As brand new Asian Ambassador for Board of Innovation, I’m proud to hereby present you the first post in a monthly series about innovative business models in Japan and, by extension, other countries surrounding the Sea of Japan.
According to the Organisation for Economic Co-operation and Development (OECD), Japan is number 19 in the world when it comes to gross domestic product per capita. The United Nations World Populations Prospects Report ranks Japan 32nd in a list of countries by population density, directly below Belgium. In comparison to Belgium however, 80% of the inhabitants of Japan live on 20% of the landmass. So in conclusion, the Japanese population has a lot of money to spend but not a lot of place to put newly bought stuff. That’s why products with a high value/size ratio are immensely popular in Japan, even though they’re not much cheaper than in the rest of the world. In other words: design, brands and consumer electronics. Design or branded products don’t take more place than basic or non-branded products, but they add a layer of service or emotion the Japanese gladly pay for. Consumer electronics on their turn are small and pack a lot of functionalities the Japanese society is built upon. The retail of design, branded products and consumer electronics is thus big(ger) business in Japan. Today we’re going to focus on the consumer rewarding aspect of the business model of one of Japan’s biggest consumer electronics retailers: Yodobashi Camera.
A new approach for reward systems
Some European retailers work with a point rewarding system: for every x amount of currency you spend on products you receive y amount of virtual points on your account, traditionally represented by a plastic card with a bar code on it. When you accumulate enough points, you can use them to receive a free gift or get a discount on certain products out of a catalog. These catalogs often contain a selection of products made by the retailer or even a set of products different than those sold by the retailer. So there is a ‘minimum amount’ barrier and a ‘restriction of award’ barrier in place. When we take a look at the point rewarding system for major airline carriers, often member of an alliance such as Skyteam, Star Alliance or Oneworld, we notice the disappearance of the latter barrier. When you earned enough points (the ‘minimum amount’ barrier is still in place), you can use them to buy – amongst other products – the very product you earned your points with: flights.
The next step is a point rewarding system without barriers. This is the first facet of the Yodobashi Camera consumer rewarding scheme. When you buy a product (at a price which is fixed by all major consumer electronics retailers in Japan), you receive 10% of it’s value on your account, rendered in Japanese Yen. Money which becomes directly accessible for the next purchase. So if you buy a DSLR, you can get a tripod and bag with it for free. Or five SD-cards. Or an external flash. Or a hair dryer to brush the hair of the victims of your future photo shoots. And by “buying” those “gifts” off your account balance, you get another 10% of the value this purchase on your account. So it never runs dry. You’ll always have money to spend, so the other consumer electronics retailers are always more expensive (thanks to the fixed prices).
The second facet of the Yodobashi Camera consumer rewarding scheme is even more ingenious. Based on the logic that a certain percentage of electronic products break down in the period between the ‘end of warranty date’ and the ‘by the consumer expected end of lifecycle date’, you receive repair points with every purchase. With these points you can pay for a repair or a substituting product. Because the consumer doesn’t receive enough repair points with a purchase to repair the object of that very purchase, he only can profit from this service if he buys most or all his consumer electronics from Yodobashi Camera. When he buys enough products, he has accumulated enough repair points to fix the one in every z products that statistically breaks down.
In the end, the consumer is awarded by a lot of free products he actually wants and an extended warranty for statistically all his products. Yodobashi Camera receives loyal costumers in return.
Jonas Elslander graduated in June 2010 as a Master in Product Development at the Artesis University College of Antwerp and is now pursuing his years long dream of reshaping (read: redesigning) the way we use internet in the mobile environment at Kyoto University, Japan. As a research student at the renowned Tanaka Laboratory, he works on the frontier of technological and economical innovations in the Japanese society, often including the ever growing influence of the (mobile) internet on traditional business models.