Loyalty programs and point cards are ubiquitous in Japan. Even before big data became a form of currency, reward systems were a popular way for businesses to encourage consumers to become loyal, repeat customers.
No matter what shape or form they may take, be it a stamp card, a plastic card, or in recent years an app, many Japanese retailers and merchants utilize some kind of loyalty program.
While a point card or loyalty program might not make sense for all businesses, those with the resources to create and manage a customer loyalty program can amass incredible amounts of data on consumers and the costs of creating and managing such a program can be an investment for future growth.
A few years ago the most popular point card—and by extension point system—in Japan was the T Card (sometimes referred to colloquially as the T-Point Card) offered by Tsutaya, a CD and movie rental store that has evolved into a retailer selling books, lifestyle goods, and even electronics.
At one point the T-Point card had close to 68 million members and could be used at over 900,000 locations from 179 retail chains. However, the T-Point card has become increasingly less relevant as of late, so while it is unclear whether or not it can still lay claim to the title of “most popular,” it is a good place to start the discussion of loyalty programs in Japan.
Problems Facing the T Card Loyalty Program
The main selling-point (no pun intended) for the Tstutaya T Card was the numerous partner stores which cardholders could earn and redeem the eponymous T-Points at. These retailers included coffee shops, restaurants, clothing stores, and even rental car agencies, just to name a few.
Recently, the T-Point program has encountered two major issues. First, it has fallen out of favor among chains that once accepted the card and second, “new” competitors, namely Rakuten and Docomo, have moved in with their own point programs steadily picking up those chains and retailers who have cut ties with the T-Point system.
For those unfamiliar with these two aforementioned companies, Rakuten is Japan’s second largest ecommerce site and Docomo is Japan’s largest (by number of subscribers) cellular phone company.
Analysis of the Loyalty Program Environment of Japan
The loyalty programs offered by Rakuten and Docomo have both absolutely exploded in popularity. This is interesting because on the surface these two loyalty programs do not offer a better return versus Tsutaya’s T Card.
The thing about these above-mentioned points systems, and point systems in Japan in general, that is worth noting, is that they are not fundamentally different from one another in terms of their benefits to Japanese consumers. Almost all of the point systems in Japan, including T-Points, offer users one point for every 100 yen (currently a little less than $1 USD)—minus the occasional promotion that might offer some multiplier or a set number of bonus points for certain purchases.
In other words, generally speaking, with most point cards and loyalty programs Japanese consumers can expect a 1% return on money spent because any accumulated points could then be used as currency at participating retailers (or to pay down bills in the case of Rakuten and Docomo) at a value of 1 yen per point.
While a 1% return isn’t anything to write home about, it’s still better than nothing and many Japanese diligently collect various types of points to try and eek out some sort of benefit from their spending.
So the question is then, how have these two competitors managed to gain ground so quickly?
Why have Rakuten Points and D Points Become More Popular?
The first reason might be simply a result of Japanese consumers taking notice of the decreasing number of stores where T-Point cards can be used. As just mentioned, with all else being equal, the more stores and retailers that accept a point card, the easier it is to justify keeping it in one’s wallet and actually using it.
With a major partner and one of the largest coffee shops, Dotour, having pulled out of the T-Point system earlier this year, and rumors of #2 convenience store chain FamilyMart considering ditching T-Points in favor of their own system (perhaps integrated with their recently released QR payment app, FamiPay), T-Point’s face a very uncertain future moving forward.
But, what really makes the T-Point card’s future seem uncertain is the underlying model which relied too much on the network of participating merchants it had partnered with to give the card value. When you take away those merchants the value proposition of the card itself is more or less non-existent—it basically becomes no different than an individual retail store’s loyalty card. Some sources also cite the fact that merchants had to pay Tsutaya a high price for access to the data the company collected, despite the data coming from customers who had purchased items or services from their business NOT Tsutaya’s.
Another aspect to this entire issue is the fact that T-Points originally came to prominence at a different time—well before the internet, smartphones, and streaming video—when video rental stores played a role in our day-to-day lives. Tsutaya got its start as such a shop.
While the company that manages the Tsutaya brand, Culture Convenience Club, has shifted emphasis away from its CD and movie rental business to become more of an upscale “bookstore-that-sells-other-cool-stuff” kind of business it now suffers the same difficulties that any retailer faces, as it is no longer a place most consumers visit on a regular basis.
Docomo and Rakuten, on the other hand, have added and incorporated their point earning loyalty programs on top of, and within, their existing ecosystems of products and services that are still a big part of Japanese consumers’ everyday lives.
For example, Rakuten has Japan’s number one credit card (in terms of card ownership), so even without a point-earning system outside of the company’s own ecommerce marketplace it would still have value as a credit card itself. Likewise, Docomo’s core offering of telecommunications, especially smartphones and internet services, would still provide significant value for Japanese customers with or without a point system aspect to it thanks to its position as the number one carrier in Japan.
As the push for cashless payments in Japan has intensified with the recent raising of the consumption tax, Rakuten and Docomo’s respective point systems are poised to benefit even further.
Cashless Rebate Campaign: A Boon for the Point-based Loyalty Program in Japan
On October 1st, 2019 the Japanese government increased the nation-wide consumption tax (VAT) from 8% to 10%.
As part of a campaign to lessen the impact of this increase on consumers—although in reality a cunning means to encourage more Japanese to switch to cashless payments—a rebate system was set up.
This rebate system is a separate, and somewhat confusing topic, but the long and short of it is that those consumers who choose cashless payment methods when making purchases in Japan can receive a rebate, either in the form of an automatic savings of up to 5% cashback or the equivalent in points, for the duration of then campaign, which runs from October 1st, 2019 until June 30th, 2020.
While points from a number of programs can be earned, point systems which are part of a service commonly used for cashless purchases—including credit cards—have a distinct advantage in terms of positioning, as there is no need to show a separate card to earn points or receive an instant rebate. As a result it should be expected for point systems and loyalty programs such as Rakuten to gain even more traction in the coming months as consumers look to make the best of an unwanted tax increase.
In the case of Rakuten Points, consumers already strongly associate its ecosystems with payments and shopping. Interestingly enough, certain T Cards can be used as a form of emoney if charged at a convenience store or online, but this usage case never really caught on among Japanese consumers in the face of existing alternatives that were better suited for this purpose—such as the Suica transit card from JR. For this reason, the T-Point Card has always been thought of as simply that point card you show when making a purchase at a convenience store or coffee shop, rather than an all-in-one card.
Loyalty programs and point cards are everywhere in Japan, however, not all programs are equal in the eyes of Japanese consumers.
Japanese tend to carry multiple loyalty cards, which means there are opportunities for implementing loyalty programs exist for various retailers. However, despite nearly identical reward structures, the underlying value proposition can differ.
The T Card has become increasingly less prominent in the Japanese market, while Rakuten and Docomo have swooped in to fill this gap. By building on top of their existing customer bases, these two companies are likely poised to be the next major players in this space.
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