The reason why Japanese D2C subscription struggle in Taiwan

Hello, I’m Leo Sato (@slamdunk772), the CEO of applemint, a web marketing service provider in Taiwan!

Today, I’d like to share my personal view on why some Japanese D2C subscription model doesn’t work well in Taiwan, as I’ve been helping many Japanese D2C companies digital marketing in Taiwan for 5 years.

In Japan, many D2C companies offer discount for those who subscribe to their services. This is very popular business model in Japan and it’s called Tsuhan (通販). The Advantage for companies who use this model is huge, as their product LTV increases once users subscribe.

In 2016, a few D2C companies came to Taiwan to challenge whether their subscription model can be feasible in Taiwan or not. It is 2021 now and I must conclude that many companies have failed over the past 5 years.

Why did they fail? Do D2C companies in general have no chance in Taiwan? What can be done to improve the situation? In this blog, I would like to share what happened and how I would address the problems. If you’re a D2C company and thinking of penetrating into Taiwanese market, this blog is a must-read.

Why D2C Subscription model hasn’t been successful in Taiwan

The following are the reasons why I think Japanese D2C subscription model doesn’t work in Taiwan:

1. People think that the cost performance is low
2. The benefit of subscription is not actually beneficial

First of all, I think the biggest reason is the cost. Some Japanese advertising agencies state that the reason why Japanese D2C subscription model Tsuhan (通販) has not been successful is because in Taiwan, there is no culture of subscription. I personally think this is wrong.

For example, subscriptions such as Netflix and Spotify have become very popular in Taiwan in recent years. Disney+ has just launched in Taiwan yesterday (Nov.12th 2021). It’s hard to think a big corporate like Disney did not do any research about Taiwan and decided to launch a subscription business.

We have been working with a Japanese company that sells water subscription in Taiwan and it’s doing relatively well. Once the company acquires a new customer, the cancellation rate is low.

So it’s completely off the target to claim that Taiwanese people have no habit of subscribing. So what’s the difference between companies who have been successful in serving subscription and companies who have failed? I believe there are 2 reasons:

First, the cost performance of subscribing is very high for those that are successful. For example, Netflix and Spotify are highly cost-effective because you can enjoy a huge amount of videos and music for only 10USD (roughly 300NTD).

Second, companies who have succeeded in subscription have been able to provide concrete benefit. For instance, the water subscription service that we help unleashes customers for carrying heavy water. They deliver designated number of bottles every month. They also enabled their customer to obtain water without going outside which was very beneficial during pandemic.

On the other hand, D2C companies who have not been successful in subscription are Japanese cosmetics and health food product.

Cosmetics and health food products companies usually export their products from Japan to Taiwan. As a result, their products are inevitably more expensive than the local’s products.

In this age of uniformity in quality and technology, it’s hard to differentiate product’s quality just because it’s made in Japan or it’s from Japan. many local products are cheaper and have similar effects.

In addition, unlike water subscription who provides benefit of unleashing consumers from carrying heavy water, cosmetics and health food products do not really provide extra benefit.

In most areas in Taiwan, pharmaceutical and convenient stores are within walking distance so the burden of walking to these stores does not outweigh the burden of ordering online. Also, because there are so many similar alternatives for Japanese cosmetics and health food products in Taiwan, you can still find cheaper products even after the discount.

Solution: Make Your Products Look highly cost-effective

So, what should D2C companies whose business model is to have consumers subscribe?I believe there are two solutions: one is to make the product look like it has high cost performance, and the other is to make the “benefit” actually beneficial.

First, let me explain how to make your products look highly cost effective. I think there are 2 ways:

1. Buy xx, get xx free, like buy 4, get 2.
2. Make them choose from many products: a selection type of subscription.

We often see #1 type of pricing but we seldom see #2 type of pricing/ subscription. What exactly is #2 type?

For example, if a consumer pays 1,500 NTD per month, the company will let the consumer select 3 items out of dozens of products. The products may include 500NTD ones and also 750NTD products.

If the consumer selects three 750NTD products, the person gets 2,250TD worth of products despite paying 1,500NTD. But if you carefully look at it, it’s equivalent to buy 2 get 1 free.

What makes #2 different from #1 is that the consumer is making the choice. In general, psychology says that when people are asked to compare products and choose one, they perceive their comparison as decision.

For example, the reason why designers make multiple proposals is to let decision maker decide which one is the best. The decision maker is just comparing but the act of comparing can be perceived as making decision.

So I personally think #2 type has potential yet, it seems nobody as been trying. I may try myself one day to find out why.

Preventing cancellations: strengthening horizontal connections

Lastly, I would like to state how important it is to connect the people who have joined the subscription. In this regard, Mr. Nishino, who has the largest number of online blog members in Japan, often says, “strengthen horizontal connections”.

In other words, he wants his online blog members to interact with each other. It’s true that if you strengthen horizontal connections, you may start seeing people act as “oh my buddy XXX hasn’t quit yet, so I won’t either”.

So how can we strengthen horizontal connection among subscribers or customers? I think offline ‘actual meeting’ is the key.

Nio, the Chinese version of Tesla, is very good at facilitating these horizontal connections.

To briefly summarize their strategy on their honrizontal connections, Nio has a Nio membership. As a member, you can use Nio’s coworking space and lounge. Nio cars are rather pricey, so people who buy Nio cars often elite-type who are modern and progressive thinkers. Some Nio customers purchase the Nio car just to get to know these people.

Nio created another reason to purchase their cars besides functionality.

Summary

Let me summarize this blog. First of all, I think there are 2 reasons why D2C subscription model of some Japanese cosmetics and health food products are not doing well in Taiwan: one is the poor cost performance, and the other is that the benefits in which these companies claims are actually not beneficial, but rather Intrusive.

As for the cost performance, it is difficult to get people to buy products when there are cheaper products with the same effect….so what to do? I have mentioned 3 points:

1. Buy xx get xx free ( I do not really recommend)
2. make your products more cost-effective (selection type of subscription)
3. make horizontal connections among customers

In Taiwan, it is not that the D2C subscription services do not succeed ; subscriptions such as Netflix and Spotify are doing well, and the cancellation rate of water server subscriptions is relatively low.

So, if people can feel the benefits of the subscription I strongly believe D2C companies have a chance. That’s all from applemint CEO Leo! If you are every interested in our digital marketing service, contact us!

We are a team of bunch of trilinguals (Japanese, English and Chinese)!