Subscription-based businesses are growing slower in Japan than in other big economies partly due to regulatory barriers, but the number of firms drawn to the model is on the rise as consumers search for personalized and more cost-effective ways to use products that have recurring fees.
While the trend is evident for expensive items, companies are realizing that encouraging the repeated use of their products via subscriptions rather than one-off sales helps build customer relationships and more efficient ways to keep up with market changes, analysts say.
Tien Tzuo, founder and CEO of Zuora Inc., a leading subscription management platform provider serving over 1,000 companies worldwide, says consumers are increasingly getting used to subscriptions thanks to the rise of companies like Netflix and Spotify.
For products and services suited to the model, ownership has already been pushed to the background of the consumption scene, 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.
Though the subscription business is not a new concept, the traditional model is still “stuck in the product,” said 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, the second-largest subscription market behind the United States.
According to Yano Research Institute, the Japanese subscription market, covering eight industries including fashion, restaurants and entertainment, was estimated to be worth ¥562.74 billion ($5.18 billion) in fiscal 2018 ended last March. That’s projected to reach ¥777.80 billion in fiscal 2021 and ¥862.35 billion in 2023, it said.
Among new entrants, Shiseido Co. has started providing skin moisturizers used with home dispensers for ¥10,800 a month, targeting women in their 30s to 40s. The dispenser can automatically blend moisturizers in 80,000 patterns based on data from smartphones ranging from the owner’s skin and health conditions to 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 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 a Prius from around ¥50,000 a month and a Lexus from around ¥200,000, with insurance, maintenance, 24-hour emergency assistance and taxes included.
Tzuo said automakers can thus gain more information about customers through subscription services than sales through dealers.
In the beverage industry, Kirin Brewery Co.’s Home Tap service delivers 4 liters of fresh, direct-from-the-factory beer, to homes for a monthly fee of ¥8,100. The company attempted to reach consumers willing to pay more for a higher-quality product rather than those wanting to save money, but 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 Shiga Prefecture that lets one to ride some 50 routes at a fixed cost of ¥7,500 a month.
Compared to a traditional commuter pass for a single route, Shiomi said a subscription allowing freedom of variety may encourage commuters to use buses for purposes other than commuting and benefit their economies.
“If we set the right fee, both passengers and bus companies will see the merit,” he said.
But there are also cases where subscriptions don’t work well.
Apparel retailer Aoki Holdings Inc. ended its subscription business in less than a year, and the sake service Sakelife, by venture 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 after,” he said.
Daiwa Research’s Ichikawa said incorporating customer feedback is important in subscription services not only to meet demand, but also “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.