Japan’s postwar economic miracle delivered astonishing growth, fueled by a manufacturing sector that earned itself a reputation for producing high-quality, highly practical goods.
The end of the Japanese asset price bubble in the early 90s brought this era of growth to a sudden halt, and the national economy has since worked hard to recover. The years following the 90s collapse are often referred to as the lost decade, and even more than 20 years into the new millennium, some Japanese businesses are still in recovery mode.
“Instead of only placing value on things that are practical or useful, we’re starting to recognize value in things that have meaning, or emotional significance.”Shu Yamaguchi, Independent Researcher/Writer/Public Speaker
“Japan achieved a level of economic growth that was the envy of the rest of the world. It was a highly successful model,” explained independent researcher, writer and public speaker Shu Yamaguchi at the Rakuten Optimism 2021 conference, in a session entitled The Future of Business: From Showa Values to Reiwa Values. “Yet, even though we’re working just as hard today, we haven’t been able to replicate that success. Why?”
It’s not just Japan, Yamaguchi noted. In fact, none of the world’s seven largest economies are outperforming their own growth levels of the 1960s, despite major advances in technology.
What consumers value is changing: Emotional significance
“Since the 1990s, all sorts of new technologies have transformed the way we work. The pandemic kickstarted a culture of remote work, and teleconferencing has allowed us to efficiently participate in meetings remotely,” he remarked. “As convenience increases, labor requirements go down. That means productivity should, in theory, increase.”
“But there is a fundamental redefinition of the meaning of value taking place,” Yamaguchi argued. “Instead of only placing value on things that are practical or useful, we’re starting to recognize value in things that have meaning, or emotional significance.”
“The world we live in today no longer judges things based solely on how convenient or practical they are…Today, the most functional, convenient products are the ones being sold at the lowest price. Tell that to someone from a century ago and they’d think it absurd.”Shu Yamaguchi
Yamaguchi shared a cultural turning point from the music industry in 2020 to illustrate the point: “For the first time since 1980, sales of vinyl exceeded those of CDs,” he revealed. “When CDs came about, they annihilated the sales of vinyl. Records are inconvenient. They take up space, and you can’t skip to your favorite song. CDs, on the other hand, were extremely convenient, and took up much less space. Records became something of an endangered species.”
Why have the tables turned so dramatically three decades later? Most of the industry has moved to online streaming, but CDs and vinyl still exist — vinyl is just as inconvenient as ever — and yet some consumers are moving towards the opposite end of the convenience scale. Yamaguchi believes that it all comes down to emotional value.
“The world we live in today no longer judges things based solely on how convenient or practical they are.”
This trend can also be seen in the modern automotive industry.
“Japanese cars are a great example of a product that is very practical — they’re safe, comfortable, quiet, durable and fuel-efficient. For the job of moving people and things around, they have incredible utility,” he ventured.
While still important, practicality alone is no longer enough to differentiate a product from the pack. Yamaguchi compares Japanese cars with those of luxury auto manufacturers like Porsche or Mercedes-Benz, which can set their prices at three to four times the price of a regular Japanese car.
“These cars are also very practical, but are they three to four times more practical? If a Japanese car can carry five people, can a European one carry 15? Of course not,” Yamaguchi quipped. “So why are we paying such a premium? It’s for emotional value.”
“When commerce is freed from the shackles of physical stores, that allows people for whom those products mean something to access them from wherever they happen to be.”Shu Yamaguchi
Bring luxury sports cars into the equation, and the situation becomes even more extreme: Despite barely fitting a suitcase, prices for some low-production models can reach into the millions.
The realm of emotional value: A vast, blue ocean of opportunity
“There’s only one scale to measure practicality. A product is either more or less useful than another.”
For some industries, however, practicality still reigns supreme.
“There used to be many different search engines, for example, but Google ended up dominating because it provided more useful results. That’s all it needed to do,” Yamaguchi continued. “It didn’t need to provide search results with a certain flavor. Their servers didn’t need to be handcrafted by an elderly Italian man. That provides no extra value to users. In the world of search engines, there isn’t much room for emotional value.”
