July 1, 2004

Apple: Technology as Fashion

This article is based on an editorial taken from JapanConsuming, the monthly market report on Japanese retail and consumer markets. For more information on this key source of analysis and data on the second biggest consumer market in the world, please click here.

When the Apple Store opened in Ginza last year, 5,000 people queued up outside, more than for Louis Vuitton’s Omotesando store opening the year before. In the first week the store brought in around ¥100 million in sales and since then, the store is reported to have averaged 5,000 visitors a day—on weekdays. Last month, the Apple Store saw another line outside its doors. More than 1,500 eager customers queued for the launch of a little music player called the iPod mini and the store sold out within a day.This is the stuff of legendary fashion superbrands, not a store selling boxed silicon. The ability to generate such enthusiasm for a small aluminum tube containing a chip, some memory and a bit of software is clearly a marketing phenomenon worth considering. Is it the brand? The function? The fashion? Most likely a bit of each.

Apple itself has a strong brand name both in Japan and worldwide. Interbrand recently issued its latest brand rankings showing Apple at 43rd with an impressive 24% increase in brand value since the previous rankings—the largest gain in the top 100. But there are many other brands of similar or stronger pulling power that have nothing like the draw of Apple Store, Ginza. It is true that Apple is also famous for benefiting from a loyal, almost frenzied group of users and followers in Japan as much as the rest of the world, but most of these are more interested in its computers and operating system than music players.

What makes the iPod mini so special? Judging by a quick survey of customers outside the store, it has a lot to do with women and teenagers. Within Japan, many of the core customers for the original iPod were men, in particular men with a bit of an obsession for new gadgets and a love of music. For them, a music player that can hold an entire 300 CD collection is something unimaginably exciting and the cause of sleepless nights.

In contrast, while the iPod mini can hold ‘just’ 80-100 CDs, or about 75 hours of music, it has a vital added feature: it comes in pink. And green, and blue, and silver, and gold. As with the original iMac, the addition of five colors and a change of casing from functional plastic and chrome to sleek aluminum, has transformed a cool and clever electronic device into a fashion accessory. Already Kyocera has followed up with a range of five digital cameras that precisely match the colors of the iPod mini. Next will no doubt be a range of cases and even luxury leather bags to match. Top fashion designer, Karl Lagerfeld has already produced a carrying case for multiple iPods for Fendi. These can be had for a mere ¥170,000, but if that’s too much, Gucci will sell you an iPod ‘sling’ for just ¥25,000.

The iPod mini is in fact one of those all too rare examples of an ideal product for the Japanese market. It is a product that does something useful, does it really well, and looks terrific too. None of these factors on their own is enough to make the iPod mini a success; their combination, through deft and creative implementation of function, is what makes the difference. Add in some tried and tested limited supply marketing, a store that looks as good as Louis Vuitton and a high impact award winning advertising campaign that has covered Tokyo in pink, green and yellow for weeks, and some of the reasons for the iPod mini phenomenon can be understood.

Such a brouhaha has naturally attracted the attention of rivals, particularly as analysts expect 20 million digital music players to be out there within the year. Naturally, the most talked about competitor is Sony, the company that launched the Walkman in the 1970s after a German, Andreas Paval, patented the idea. Sony has recently launched a Network Walkman with which it hopes to trounce Apple but the new product is already surrounded by controversy over claims of technological superiority. It doesn’t play mp3 files, the ubiquitous file format and, while Sony claims that superior compression technology allows storage of more songs, experts point out that the Sony machine uploads its songs at a much lower quality 48 kbps compared to the 128 kbps standard on iPods and other music players.

But all the emphasis on bits, gigabytes and file formats really just shows how much Sony has missed the point. The main issue here is not about competing over the widgets in the container. It is much more about selling these devices as fashion accessories. Everyone is talking about the confluence of computers and home electronics but what about the confluence of consumer technology and fashion?

Apple has understood something about the future of the consumer technology business that seems to have passed everyone but the mobile phone manufacturers by. This is that the core functionality of computers and electronics is pretty well universal across all brands and makes, to the extent that these devices are now not much more than commodities, especially with China now the workshop for the entire industry. What now differentiates brands is, and will be, the implementation of those functions and the capacity to provide the consumer with value and meaning in their outward expression. Years after Apple introduced the iMac, it is incredible that others have not realized this.

Apple clearly saw that the iPod’s components and core functions are easily replicable by any competitor from Dell to, ho-hum, Sony. What makes a difference is the whole package, from implementation of function to style. The parallel with fashion is there too. Consumers buy into a particular brand or designer of clothes because the appeal is much more than just the basic function of being less naked. People make their choice because of a perceived enhancement to their life in style, value, as well as function.

The iPod and iPod mini are being bought by precisely those consumers who buy well-designed fashion and luxury brands or who prefer a Mercedes over a Nissan—and that’s a lot of consumers in Japan. Nowhere else in the world are the fashion values of a product as important. Other markets can claim to be the largest in terms of units of apparel, accessories, and cosmetics sold but Japan is, and will remain for many years, the largest fashion market. As designers of clothes, accessories, furniture, bags and of course consumer gadgets will tell you, their most appreciative fans are almost always Japanese. Not everyone here will buy an iPod but it will dominate the market in terms of mind share because Apple has created a consumer technology brand as compelling as Louis Vuitton has for fashion. Other products will surely follow from Apple that take advantage of this factor as much as the company’s ability to produce new technology.

None of this will matter of course without effective distribution. In addition to its own store in Ginza and the Osaka store opening this Fall, Apple needs to work harder at nurturing retailers—or open 40 stores of its own very fast. Some analysts here are saying that Sony may attempt to force the iPod out of mainstream distribution channels, in the same way they say it did with Palm PDAs when it launched its own Clie PDA. But these days, electrical retailers are much more independent from the main Japanese suppliers, and demand based on the iPod’s fashion value should defeat such underhand tactics should they be attempted. Still, no consumer technology company, however fashionable, can ignore the large electrical retailers such as Yamada Denki, Japan’s fastest growing retailer. These chains are the dominant sellers of consumer technology and, as the fastest growing group of retailers in the country, will become ever more vital partners in the bid to dominate the nascent digital music market.

In the end though, the iPod mini demonstrates that what will differentiate consumer technology use in the future will not simply be the functions. It will be about how you implement and package those functions. Once again proof for the truism that form informs function—except that in the case of the iPod mini, form is style.

Tokyo, August 2004

Copyright (c) JapanConsuming 2004.