Retail media will undergo its own unique evolution in Japan.

Retail media refers to media operated by retailers. Typical examples include signage advertising installed in stores and online advertising on e-commerce sites. In Part 1 of this series, we explained the basics of retail media. Following the second installment, the third installment also features a roundtable discussion with three individuals at the forefront of retail media. How will retail media, which has seen rapid growth in North America, evolve in Japan? They exchanged views based on the latest insights. (The roundtable discussion was held on December 8, 2022)

<Table of Contents>
▼From ROI to Insights
▼Leveraging Franchise Strengths
▼Value Lies in What Data Can't See
▼Beginning with Customer Understanding: Toward a Japan-Specific Retail Media

From ROI to Insights

Yagi: Continuing from last time, we'll discuss "What Retail Media Brings" and "Where Retail Media is Heading" with Mr. Sugiura from Seven-Eleven Japan, who drives their retail media business; Mr. Iba from IBA Company, knowledgeable about the latest retail trends and technologies in the US and Japan; and ourselves, Yagi from Dentsu Consulting Inc., who supports retail media business launches.

Last time, we discussed the rapidly growing retail media landscape in the U.S. and its fundamental nature. This time, while introducing Seven-Eleven Japan's retail media initiatives, we'll exchange views on where Japanese retail media is headed.

First, let's consider the benefits for manufacturers advertising on retail media. Until about two years ago, the primary benefit was the ability to measure ROI (Return on Investment) using data. In contrast, gaining customer insights through data mining is now emerging as a new benefit.

Iba: Naturally, ROI expectations remain high. Regarding customer understanding, manufacturers likely have a stronger desire for deeper insights than retailers.

Manufacturers have continuously made various efforts to understand customers, including quantitative and qualitative consumer research. If the increasing digitalization of customers, combined with partnerships with retail partners, enables access to high-quality data that connects to actual in-store purchases, and if this leads to gaining important customer insights, then that should be welcome news for manufacturers.

Sugiura: Manufacturers don't typically interact directly with customers, right? Because they can't see them, they've always strived to understand. Retail is the opposite—they see customers every day, sometimes too much, to the point they forget they're observing. Now, by combining what each holds, we're seeing the potential to create something valuable.

Katsuki Sugiura joined Seven-Eleven Japan in 1998. He gained experience as a Zone Manager supporting franchise stores in Nagano, Yamanashi, and Western Tokyo. In 2018, he led the launch of a new business company within Seven & i Holdings. Subsequently, from March 2021, he served as the Digital Sales Promotion General Manager at Seven-Eleven Japan, overseeing the Seven-Eleven App. From September 2022, he assumed his current role as General Manager of the Retail Media Promotion Department, responsible for launching, strategizing, and executing retail media initiatives.

Yagi: From a manufacturer's perspective, retail media is a platform that provides a foundation for measuring the ROI of advertising based on data. Beyond that, it's a medium that allows us to understand what customers are truly thinking from the data obtained and to test marketing activities.

Iba: We haven't quite reached that point yet, but I believe that's the direction we should aim for. For manufacturers, the unique appeal of retail media lies not just in ROI, but in the ability to gain a deeper understanding of consumers and customers.

When I spoke with a Google media representative in the US, they said, "In Japan, people probably think of retail media as advertising. But it's not advertising; it's media. You should understand that. You need to learn and think more about creating compelling media and operating it effectively."

Leveraging the Strengths of Franchising

Yagi: Seven-Eleven has worked alongside its franchisees to understand local communities and customers, creating stores and offering products tailored to those specific areas and people. This is something other retailers struggle to achieve. That expertise itself should have a very positive effect, transcending the boundaries between retailers and manufacturers.

Sugiura: That's precisely the strength of franchising. Every day, marketing efforts by the owners of 21,000 stores nationwide are running across the country, each targeting their specific customers. If headquarters could gather all this information and share it with manufacturers, it would create a win-win situation for both sides.

