Consumption patterns

W-shaped approach to M-shaped markets

An analysis of how to read Japan's new consumption patterns, and how to enter the market. A new model for approaching Japan's markets is presented, with an emphasis on reading the market as M-shaped, but approaching it as W-shaped (from JMR's Consumer White Paper 2004).

The JMR Consumption Trend Survey was designed to investigate current consumption patterns among Japanese consumers and how to exploit those opportunities. Based on the results of this survey, consumption is analyzed from a comprehensive viewpoint which takes into account economic, social, and psychological factors.

The New Dynamics of Relative Dependence

The subject of personal consumption has taken on greater importance in the realm of macroeconomics. Using the standard age-based model to measure consumption reveals differences in consumption patterns depending upon defined age groups. Moreover, for individual spending items, the use of time-line data in performing diversity analysis tends to expand consumption diversity. Thus, in attempting to clearly grasp consumption, there is a need for analysis that details the differences and diversity among consumers.

As a result of analysis of Japanese consumer awareness through consumer surveys, we now understand more clearly how consumers' awareness is connected to people around them.

To illustrate some of the study's findings, when a consumer indicates, "I feel that I want it" (desire) when asked about a product or service, the actual impulse or desire is generated through another person. Indeed, over half of respondents indicated that they wanted something because they have seen the same thing owned by another person such as a friend, a stranger on the street, or even an actor or TV personality.

To give another example, when someone selects a product, it becomes an important information source, and this selection becomes a kind of standard. Only about 20% of respondents claim that "when selecting a product, I care nothing about what others think or other information." The remaining 80%, however, are susceptible to what others think and their awareness reflects this. What's more, when looking at this awareness by age grouping, it is clear that the younger age groups show a strong trend to be more dependent upon others.

In today's market, those who are hardly influenced by others (the "independent-minded") and those who are influenced by others (the "dependent-minded") represent two distinct groups, and those in the latter category are clearly the majority.

Figure 1. Consumer Dependency on Others

The M-shaped Market: pulled by two different kinds of leaders

In a market made up of dependent-minded consumers, who are the "other people" who serve as leaders that pull consumption? Our research sets out to define them.

In analyzing consumer awareness, we have determined that there are five general types. In addition, when analyzing their like-mindedness in terms of the pattern of their values and the types of products and services desired, these types exhibit various dependencies upon each other.

In today's Japanese market, a distinction can be made between the category of independent-minded people who have their own value awareness and who lead others, and the category of people who are dependent upon others and imitate leaders. The former are responsible for pulling demand, and represent some 34%, while the latter who are pulled by leaders represent 66%.

Independent vs. dependent group types
Based on these results, consumption is not the result of various individuals making confident decisions based on practical judgements, but rather, the result of a small number of independent-minded leaders who make purchases, which strongly influence the great majority of followers. We term this the "dependency effect."

Among the independent-minded leaders, we have discovered two types. And, among the dependent-minded followers, we have identified three different types, those who are influenced by one or the other type of leader, and those who are influenced by both types of leaders.

"More-more" type
One kind of leader is the "more-more" type, and most of these are in the younger age groupings. The "more-more" type seeks a high-class lifestyle, and has a strong desire to consume. They are early adopters of new kinds of products, have a strong awareness of new trends, and tend to be showy. In terms of value awareness, they are upwardly mobile, and powerfully decisive. They are proud of their ability to purchase and their ability to lead by mastering new information. As such, they can be defined by the wealth of information they possess as well as their ability to disseminate information to others. In short, they are very positive consumers. Always aiming for a higher level of lifestyle, they are the ones who purchase the newest products first, and are satisfied by new technology and products with snob appeal.

"Slow life" type
The other kind of leader is called the "slow life" type because they tend to prefer a slow and comfortable lifestyle. They are highly prevalent in the over-50 age groupings. Their consumer awareness places importance on psychological richness, with time much more valuable to them than greater income. They are highly susceptive to impulse purchases and tend to be free spenders. While they have a strong tendency to be powerfully decisive, they are different from the "more-more" type in that they have little desire for upward mobility. While they easily make high-ticket purchases, and are not at all stingy with money, they have difficulty making a purchase unless they agree with the information presented to them. They are satisfied with their station in life, and believe they are "middle class" all the way. In addition, they place importance on good health and a good environment, and do not mind paying to obtain information.

While these two types of leaders have a highly distinctive consumer awareness, their values are diametrically opposed. Accordingly, their paths never cross and they do not influence each other.

In the realm of the marketplace, these two types of leaders pull along three types that act as followers. The "me-me" type enjoys showing off, while the "homebody" type is fond of the "slow" lifestyle. The third is the "soft touch" type, who is most easily influenced by others.

Let's now consider their values, which determine consumption and preferences, as well as their relationship with their respective "leaders." The "me-me" type is naturally influenced by the upwardly mobile "more-more" type, while the "homebody" type is influenced by the "slow life" type. Most interestingly, the "soft touch" type can be influenced by either type of leader, depending upon the situation or conditions. Placing the two leaders above the three followers, and drawing paths of influence between them, it is easy to imagine the creation of a shape that resembles the letter "M."

Figure 2. Increase in Economic Differences

The Transformation to the M-shaped Marketplace

Under the M-shaped concept of the Japan market, the two different types of leaders represent two different value orientations. So why are there two different types of leaders in the first place? The answer can be found in three fundamental changes which have taken place in Japanese society.

