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Hakuhodo celebrates its 100th anniversary this year, but it dates its emergence as a fully integrated advertising agency to 1975, when it took the then-drastic step of recruiting as its president and CEO Michitaka Kondo, a retired bureaucrat with a reputation as "brightest of the brightest" in Japan's Finance Ministry. He became the architect of the concept of marketing engineering that revolutionized Hakuhodo's approach to advertising.

Mr. Kondo possessed unusual credentials to run an ad agency. He had retired as chief commissioner of the National Tax Administration Agency. This was the first time a major advertising agency had selected its president from the government bureaucracy; and he came from the most prestigious of all areas.

Despite-or perhaps because of-his newness to advertising, he was especially instrumental in leading Hakuhodo, then experiencing difficult times, in a decisive break with its past.

The beginnings

Hakuhodo, founded by Hironao Seki, set up shop in October 1895 serving educational magazines. In its early years, the company functioned as an advertising space broker. But in 1910, the obscure agency got a break that altered its fortunes.

At the suggestion of the newspaper Tokyo Asahi, Hakuhodo contracted for the entire front page of the paper for ads, an arrangement that was to last until 1940. Tokyo Asahi was interested in book ads, and that was what Hakuhodo provided.

It had done something no other agency had ever accomplished by taking over the front page of a major Tokyo daily. This feat labeled Hakuhodo a "major" Japanese agency.

From that point, agency officials say, publishers had to deal with Hakuhodo. The company had the publishing industry in its pocket; it had acquired the reputation of being a book agency, although as time went on, this became a limitation rather than an asset as Hakuhodo attempted to adapt to the media changes of the era.

In 1924, the agency was reorganized as a joint stock company with Mr. Seki as its first president.

Growing competition

The book advertising business peaked in 1928, and in that year Hakuhodo's revenue placed it first among Japanese agencies. Monthly sales ranged from 600,000 yen to 800,000 yen, compared with about 450,000 yen for Dentsu, which would become Hakuhodo's chief competitor and eventually Japan's largest ad agency.

But the book advertising boom was over. Hakuhodo was burdened with having to accept deferred payments, along with growing competition from Dentsu.

Hakuhodo also took a fling at being an agent and distributor for serial novels in the '30s, but quickly reverted to its primary role as a book advertising company.

Then came the realization that the agency must expand into other fields if it was to grow and thrive. But it was difficult for Hakuhodo to shake its "book" image. Between 1937 and 1944, it absorbed other agencies in an effort to break away from that image and expand, but change was difficult.

The postwar era

After World War II, the electronic media explosion rapidly altered the direction of the Japanese advertising business. The first wave was radio, and Hakuhodo created a radio department in 1951 to train staff members in the techniques of radio advertising and, two years later, TV commercials. By 1961, radio and TV ad revenue surpassed the agency's newspaper advertising. Hakuhodo finally had escaped its book advertising image, and today, that category represents less than 10% of its revenue.

In 1960, the agency broke with tradition and became the first Japanese agency to import the U.S.-style account executive system and successfully adopt it.

The same year, it opened a New York office.

The company was thinking internationally in other ways as well; also in 1960, it entered into a partnership with American agency giant McCann-Erickson to form McCann-Erickson Hakudodo, which lasted until 1994.

In 1975-the year Mr. Kondo became its president and CEO-Hakuhodo reaffirmed its international commitment by establishing Hakuhodo Advertising America, headquartered in New York.

"Marketing engineering"

Mr. Kondo moved quickly to strengthen the management structure. Almost from the start, he began developing the concept of "marketing engineering." This was the first comprehensive approach to advertising in Japan and would become the new management policy of Hakuhodo.

The agency explains it as "integrating the many and varied marketing techniques in total approaches that generate the greatest marketing power."

This total approach to marketing-from the idea and development of a new product, marketing strategy, communications strategy, project management and execution to review, evaluation and feedback-became the agency's official policy in 1982.

