Inflation by stealth: how Japan's firms fight the frugal retail psyche
26/09/2019 02:39
* Artificial intelligence helps identify where price meets
demand
* Dynamic pricing could change mindsets on prices
* Some people willing to pay if they find value
By Kaori Kaneko
TOKYO, Sept 26 (Reuters) - After years of soggy inflation
and the long reign of Japan's tight-fisted shoppers, businesses
in the world's third-largest economy are adopting new methods to
lift prices, from artificial intelligence to simple packaging
tweaks.
Despite many rounds of stimulus, Japan's policymakers have
failed to jolt households out of the deflationary mindset that
followed the 1990s property crash, which meant businesses
refused to raise prices for fear of losing customers.
Demand-based dynamic pricing, however, has allowed some
Japanese retailers to discretely bump up prices without
triggering the kind of customer backlash seen in more blatant
attempts at repricing in the past.
Yokohama Marinos, for example, a club in Japan's top
football league, introduced artificial intelligence last year to
more closely align ticket prices with demand.
"Previously, it was difficult to find the best prices
between demand and value of each match," said Hiroshi Nagai,
general manager for fan relationships at the club.
"The most fascinating thing about dynamic pricing is that it
can offer more choices to customers."
Dynamic pricing, or surge pricing, is common among
data-driven businesses such as ride-hailing services, but is a
relatively new concept for most traditional Japanese firms.
Using the technology, the Marinos sold tickets for a popular
seating area for a March 2 match at 7,400 yen, two weeks before
the game, but cut prices to as low as 4,000 yen to fill empty
seats as the match approached.
Koji Kawashimo, a 34-year old who has been a Marinos fan for
more than a decade, said he had no problem with his team
adopting dynamic pricing.
"I would pay for what I like. I want to pay if it's worth
it," he said.
Hotels are also introducing dynamic pricing in their room
rates including Centurion International, which operates over 20
hotels in Japan.
Centurion began using AI to collect information to charge
higher prices when demand is strong, and offer discounts when
demand falls to reduce vacancies.
"The system provides us information on competitors such as
the pace of reservation, which is great. It's a big advantage,"
said Hironobu Bun, revenue manager at Centurion International.
CHANGING MINDSETS
Economists believe it will take more meaningful structural
changes to Japan's economy to revive stagnant prices, which will
in turn help businesses deal with sticky overheads and restore
profits.
However, developments like the adoption of dynamic pricing
lay the groundwork for more radical changes in how companies set
prices for their goods and services.
"If dynamic pricing can change people's mindset so that they
believe price can fluctuate more, there's a chance firms may be
able to raise prices more easily where demand is strong," said
Izuru Kato, chief economist at Totan Research.
At the same time, other businesses are looking at more
cosmetic ways to drive the consumer to accept higher prices.
Japan's "gyudon" beef rice bowls have become a symbol of the
country's deflation due to their aggressively low prices. But
some outlets are turning that trope around by offering "premium
bowls" with better-quality meat for more than double the
standard price.
The 500,000 "sukiyaki" beef rice bowls offered by fast-food
chain Yoshinoya Holdings Co 9861.T in August were sold out in
about two weeks - much faster than the company had expected -
despite a price tag of 860 yen per bowl, double that of a
standard dish.
"The customer response has been good. If they see value in
it, they would pay even if price is a little higher," said Yuji
Terasawa, a spokesman of the company.
While such tactics seem to work, they take careful planning
and preparation. Fast Retailing Co Ltd 9983.T , whose budget
clothing chain Uniqlo boomed during the country's deflation era,
learned the hard way when sales slumped after it raised prices
in 2014. http://reut.rs/25Osyyo
In contrast, discount barber chain QB House 6571.T earlier
this year raised prices for a 10-minute haircut to 1,200 yen
from 1,080 yen, explaining it was needed to increase salaries to
secure better-trained barbers.
That move followed eight years of checking the customer mood
through regular marketing surveys.
While the hike triggered a 2% decline in customers from the
previous year, the drop was much smaller than the company's
projection of a 6% fall.
"The price of a haircut is still lower than other places,"
said Kazuaki Mimura, a 34-year-old employee of a service-sector
firm.
"I'm willing to accept a hike of a few hundred yen because
the service here is quick and my haircut is done properly."
(Reporting by Kaori Kaneko; Editing by Sam Holmes)
((kaori.kaneko@thomsonreuters.com; +81-3-6441-1983))