But for other industries, emotional value represents a new arena in which to compete — one less linear than a simple scale of better or worse.
“These companies that have established themselves in the emotional value market, they use media in a completely different way.”Shu Yamaguchi
“The realm of emotional value is a vast, blue ocean, since it’s a matter of individual taste,” he explained. “Wine, literature, music — there’s no real conclusion to the argument about whether the Beatles or the Rolling Stones were better, or Debussy or Beethoven.”
“Practicality is quite easy for organizations to improve upon,” he asserted. “Emotional value, on the other hand, is much more difficult. It’s very hard to achieve a consensus on what has emotional value. With practicality, it’s easy. But for emotional value, you need empathy. There’s no specific logic behind it.”
“Companies need to be able to adapt their strategies to this shift,” Yamaguchi continued. “If they can’t do that, it won’t matter how much technology advances — productivity will not increase.”
Niche is no longer a scary concept: The evolution of global e-commerce
“Some might say that pursuing emotional value is a one-way street to a niche market,” Yamaguchi posed. “And that’d be absolutely right.”
For many in the world of business, niche market is a scary phrase that evokes ideas of limited growth potential.
“Many of these companies don’t have customers, but rather fans…It’s these fans that are doing all the advertising, going on YouTube and social media to tell the world how great their products are. Customers are becoming cheerleaders, supporting the manufacturers they love.”Shu Yamaguchi
“There are 120 million people in Japan, so if you’re going to target a large market, you need to have utility,” he elaborated. “Emotional value, on the other hand, will only appeal to a small ocean of people.”
But in the age of the global economy, that small fraction goes a long way — in a much larger pool.
“There are 1.2 billion people in the developed world, and China’s upper class is growing ever larger,” he noted. “If you somehow managed to capture 50% of consumers in Japan, you’d have 60 million customers. But if you were to capture just 5% of the entire developed world, that still translates to 60 million customers.”
While this may seem like a serious risk for the same result, there’s one more factor to add to the equation: price. “If your product is something with emotional value, you can potentially add a zero or two to your unit price.”
Case in point: Century-old Japanese furniture maker Maruni Wood Industry was facing potential bankruptcy when they decided to collaborate with high-profile designer Naoto Fukasawa, which won them a global fanbase and saw them become a supplier for Apple’s sprawling headquarters in San Cupertino. A single Maruni chair starts at around 2,300 USD.
Some Japanese companies have already embraced the niche with astonishing success, like appliance maker Balmuda. Perhaps only a very small percentage of people would buy a 300 USD toaster, but the company has leveraged social media to allow happy customers to organically amplify the company’s global presence and reach those rare toast aficionados.
“Many of these companies don’t have customers, but rather fans,” Yamaguchi stressed. “It’s these fans that are doing all the advertising, going on YouTube and social media to tell the world how great their products are. Customers are becoming cheerleaders, supporting the manufacturers they love.”
It’s an approach only possible thanks to the internet. While traditional media such as TV, print and radio are effective ways of casting a wide net to many potential customers, it’s an expensive and inefficient strategy when it comes to marketing niche products.
“These companies that have established themselves in the emotional value market, they use media in a completely different way.”
They also take a completely different approach to interacting with customers.
“This new world of emotional value doesn’t really mesh well with the nature of traditional retail,” Yamaguchi remarked. “You can’t segment physical stores into a thousand tiny niches.”
This, Yamaguchi believes, is an area where e-commerce truly shines.
“When commerce is freed from the shackles of physical stores, that allows people for whom those products mean something to access them from wherever they happen to be,” he argued. “In this age where we seek to enrich our lives through products with emotional value, I believe e-commerce has a very significant role to play.”
Advice for product creators: Moving beyond the pursuit of practicality
Yamaguchi had some advice for those looking to create products with meaning.
“You need to find out what moves you emotionally. Broaden your horizons and experience as much as possible to find what truly moves you,” he suggested. “We really need to move on from this pursuit of practicality. We need to go out into the world and see and hear as much as we can to restore our emotions. To relearn what we like and dislike and to develop what I call our sensitivity to happiness.”
To view the full session from Rakuten Optimism 2021, click here.