Japan's Subscription Economy Accelerates: Three Paths for Enterprises to Launch Subscription Models

Although Japan remains a leader in many technology fields, it haslagged behind other Asia-Pacific countries in adopting subscription models. Many large Japanese companies have long been composed of lifetime-employment workers, and historically, it has often taken years to reach consensus on major changes.

Particularly in the business-to-business (B2B) sector, subscription models are far less prevalent in Japan than in other Western countries. However, this trend appears to be shifting.

Both consumer-facing (B2C) and business-facing (B2B) operations are beginning to recognize the potential of charging customers recurring fees rather than one-time lump-sum payments. Subscription models offer numerous benefits for Japanese companies, including enhanced customer loyalty, more accurate sales forecasting, and deeper customer insights.

It is therefore unsurprising that subscription models in areas such as automotive, e-commerce, and residential leasing are gaining traction in Japan. According to estimates by the Yano Research Institute, the Japanese subscription services market, covering eight industries including fashion, dining, and entertainment, was valued at approximately562.74 billion yen (about 5.18 billion U.S. dollars)in 2018 and is projected to reach 862.35 billion yen by 2023.

As the transition to pure subscription models is just beginning, how can companies further accelerate this process in Japan? The following three paths are worth attention.

Path One: Build Brand Awareness Before Large-Scale Adoption

For Japanese consumers and corporate clients, brand awareness and trust often matter more than price affordability. Many customers will not purchase products or services from unfamiliar brands.

According to the2017 Edelman Trust Barometer, Japan ranked 26th out of 28 surveyed countries in terms of trust in institutions, especially those headquartered outside Japan. This phenomenon extends to trust in companies attempting to sell them products.

Companies adopting subscription models should engage in strategic marketing targeted at their intended audiences to enhance brand recognition. Marketing messages should use clear, straightforward descriptions and avoid buzzwords to minimize ambiguity regarding product or service features.

This approach helps create concise communications that make the brand appear approachable and capable of addressing real needs. Companies can also leverage marketing tools such as customer testimonials, ratings, and reviews to build trust among potential customers.

Although brand trust ranks high among Japanese buyers' priorities, this also means companies need to set honest prices. By offering fair pricing models to all customers, Japanese buyers will take notice and are more likely to remain loyal to products or services they do not feel are squeezing every last yen from them.

Path Two: Educate Internally on the Potential of Subscription Models

A major obstacle to the successful implementation of subscription models in Japanese companies lies in internal support for the transition. Many stakeholders within the company may be cautious about making such a radical change to the business model and need to be persuaded by strategic champions in company leadership.

A survey of 580 senior executives in the Asia-Pacific region conducted byCitibankfound that nearly half of respondents believe subscription models will become widespread in their industries within three years, with some even considering them the industry standard by then. However, the same survey also found that a lack of unified understanding of subscription goals within organizations is hindering progress, with one of the most common concerns being short-term revenue decline.

Japanese business leaders must address these concerns head-on and provide evidence and forecasts of the return on investment that subscription models can deliver. They can prepare their organizations for change by demystifying subscription models and drawing analogies to popular news subscription services such as Newspick and Yahoo Finance VIP.

Embedding the subscription model into corporate culture from day one is crucial. This means building a vision of the new normal by clearly communicating where the company is headed and how it will get there.

Companies should also ensure the model is implemented with absolute clarity, being transparent about timelines and new incentives that align better with subscription models. For example, sales compensation plans, project key performance indicators (KPIs), and bonus structures could be adjusted.

To build consensus, companies could also try running the subscription model in parallel with existing models, comparing performance metrics and profit margins in real time to build a strong case for the shift. Once implemented, feedback loops can be established to understand reactions and build alignment across all organizational levels. All of this will provide ample evidence and rationale that the subscription path holds great promise for the company.

Path Three: Leverage Technological Innovation

Companies looking to launch subscription models must ensure they have the right technological support to guarantee success and outpace competitors through value-added innovation.

At a minimum, companies transitioning to subscription models should be equipped with customer service technology and automation tools that make payment processes easier for both the company and customers, and enable more tailored offerings based on customer usage of products or services.

Companies could also consider investing in platforms that optimize the entire payment process in one place while integrating with other third-party systems to unify workflows.

Additionally, companies can attract customers by offering innovative service solutions that are difficult to find elsewhere. For example, Japanese cosmetics company Shiseido has launched asubscription-based Internet of Things (IoT) solutionthat allows users to assess their skin condition. When customers are about to run out of their previous refill, the system automatically orders more.

In the face of the subscription wave, Japanese companies that resist change are likely to struggle to keep pace with those embracing it, especially given the initial successes already achieved by existing subscription services.

To drive momentum for subscription models in Japan, organizational leaders should focus on enhancing brand awareness, articulating the rationale for transformation internally, and fully leveraging cutting-edge technological innovation to streamline processes and create value for customers.