New Consumer Groups in Japan Explained
By Parissa Haghirian (29/11/2021)
In this blog post, Prof. Dr. Haghirian, a Professor of International Management at Sophia University in Japan, will explain different consumer groups in today’s Japanese market.
Overview of Japanese consumers
Japan’s consumer goods market is one of the most lucrative in the world. But it is also one of the most demanding. Compared to buyers in other markets Japanese consumers are above-average wealthy and like to spend their money on high-quality goods. Furthermore, they are used to the world’s best customer service and have very clear ideas about how products and services should be. There are numerous local companies in every branch or industry that have known customer requirements for decades, tailoring their business processes accordingly. Foreign companies in competition with these established top dogs must adapt their products and services precisely to an informed local market.
The biggest challenge, however, is the same for all companies in the Japanese market: the population is shrinking continuously, and with it the number of consumers. Therefore, Japanese consumer groups, their wishes and attitudes are the focus of market researchers and consumer goods companies.
Yet the search for new consumer groups is not new. Japanese consumer groups have played an important role in the media and in social debate for decades. In the 1990s, the focus was on young women who were still living with their parents and buying luxury items with their income. These so-called “Parasite Singles” were synonymous with “the desire for luxury and consumption”.
A few years ago, they were replaced by the “grass-eaters” (sōshoku danshi), a term for young men between the ages of 20 and 30 who developed a taste for fashion, cosmetics and a cozy home. Unlike their fathers, whose buying behavior was limited to alcohol, automobiles and a family home, younger men became interested in other consumer goods. Japanese companies responded quickly. There are now “Men’s floors” in every Japanese department store — entire floors devoted to selling fashion items for male customers. In recent years, the discussion has focused heavily on the age difference between different customer groups with company and market research currently focused on three in particular: the silver market, millennials and Generation Z.
The silver market
Currently the most influential consumers are over the age of 65, the so-called Dankai generation, who are essentially Japan’s “baby boomers” born between 1947 and 1955. They are the largest consumer group in Japan. In 2019 Japan’s population older than 65 was 35.89 million; by December 2020 it was already 36.23 million, a record high. This corresponds to 28.82% of the total population, which means that over one in every four Japanese people belong to this group. Moreover, the number of Japanese people over 65 will continue to grow in the coming decades — a trend that worries not only policymakers but also employers.
For companies, baby boomers are currently the most interesting customer group, with older Japanese owning half of the country’s financial assets. Seventy-two percent of Japan’s wealth ($17 trillion) is held by people over the age of 55. That percentage is projected to rise to 79% over the next 20 years, compared to just 28% of personal financial assets owned by individuals under the age of 55.
With the number of Japanese people older than 65 expected to increase, the majority of Japanese financial assets will be in the hands of older people in the long term. Around 65% of older Japanese say they either feel very comfortable financially or have few financial concerns. The average annual income of senior households in Japan reached a record ¥3.349 million in 2017 (equivalent to €25,30).
However, the high assets of older Japanese people pose new problems. Current estimates suggest that by 2030 personal financial assets of $2 trillion, or more than 10% of the country’s total financial wealth, will be in the hands of people with dementia and will not be able to manage their wealth themselves. In addition, unlike other western nations, a large part of these assets will not pass on to the younger generations. This is because inheritance tax in Japan can rise to 55%. Therefore, family wealth cannot support younger generations in Japan to the same extent as in many European countries.
Due to their high purchasing power, the older generation is one of the most important customers in sectors such as health, financial, travel and leisure services. The baby boomer generation has also been the driving force behind many consumer trends over the past few decades, be it in home-buying, cars, color televisions, air conditioners, washing machines or refrigerators. The Japanese silver market has thus become a role model for marketers in other economies with aging populations. Four sectors are benefiting from increasing silver consumers in Japan, namely housing and care, food, medicine and health, and support services (e.g. taxi rides or delivery services).
However, silver consumers in Japan have high expectations of products and their manufacturers. According to Euromonitor, silver consumers in Japan “prefer high quality products and are less likely to buy cheaper products than other age groups. They prefer to buy fewer but higher quality products.” Older Japanese consumers highly value customer service. Ethical consumption also plays a very important role for this group of consumers. In fact, the majority of silver consumers would pay a little more for ethical products compared to products where the manufacturing process and origin are unknown.
As in many other markets, television, radio and newspaper media play the most important role in informing silver consumers. However, 17% of baby boomer consumers said they would switch to online shopping due to the COVID-19 crisis. These developments naturally make baby boomers particularly interesting as a target group. Their high purchasing power offers business opportunities and has resulted in numerous new products developed for this target group. For example, NTT Docomo designed the “Raku Raku Phone” for the older generation ten years ago but is still sold very successfully today thanks to its ease of use.
