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 Nestl? 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 Nescaf? 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 Nescaf? 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. Nestl? 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.