Iba: Exactly. Purchasing habits and behaviors vary significantly depending on the store's location and the residents living there. Leveraging this deep understanding of regional differences, manufacturers and retailers could collaborate to plan marketing that truly resonates with local customers.

Sugiura: For example, when a local sake brewery wants to promote a new product, we often hear that TV commercials are costly and there are few other contact points available. In such cases, I believe Seven-Eleven stores could serve as highly effective media outlets. They could act as touchpoints for customers, specifically distributing information only within that area or timing it to coincide with tourist visits.

Iba: That's true. Tourists definitely want to know which local sake is good.

Sugiura: If stores truly become media for people who want to know and those who want to share but lack a way to do so, I think physical stores as platforms would really come alive.

Value lies in what data cannot show

Yagi: Imagining each customer's profile from purchase data and extracting their true feelings and insights—even those they themselves aren't aware of—that's the starting point for everything. Once you can do that, I realized how it changes how you design the storefront, how you present information, and how you get people to buy.

I'd say how we extract insights from purchase data is what defines the value of "Seven-Eleven's Retail Media." Could you share some of the secrets behind that?

Sugiura: There's no secret, really... but actually, the people most attuned to customer insights are the store employees. When an employee says, "We're out of that item right now," they're essentially voicing the customer's insight.

But that doesn't show up in purchase data. Only what sold appears. For example, a customer who really wanted a makunouchi bento but bought beef kalbi instead because it was out of stock. Looking only at purchase data, that customer would appear to "like beef kalbi." Stores where the insight "if the makunouchi bento hadn't been out of stock, that would have sold" is shared internally can effectively use that information for ordering.

Iba: It's precisely those reasons behind "why they bought or didn't buy" – the insights invisible in mere purchase data – that manufacturers want to know.

Sugiura: Until now, retailers have handled this internally.

Iba: Combining these reasons and drivers behind customer actions with their responses to retail media communications and content could yield diverse discoveries for retailers, couldn't it? For manufacturers, sharing such "insights" with retail partners would also become valuable information. I believe this is an area where manufacturers invest in research to understand their own customers.

Sugiura: That's right. One area where our data perspective was lacking was, for example, that in-store behavioral data was confined to individual stores and wasn't highly valued within headquarters.

Now, as we engage with retail media, I believe headquarters must re-examine not just purchase data, but the various aspects of customer behavior. If we can analyze behavioral data, it opens the possibility of offering something different from what we provide today.

Shun Iba (Hitomi Iba) earned an MA from the University of Massachusetts and an MBA from New York University Stern School of Business. For approximately 15 years, primarily working at the U.S. headquarters of global companies (Colgate, Palmolive, Kraft, American Express, Fila), he managed projects including market entry, business development, product development, marketing strategy, and innovation, leading them to success. Subsequently, she served as Vice President of Marketing at Coca-Cola Japan before founding IBA Company in 2010. Currently, as President and CEO of IBA Company, she leverages the latest insights in U.S. digital technology, business models, and marketing to consult on corporate business development and DX strategies. She assumed the position of Outside Director at DCM in 2022 (current position).

Iba: Customers are exposed to diverse information daily and are constantly changing. Because they are changing, we should perhaps consider that "we understand our customers" might be an illusion. We must not only observe purchasing and behavior through data but also utilize insights to understand the "why" while grasping the "now" of customers who continue to evolve. Without understanding why they took certain actions or made specific purchases, can we truly create products or communications that move the hearts of our valued customers?

If we're going to use retail media to understand customers, I think we should build and operate it on the premise that "we don't fully understand customers' 'now'."

Sugiura: I agree completely. Even if the definition of retail media is still unclear, when pushing this business forward, we must properly re-examine our customers. Retailers must earnestly seek out what actions customers are taking. Due to the nature of convenience stores, customers might use them to some extent simply because the store is open. But to advance retail media, I believe it's crucial to properly observe customers once again.

