working hours, home delivery sometimes may be difficult for certain individuals. New apartments have deposit boxes to accommodate such needs, where the delivery staff can deposit the package in the box and lock it with a password, and the the password will be notified to the customer in the post box. The deposit box solution may only be viable in areas where security concern is relatively low, though in general, Japan is a very safe country.

On the other hand, the reasons for not shopping online should be noted as well. The general concerns towards online shopping all apply to this market, though please keep in mind that majority of the people are quite are used or frequent users of online shopping.

In terms of site selection criteria, the top ones in order are price, product assortment, and delivery fee. These are fairly common across different countries in the world. Especially in the online world, most people would expect to pay less for same goods. The notion is that online stores don’t require the same fixed and staff costs as the retail stores. This notion is becoming less and less true nowadays. Product assortment will help the customers shorten their online shopping time, thus they are more willing to go to a one stop shop online than go to several sites to get the same amount. This mentality is often reinforced by the delivery fee or collective discounts offered if you purchase more. A customer may be able to get the same goods from different sites, but sometimes the combined shipping fees may wipe out the discounts. Here, it is worth noting that almost all customers around the world are very sensitive to free delivery. Even if the merchants offer the same discount value as the delivery fee, customers feel that the free delivery has higher degree of discount value.

In general, online shopping pertains higher risks, thus the common concerns towards online shopping are often the direct contact with the merchants. The lack of physical shops hinders the customers to see and touch the actual goods before purchase. Should there be any problem with the goods or service, the customers would want to know there is a real person behind the site for the after service. As well, when customers seek discount priced goods, they often visit small shops operated by individuals or small companies, which customers may raise concern about how their information is being used beyond the transaction.

Internet is a sea of e-commerce sites offering different prices. Getting to know an existence of site is very difficult. In serving the customers with seeking the lowest prices, price comparison site, such as kakaku.com is often the go to site for customers who are used to online shopping. Such site not only offer price comparisons but also provide user reviews on the products and the merchants. kakaku.com is such a great service that I use it quite often once I have my eyes on a particular product. For most general public, if one is inexperienced with online shopping, search engines would be the go to service to find the goods they want. Lastly, contradicting with finding lowest price possible, one can always go to the brand official site to get the goods at full MSRP.

Japan is one of few mature markets that prefer to use primarily credit cards for online payment methods. This may be particular to Japan due to the fact that credit companies often offer complimentary incentives such as mileages or points, which lead to higher usage of credit cards. The second most frequently used payment method is also particular to Japan (and Taiwan). Convenience stores have a extremely high geographic coverage rate, that you would spot an convenience store every corner in the major cities. Convenience stores in Japan not only sell snacks and drinks but also provide various services such as parcel delivery and pick up, bills payment, laundry, and etc. Payment collection is one of the extraneous services that convenience stores offer. In addition, convenience stores payments can be done before or after the parcel arrival depending on the merchant’s payment policy.

These points hopefully provide some insights about the customer behaviour towards online shopping in Japan market.　Next post will be the last instalment of this series, and I will be talking about the issues and logistics aspects of the business.

Till next time...  

The state of Japan e-commerce market

This blog is to give an general overview of the Japan e-commerce market as of Dec. 2013.

Please note that the stats are mostly from 2012 as the fiscal 2013 year data has not been aggregated at the time of writing.

Market stats

From 2008, Japan B2C e-commerce has continually thriving year by year at an annual rate of 9% steadily. By end of 2012, 9.51 trillion JPY has been achieved. By end of 2013, it is estimated that Japan B2C e-commerce market size will grow to 11.5 trillion JPY according to study. Being one of the largest retail and economic markets globally, the e-commerce penetration across various industries is surprisingly low, which suggests there is still much room in this market despite the already competitive e-commerce realm. While individual e-commerce startup operations often carry double digit growth, it is often due to the relatively small size. On the macro level, it is unlikely that we will be observing double-digit growth unless the e-commerce penetration rate accelerates tremendously.

When asked if one has ever used online shopping, over 90% of the respondents replied yes. Japan is one of the early adapted market for e-commerce. The form of e-commerce did not always base on PC-usage. In the case of Japan, the internet adoption was due to the advance features of cellphones during 90’s, as a result, the e-commerce in Japan was first introduced in the mobile form.

The general retail, travel, and F&B combined cover more than 33% of the entire B2C market. Foods alone covers 6.36% share, this is partially contributed by the increasing needs to stock food after 3/11 earthquake in 2011. Please note that the F&B service is different from foods, where F&B means reservation service, and foods represents grocery.

Looking from a different perspective, when asked about what type of products are purchased most frequently, print media, apparels, and food/drink/alcohol lead the top categories. The first two categories also appear as the most frequently purchased categories in other markets. Japan, being one of the frequently alcohol consuming countries, combined with the increasing needs for stocking foods, has driven the F&B categories as a frequent purchased category.

Speaking of the major consumer e-commerce platforms, there are roughly three main players in Japan. 

1. Rakuten
2. Amazon
3. Yahoo!

Rakuten is a platform that supports C2C business. Unlike the other two players, the business model is not only limited to the e-commerce platform. Rakuten in Japan has a healthy ecosystem consisted of point based CRM, EDM and most importantly the tied in financial system. Rakuten point works very much like cash, and is often appropriated to potential users for free from vendors as part of the marketing campaign. Further, merchant support from Rakuten is far more superior than others. Rakuten University is an institute geared towards educating merchants to further boost their sales.

Yahoo! Japan in order to attract more merchants to its platform, has begun offering zero commissions for all merchants. On one hand, it is a huge incentive for all merchants, on the other hand, it has been viewed that Yahoo! Japan is using its last resort to keep its foothold in this market.

The next post will be presenting the general user side of the story in the B2C e-commerce market.

Stay tuned.