TOKYO (AdAge.com) -- Kohzoh Takaoka found a sweet spot for Nestlé's Kit Kat chocolate bar in Japan's viciously competitive retail market by turning the brand into a good-luck charm for frazzled students on exam day. Mr. Takaoka, representative director and exec VP, Japan, gave the program legs by coming up with seasonal local flavors like green tea, soy sauce and wasabi that turned Kit Kat into one of the top souvenirs for domestic travelers.
Now Nestlé hopes that Mr. Takaoka, a veteran who joined the Swiss company in 1983 and who has managed relationships with agencies JWT and McCann Erickson in Tokyo, can work the same magic with Nescafé in Japan, the world's largest instant-coffee market.
Ad Age: Japan's economy has shown some signs of improvement but consumer prices are still falling. When do you think Japan's retail market will see a full recovery?
Mr. Takaoka: I am not optimistic. Japan's economy has slowed down very much and recovery is slow, even slower than the U.S., simply because most of the industry's business model is already out of fashion, because of over-competition among products that are all the same, so marketers are focusing on a price war. That's the current problem.
Ad Age: What's the solution?
Mr. Takaoka: Manufacturers need to make products with additional value. Take food and beverages. Taste and quality are not enough; you have to create more value for consumers. Kit Kat is a good example. We added an emotional value to the Kit Kat brand as a lucky charm for Japanese students.
Ad Age: How did Nestlé come up with the idea for unusual flavors for Kit Kat bars in Japan?
Mr. Takaoka: Too many new products were coming in and out of the market because of Japanese convenience stores' business model. Every week they changed the items on the shelves. There was no price competition, it was all about listing. By only planning to sell products for up to two months, we could afford the risk of having products pulled off the shelves quickly because we produced the right amount to sell out. But it created a kind of scarcity or rarity value for Japanese consumers. We started with strawberry flavor in one region. It did well, so we did it nationally with great success and that started our program of seasonal limited-edition promotions.
When we create new flavors, we try to figure out what's the best combination of chocolate and something else. Japanese love fruit sundaes sold at traditional coffee shops, so we started looking at those flavors, which led to fruit flavors like banana and pineapple. My favorite, green tea, is one of the best and it's why we first came up with a white-chocolate base.
In the next step, Japan has [local] specialty food products, so that was the basis for the flavor choices, like soy sauce from Tokyo, which is known for having the best soy sauce in Japan. We've created more than 50 flavors over the last 10 years.
Ad Age: Do you think flavored Kit Kats would sell in other markets?
Mr. Takaoka: The limited-edition strategy is specific to Japanese convenience stores. The U.K. copied the business idea and totally failed simply because U.K. customers are not expecting so much innovation from a candy bar, plus it's a costly business model in the U.K., where companies have to pay a large fee, about $100,000, to launch a new product there.
Ad Age: Now that you're in charge of Nestle's coffee division, are you looking at new flavors and products under the Nescafé brand?
Mr. Takaoka: No. Flavored coffee is not as popular in Japan the way it is in the U.S. But Japan is the largest instant-coffee market in the world, and Nescafé is the largest player, with about a 60% market share.
So we are looking at product innovation instead of a flavor strategy. We developed a new machine for soluble coffee with caramel on the surface. It launched on March 1, and costs about $80, so it's not very cheap but it's selling ... too well. We sold 100,000 during the first two months it was on the market and we're now out of stock. Japanese consumers are very excited about it.
Ad Age: Why has Japan developed such an intense retail market, compared to the U.S. and Europe?
Mr. Takaoka: Local companies like Suntory, Meiji or Lotte spend money on corporate branding but not on products. Take Meiji, it's the No. 1 local chocolate maker but they have over 150 brands, and only a handful are making money. Every year they launch new brands that soon get de-listed and the next year, they come out with new ones. Nestlé focuses on Kit Kat, the leading candy bar in Japan. Even though we're introducing new flavors, there's only one brand, which makes us more effective and successful.
Ad Age: What is the strangest new product you've come across in Japan so far?
Mr. Takaoka: Once we developed a miso soup-flavored Kit Kat bar, which was really the craziest idea, even for me. But we developed one with quite a good taste and it's still on sale.