Economic differences have widened
The first is that economic differences are widening and stratifying. In recent years, the differences between salaries in Japan have been widening. Among the younger age groups, more and more people are accepting part-time and temporary employment of a less formal nature than the so-called "lifetime employment" offered at more traditional Japanese companies. Many are working through placement agencies in jobs with less stability. In these instances, income can vary greatly depending upon working conditions and job skills. These differences are attributable to a preference for "equal opportunity" over "equal treatment." This attitude is typified by independent individuals who do not rely upon the government. Moreover, economic differences reflect society's shift from one where everyone is believing they are "middle-class" to one in which different economic levels are considered appropriate.

Figure 3. M pattern society

Consumer uncertainity has grown
The second reason is that uncertainty about the future creates a tendency toward uncertainty among consumers. Uncertainty about income together with uncertainty about the future creates a situation in which consumers are hesitant to spend, as opposed to a situation where people freely make impulse purchases. Analyzing this from a psychological point of view, it is possible to establish safeguard systems to alleviate the perception of uncertainty. However, uncertainty in and of itself does not necessarily suppress consumption. Rather, reluctance to consume is a function of the size and intensity of the perception of uncertainty. In short, consumption tends to be affected by a "mood" of uncertainty.

Life views are more polarized
The third reason is the polarization of images of the ideal life. The "winners" with good income prospects have a strong tendency to expect upward mobility into a high-class lifestyle. Meanwhile, the "slow life" people who currently have a middle-class lifestyle only seek to maintain their status quo.

These three changes have transformed Japanese society from one in which the differences between economic levels were small, to one in which there are distinct economic levels. This is not a pyramid-shaped multi-level society like Western countries today and pre-WWII Japan. Rather, it is one in which two major sets of values create two distinct peaks, much like the shape of the letter "M."
Then, structural changes in this kind of society will create an M-shaped market.

Understand "M" to Take a "W" Approach

Figure 4. W pattern market leaders model

In the M-shaped market, with its two types of leaders espousing diametrically opposed value systems, it is impossible to expect 100% market saturation for a product or service that is presented as having fixed values. To achieve broader market penetration, manufacturers and service providers need to leave behind the existing "unified innovation penetration" model. We believe that the W-shaped approach is more appropriate as a market penetration model.

Visualize the five different types of consumers in the W-shape as bowling pins, and the product as a bowling ball thrown to strike either of the leaders. This visualization is the reverse of the M-shape of the market.

Getting the knock-on effect

Figure 5. W pattern leaders model & influences

If the ball is thrown at just the right angle, it will strike one of the leaders, which will, in turn, strike one of the followers. Thus, by selecting one of the leaders which pulls the market, a follower can be effectively exploited. If only one of the followers is aimed at, the market will be limited or unstable; therefore, full market penetration cannot be achieved.

There are four possible ways in which the market can be exploited. If a "more-more" leader is targeted and hit, it can take with it the "me-me" market, and possibly also the "soft-touch" market. Similarly, if the "slow life" leader is aimed at, the "homebody" follows, and possibly, the "soft-touch" as well.

There are four basic implications in the W-shaped approach to marketing:

A product or service with a single unified value cannot be expected to completely permeate the market.
When aiming for stable penetration or market permeation of a new product, one or the other leaders must be targeted first, followed by the other.
If the product is introduced and promoted to those other than the leaders, there are limitations to market potential, with extremely unstable results. This is because followers are inherently dependent upon their leaders.
Marketing must be approached in an appropriate and diverse manner. If a different marketing strategy is applied to the wrong group, the results can backfire.

In markets where stratification and diversification are occurring simultaneously, such as in Japan and Asian markets, activities should be based on this W-shaped approach. Product and service providers should strive to be accepted first by one of the leader groups. Then, by understanding which subsequent follower group has accepted the product or service, a more appropriate and efficient marketing approach can be considered. In addition, when introducing new technology or a new type of product to the market, you can more effectively aim at one leader or the other depending upon lifestyle considerations. Also, in order to effectively cover the market, you may also consider diversifying the original product or service to better appeal to each market segment.

3 consumer product examples
The research report provides analysis of three major product areas, and introduces specific examples. One is the large flat-screen television, currently a hit product. Another is boil-in-bag curry, an item in the processed food category experiencing a wave of new product introductions. The third item is cosmetic moisturizers, a product in an industry where brands compete fiercely and sales channels are numerous.

The large flat-screen television, at present, is aimed squarely at the "more-more" group, with the "soft touch" group expected to follow. This is because the "more-more" group is made up of early adopters in a market where there is strong competition with competitors rapidly introducing new technologies. The "W" model predicts that the "more-more" group will create the foundation for a shift to the "soft touch" group; so, an approach aimed at them will need to take into account necessary changes in products, prices, and communication strategies.

By understanding the concept of relative dependence among types of consumers, it is possible to read new markets. Understanding the consumer market as aligned in an "M" pattern and formulating your marketing plans as though the target consumers were arrayed in the marketplace in a "W" pattern is the key to success. Companies that adopt this approach will, JMR believes, be successful in Japanese consumer markets.

For more complete details, obtain the entire report in Japanese or contact JMR for details of the special pricing for the English translation of the Japan Consumer White Paper 2004: Changing consumption patterns.

Figure 6. Market penetration based on the W pattern

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