Millennials
“Millennials” is the name for the generation born around 1980 and entered either university or adulthood at the beginning of the millennium. In Japan, millennials are referred to as “yutori” (stress-free) because they benefited from reforms to the national school curriculum in the 1980s that resulted in a significant reduction of hours spent at school, allowing them to have a “more relaxed” life than the previous generations. Yet outside of school, millennials have grown up in turbulent times that includes the 2008 global financial crisis and the 2011 tsunami and nuclear disaster.
This scenario affects their attitudes towards consumption and their buying behavior. Less than 40% of Japanese millennials think they have a bright future and successful careers ahead of them. Almost 30% of contract workers between the ages of 25 and 34 said in the past year they had chosen temporary employment because they could not find permanent employment. Women make up 68% of non-regular workers.
Low and stagnant wages are the reason why many millennials in Japan delay or even forego marriage, home purchases and family planning. They show little trust in the national pension system, are skeptical about their future life after retirement and, compared with other customer groups, have the highest incentive to save. More than 50% of the Japanese in this age group state that they want to save more in the future.
Many millennials prefer simple products that are good value for money. There is also a growing desire for a simpler and more environmentally friendly lifestyle. Ethical consumption is also an issue for this consumer group. They are best informed about organic products.
In an international comparison, male consumers are more interested in comics and video games and very often eat out because, compared to younger Japanese people, they mostly cannot cook. Female millennials prefer activities like dining, traveling and other hobbies. They are also very interested in fashion products. However, they are also the consumer group that has been hit hardest by the economic effects of the COVID-19 crisis, as it is this group in which most jobs have been lost.
The COVID-19 crisis has had a lasting influence on Japanese millennials purchasing behavior, whereby spending on “unnecessary” products such as expensive clothing, shoes or luxury bags has fallen. At the same time, they are concentrating more on buying basic products such as food, personal care and hygiene products. Japanese millennials are also the largest target audience for the Japanese flea market app Mercari. Changes in their consumer behaviour made the success of the start-up possible in the first place.
Young Japanese people use social media to find out about the product before buying. Nintey-six percent of Japanese millennials own a smartphone and mainly use social media apps such as LINE, Instagram or Twitter. Millennials favour Twitter over Facebook as the more relevant social media platform, with three times the number of users over 18.
Generation Z
Generation Z (GenZ) or “Centennials”, Japanese born between 1996 and 2012, is a new but increasingly influential consumer group attracting the attention of companies, marketers and employers. In Japan, Generation Z is known as the Satori Generation. The term satori means “enlightened” and is used for this age group because, unlike older generations, they have freed themselves from many fears and capitalist goals and are able to devote themselves to nobler motives. Millennial and Generation Z consumers may appear similar, but marketers have already noticed differences between the two age groups. Generation Z grew up with and thus define themselves through new technologies. Where millennials grew up with computers, Generation Z has grown up with cell phones and touchscreens.
Consumers aged 16–21 worldwide spend most of their money on cars, entertainment products, hobbies, college, cell phones, looks and food. Younger consumers (ages 6–11) spend their money on toys, confectionery, video games, clothing, films, collector’s cards, board games, magazines, and comics. The status as Japan’s youngest counsumer group places Generation Z in the discovery phase of luxury products, especially for lesser-known brands. But new and unknown brands seem to be piquing their interest.
Where traditional luxury brands were most important for older generations, centennials are more open to new brands. With their growing numbers around the world and increasing interest in branded products, Generation Z consumers are are increasingly attracting attention as the hope for global consumer brands. The Japanese online retailer Zozotown has created its own platform called “Wear” with ten million users, where young Japanese people post their outfits and encourage others to buy them on Zozotown.
In most markets, Gen Z is seen as a promising new market simply because of its size. In Japan, their relevance compared to the largest consumer group (the baby boomers) is not yet as important as in other markets. Nevertheless, many marketing agencies already see them as a lucrative target group. In conclusion, it can be said that despite the age differences in all three target groups, the issue of sustainability is playing an increasingly important role. The search for information is also shifting to the Internet. In the meantime, the majority of purchasing consumers, typically among Generation Z, are digital natives.
About Author Prof. Dr. Parissa Haghirian
Parissa Haghirian is a Professor of International Management at Sophia University, Tokyo. She has lived and worked in Japan since 2004 and is an internationally renowned expert in international management with a focus on Japanese management.
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