Japan - Commercial Guide

Discusses pricing formula and other fees, value-added tax (VAT), etc.

Last published date: 2019-10-13
A decade of near-zero inflation, combined with decreased regulation and greater global competition, has had a profound effect on Japanese price-setting strategies. A low economic growth rate, combined with an aging population receiving fixed incomes make the average Japanese consumer more value conscious. The growth online marketplaces such as Rakuten and Amazon Japan, has also contributed to greater product awareness and price sensitivity by Japanese consumers.

In March 2019, the Japanese government enacted the tax reform bill, which may further increase consumers’ sensitivity to retail prices. Among various reforms, the bill included changes in international taxation, a consumption tax hike from 8 to 10%, and greater tax incentives for companies undertaking R&D, in order to promote innovation.
Furthermore, deregulation has eliminated multiple layers of intermediaries in the distribution process. These factors have led companies to move away from pursuing a low margin, high volume strategy toward a more real-time pricing strategy aimed at adjusting prices based on prevailing market conditions.

In order to differentiate their product or service from competitors, companies have had to find other ways – apart from pricing – to draw customers. Features such as appealing packaging, after-market service, or extended warranties are among the common ways in which companies try to differentiate their brands. Japanese consumers have developed an implicit expectation for such add-on features when making a purchase. Consequently, when U.S. exporters review prices in the Japanese market, it is important to consider the entire “package” being offered by domestic competitors – namely, the product or service plus add-on features – in order to arrive at a more accurate price comparison.