TOKYO: Brands are reassessing the allocation of their marketing budgets in Japan following the near doubling of the country's consumption tax.
This follows a surge in Japanese consumer spending ahead of the rise from 5% to 8% at the start of April, with a further increase to 10% scheduled for October 2015. Denstu surveys showed that 60% of Japanese consumers intended to bring some purchases forward to beat the tax rise, the Financial Times reported last month.
Brands are now exploring several options for dealing with the new economic environment. As well as simply passing the increased cost on to the consumer, they are also looking at reducing pack sizes and reviewing how their marketing budgets are used.
"Ad spend by manufacturers and retailers is expected to increase in the short term as companies are seeking to capture consumers that are scaling back spending following the tax increase," Mariko Takemura, a senior research analyst at insights provider Euromonitor, told Campaign Asia Pacific.
He was uncertain about the longer term impact, but Toshihiro Tsujita, a senior executive at the Hakuhodo agency, took his guide from a similar situation in 1997 when consumption rebounded after about four months. "We expect to see consumption back on track by July this time as well," he said.
But even if that were to happen, there is no guarantee that advertising expenditure would follow suit. Yoshiyuku Sodekawa, research director of consumer insights at Dentsu Innovation Institute, warned that there was a chance that "a larger share of marketing budgets will be used for discounts and in-store promotions rather than on advertising".
With advertising charges also subject to the higher tax, he said his agency would be talking to advertisers about whether to keep the total media cost the same by reducing the number of taxable placements or keep the placements the same and so increase the tax levied.
Nick Foley, president SE Asia and Pacific for Landor Associates, argued that FMCG brands especially had little choice but to pass on the costs, as Coca-Cola has already done. Heavier discounting would simply lead to higher levels of switching and lower levels of brand loyalty, he said.
Data sourced from Campaign Asia Pacific, Financial Times; additional content by Warc staff