Friday, August 27, 2010

Marketing Japan: The Future of Business Success is a Super Price for Super Service

By Mike in Tokyo Rogers

I was thinking the other day about the state of the economy and where the business opportunities lay when I came upon a small news article buried in the very back of a publication. It dropped my jaw. Read on.

My company has been doing much promotion, marketing and PR for mostly airlines and travel related industries so we have a pretty good grasp of the state of that business. From what we can gather, most airlines are cutting routes, services and amenities to passengers. The so-called "premium carriers" seem to be the hardest hit and the mid-class carriers want to change their image to "premium carrier."

I think there is a big difference between wanting to be a premium class carrier and actually being one. Changing a middle class carrier into a premium one takes much more than a note handed down from corporate; it takes a fundamental shift in corporate culture. Some, of which, by the way, will be impossible for most US carriers to accomplish. I won't state names here.

I also am puzzled at how people perceive the term "Kakuyasu" in Japan. "Kakuyasu" means "super discount." Most people seem to have a bad image in their head about this word, but I think this is nonsense and I also think that perceptions are quickly changing.

While many may gruff and snort at the term Kakuyasu, the public is eating it up. One good example is the discount liquor store that even put the term "Kakuyasu" in its name: Kakuyasu. Kakuyasu is a discount liquor store that originally started out as a family shop in 1921 and was derided as low class when it first incorporated as a chain discount liquor store in 1982. Now they have 140 stores all over Japan and are #1 in liquor store sales... Kakuyasu even outsells 7-11 in liquor sales in Japan!

So, while, still to this day, some people will hold their noses at the term "Kakuyasu," the public loves it and has turned this particular store into a smash success that has over $860 million dollars (USD) in annual sales. 

So, while the economy tanks and the old school belittles discount services and products, they continue to make serious in-roads into to public consciousness and then increase their profitability.   

This brings me back to the point of this article and what I set out to write about in the first place. It is an interesting little topic that seems to have slipped between the cracks of the major news outlets. Now, a Chinese Low Cost carrier (LCC) is offering flights from Japan to Chinese for ¥4000. That's less than  the taxi fare is from my home to downtown Tokyo (and that is only about 20 minutes!)  

Chinese discount carrier Spring Airlines will offer a 4,000 yen one-way ticket between Shanghai and Ibaraki Airport, about 80 kilometers northeast of Tokyo, from September 15 to 29 on a total of 14 flights, it said Wednesday. The discount fare will apply to around 10 percent of the total 180 seats per flight, while fares for other seats are set at between 8,000 yen and 26,000 yen.

Spring Airlines launched chartered flights between the two destinations in July, and has recently received approval from the Ministry of Land, Infrastructure, Transport and Tourism to offer the 4,000 yen ticket.
The airline will accept online reservations for the discount tickets from Aug. 30 to Sept. 2, and will continue offering the ticket beyond Sept. 29 if the ministry permits.
Ibaraki Airport is located in Omitama, Ibaraki Prefecture.

How can an airlines cut prices so much and still stay afloat? For one, they have financial backing and are taking advantage of other airlines cutting services. If the other carriers cut services then that means airports and airline manufacturers are losing money. 

Airports losing money means that they are more willing to allocate spots to new airlines - at a discount - to help make up for lost revenues. Airlines cutting flights means airlines manufacturers and companies that lease aircraft are hurting too! Since most airlines do not own their own planes and lease them all, this means that aircraft manufacturers have many planes just sitting around. If some new carrier wants to come along and lease planes, then people like Boeing are willing to make excellent lease terms. It's the perfect storm for the benefit of Low Cost Carriers (LCC) and I, for one, cheer this arrangement.

So, like I said, while some will look down upon and thumb their noses at discount services and products, the public seems to want all it can get.... It reminds me of the old quote about giving the public what they want; 

When massive crowds attended the 1957 funeral of L.B. Mayer, the head of MGM, a writer was quoted as saying: "Well, it only proves what they always say, 'Give the people what they want, and they'll come out for it.'"

The smart businessman will recognize this for what it is.

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