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Global Japan
APR 9, 2019

Can Netflix Clear the Chasm in the Japanese Market?

By Kazuki Oshima
Photo credit: iStock photo/sd619

Netflix Japan recently announced an increase in its monthly subscription fee: a rise from 950 yen ($8.50 USD) to 1200 yen ($10.75 USD).

Netflix has become a household name in the United States, largely thanks to its smash hit originals, from 80s callback thriller Stranger Things to Tina Fey comedy Unbreakable Kimmy Schmidt. While some shows have found followings abroad, and while Neflix Japan has certainly found sturdier ground since it was first introduced in 2015, the service as a whole hasn’t quite penetrated the market for roaring success.

In situations like this, the marketing term “chasm” often comes into play. The concept of the chasm was originally introduced by Geoffrey Moore in his book Crossing the Chasm. Essentially, it refers to the phenomenon of new, high-tech products and services failing to find wide-spread usage after initial success.

Moore’s chasm concept builds on a basic marketing theory introduced by Professor Everett Rogers. According to Rogers, the spread of new products and their transition from early to mainstream adopters is known as “diffusion of innovation.” According to this theory, every new product faces five types of customers, each of which dictates that product’s success in the market.

Photo credit: iStock photo/zaieiu

1. Innovators
Innovators like anything new. They leap at the chance to get their hands on a revolutionary product, try it out, and tinker with any bugs. They make up only 3% of the market whole.

2. Early Adopters
Early adopters are the next to step in. They seek some amount of existing value in new products, but are also attracted to future possibilities. They make up about 13% of the whole.

3. Early Majority
The early majority is where things start getting real, as they make up 34% of the market. These customers are a little more cautious. They carefully identify and compare new products and make purchases based on merit.

4. Late Majority
The late majority comprises another 34% of the market, and are even more conservative than their early counterparts. In basic principle, they resist new things. They want to see proof of merit and feel a need before making a purchase.

5. Laggard
And finally, laggards, the final 16%. These customers show no interest at all in new things and tend to come into the game quite late. The wave of popularity has typically passed by the time they arrive on the scene. Cost is not so much an issue for them as absolute need—they’ll buy a product when they can no longer avoid it, or not at all.

Because these customer types have such different orientations, it’s only natural that they cannot all be reached through the same marketing strategy. In fact, it is the vast difference in characteristics between early adopters and the early majority that define Moore’s chasm. Many products have tried and failed to cross this divide.

Looking back at Netflix in the context of these customer types, it seems the service is still working with early adopters. This is likely because the very setup (videos on demand through a paid subscription, available through smart devices) is still fairly novel in Japan.

That means the chasm stretches between where Netflix is and where it hopes to go: to those early majority customers on the other side. Reaching the early majority will require a change in strategy. Early adopters are already comfortable watching videos on handheld devices. The early majority will need more convincing if Netflix hopes to pry them away from their TVs. On-demand services will be new to them and will need to prove their worth.

Photo credit: iStock photo/amesy

To that end, it will be important for Netflix to rely on more than the appeal of its content—they’ll need to address the behavioral shift from conventional viewing habits and make it worth the cost of switching to Netflix. In the United States, setting aside the appeal of hit original dramas, Netflix found success by creating a smooth transition for TV viewers. Americans are accustomed to cable TV, which comes with hundreds of channels. All Netflix had to do was add a button to the TV remote, nice and big, that enabled direct access to their service. From there, Netflix easily proved its worth.

In Japan, Netflix has teamed up with cable company J:COM for a similar addition to Japanese rimokon (remote controllers). Unfortunately, cable is less widespread in Japan, making local broadcast consumers that much harder to reach. After all, if they don’t need cable, why would they go to the trouble of setting up an on-demand video service?

Whether Netflix can find a way across the chasm, be it by content power or creative workaround, will be the true determiner of success for the service in Japan.