I feel like there's been a growing trend lately where customers know things that retailers and manufacturers aren't aware of. Things that seem obvious to customers, but retailers wonder, "Why is that selling?"

Retailers are unaware of things customers expect them to "just have ready." I believe signs are emerging on social media, so I advocate for more social listening.

Iba: Understanding key customer insights is increasingly leading directly to revenue growth, right?

Sugiura: Especially with younger generations, we learn so much from customers. I'm from the generation that used Tabelog to find restaurants, but today's customers search on Instagram or TikTok. It's not about ratings or reviews.

In recent years, I've dramatically increased my opportunities to realize that engaging with customers isn't about sellers taking a condescending approach; it's about learning from customers.

Iba: Understanding customer insights and combining them with other behavioral and purchase analyses to inform retail media content and operations. In that process, collaborating with manufacturers and feeding back the insights gained. By doing this, I believe retail media can become an attractive medium for retailers, manufacturers, and customers alike.

Starting with customer understanding, toward a uniquely Japanese retail media

Yagi: Finally, Mr. Sugiura, what do you think Seven-Eleven's retail media is?

Sugiura: There are many aspects, but in a word, I think it's "customer understanding." "Customer experience value" is also important, but "customer understanding."

Personally, I've always said that "retail media for Seven-Eleven means creating a positive state for all stakeholders." But after talking with everyone today, I realized there are many essential steps to reach that point, and the very first entry point is truly understanding our customers – "customer understanding." If we don't thoroughly execute this fundamental step, the next steps become quite difficult.

I intend to delve much deeper into how we engage with customers, how we understand them, and how we can serve them.

Yagi: While Amazon and Walmart hold significant market share in the U.S., Japan is more fragmented. I imagine challenges will arise that Seven-Eleven alone cannot address. Do you envision possibilities for cross-format initiatives in the future, Mr. Sugiura?

Sugiura: I am considering it. Few things can be accomplished solely by 7-Eleven. I hope it expands to benefit all parties—manufacturers, our group companies, and local communities—creating a win-win-win or even a win-win-win-win-win situation. And I hope 7-Eleven serves as the gateway to that.

Yagi: So you want it to be a medium that gives back customer insights to society.

Katsumasa Yagi: Studied architecture at Kyoto University and Kyoto University Graduate School of Engineering. His motto at the time was "creating beautiful mechanisms." At Dentsu Inc., he worked in the marketing consulting organization on new business development and service development. Provided services across diverse industries including consumer goods and durable goods. At Dentsu Digital Inc., developed and delivered integrated solutions addressing challenges of the digital age by transforming business/marketing/organization/operations & IT. Launched the Transformation Consulting division as an Executive Officer, growing it to a 180-person organization. Currently at Dentsu Consulting Inc., as a comprehensive firm specializing in growth areas for society and businesses, he provides consulting services. "Right-brain × Left-brain × Unconventional Talent" identify challenges for decision-makers grappling with growth issues, then support them by co-creating "unique and credible" strategic concepts, planning, and execution.

Iba: Regarding retail media, are you considering ways to reflect each store's regional characteristics and customer traits?

Sugiura: Yes. Store media should be selectable with intent at each location. Headquarters would only manage regulations. We envision integrating store and headquarters resources in this way.

Iba: It's also good that stores can choose their content, right? Since each store has its own characteristics.

Sugiura: Tailoring content per store aligns with manufacturers' needs. We're moving away from a one-size-fits-all approach for store layouts and product assortments. Since we're transforming stores this way, media should follow suit. Reflecting this philosophy in retail media will ultimately benefit customers too.

We haven't fully communicated the benefits of retail media to manufacturers yet, so conveying that is the first step.

Iba: I also get asked by manufacturers, "What's the future of retail media?" I sense that question carries both high expectations and uncertainty about how it will actually progress.

Sugiura: Exactly. From our perspective, we'd like to start by conveying, "This is what the retail side is thinking." We hope to take that first step toward truly "building something together."

(End)

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