One motivation for developing this concept was the realization by the agency that advertising alone cannot sell products.

Hakuhodo decided to go to consumers first to determine their tastes and desires.

The Institute of Life & Living

As part of this sea change, the agency developed the Hakuhodo Institute of Life & Living. The institute, which became the agency's "think tank," was established because of Mr. Kondo's conviction that marketing information should first come from the consumer to the agency, and then to the client. He believed advertisers needed to know "what to talk about to consumers" by pinpointing their wants and desires. The institute's mission was exclusively to engage in monitoring the Japanese consumer.

In taking a new look at consumers, Hakuhodo reinterpreted the meaning of "consumer."

Traditionally, three kanji, or characters, were used to characterize consumers in Japan. The key character describes men and women consumers as "merely spenders."

Hakuhodo changed the consumer concept by using a kanji that said the consumer was a living person" (seikatsusha).

This means to the agency that consumers are not merely spenders but thinking persons who choose wisely those things they want or need. Seikatsusha is not merely a slogan at Hakuhodo, but a guiding principle in conducting business. The institute collects data on lifestyles and seeks opinions and comments from consumers.

A new structure

Under the leadership of Mr. Kondo, Hakuhodo established a management structure based on the principle of "strategic command" to control and coordinate all of its divisions. His ideas were incorporated into the large-scale reorganization of the agency carried out in 1982 along with its management policy of market engineering.

In 1983, another top-ranking Finance Ministry official, Ritsuo Isobe, became president-a position he would hold for 10 years. The agency during this period began closing the gap with Dentsu. By 1989, Hakuhodo billings had reached 500 billion yen, or 44.7% of Dentsu's. That figure had risen to 46.8% by 1993. Mr. Isobe stressed that everyone in the agency put the client first, and that it was their duty as agency people to explain everything in a straightforward way to clients.

The number of employees grew from 2,290 in 1975 to the current 3,630, a 37% increase in those two decades.

Each year, the agency recruits about 100 recent university graduates. Although many have liberal arts backgrounds, the agency also seeks those with degrees in engineering, chemistry, architecture and computer science.

Creative growth

Hakuhodo's creative reputation has grown steadily over the last quarter-century. In 1970, the agency won a Clio for a TV spot for Emeron soap. By 1973, it began to attract worldwide notice by scoring a pair of second-place awards at the commercial festival at Cannes for commercials for Japan Air Lines and Toshiba.

This reputation was enhanced by other creative honors, including Cannes Gold awards in 1987 for a Suntory Red whisky spot and in 1993 for Minolta cameras.

But the crowning glory came in 1993, when the agency won the Cannes Grand Prix for a pair of commercials for Nissin Food Products Co.'s Cup Noodles.

The "bubble" bursts

Japan's "bubble" economy, based on highly inflated stock prices and real estate, burst at the beginning of the '90s. This was a shattering financial setback for advertising-Hakuhodo officials termed it "the most severe blow" ever suffered by Japan's advertising industry.

The burst bubble led to a four-year downslide Hakuhodo reversed in 1994, when it recorded a billings increase.

Current Hakuhodo President Takashi Shoji (see interview on Page H-14.), looking back on the collapse of the bubble economy, commented that "the ability of our company to survive becomes stronger through shocks."

In his inaugural address as president in June 1994, he said marketing competition will become more severe and that agencies face big changes because of developing technologies and deregulation of Japan's economy by the government.

Hakuhodo has entered new arenas, including multimedia, direct marketing and investor relation. In May, the agency started Hakuhodo Investors Relations Access Communications (HIRAC), providing information and guidance for foreign companies that intend to list their securities on the Tokyo Stock Exchange.

The agency has come a long way from its beginnings as an educational magazine and book publishing agency. In fiscal 1994, billings were 548.8 billion yen.

Advertising Age ranked Hakuhodo ninth in worldwide advertising revenue in 1994, the same as in '93, and its billings placed it eighth both years. Jack Russell is an Advertising Age International correspondent based in Tokyo.

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