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Kobayashi Pharmaceutical focuses on Chinese tourists

Chinese are eager consumers of Dusmock, a traditional Japanese medicine, to combat problems arising from smoky and polluted air back home.

OSAKA -- Seeing the popularity of its products soaring among Chinese, Kobayashi Pharmaceutical is focusing its development efforts on medicines, home items and cosmetics with an eye to Chinese consumers' needs.

The Japanese household product maker's strategy is based on a so-called "12 divine medicines" list of must-buy pharmaceuticals available in Japan that popped up last year and went viral on Chinese social media. 

Kobayashi was pleased to see that five of its products made it on the list, but the company is not sitting on its laurels as it realizes consumer tastes are fickle and "explosive buying" by the Chinese, known as bakugai in Japan, is losing momentum. 

The company is now developing products for the long-term market by analyzing Chinese visitors' purchasing behavior at drugstores in Japan. 

Key segment

Medicines and cosmetics are popular merchandise with Chinese tourists to Japan, whose numbers are still on the rise, making them a key customer segment for Japan's retailers. To better serve Chinese consumers, Tsuruha Holdings, a Hokkaido-based drugstore operator, has hired Chinese nationals at its Dotonbori outlet in Osaka, where they serve customers in their home language.

"Ninety percent of the customers in this store are Chinese," Rong Shuangyan, one of the Chinese clerks, said in late August. "They come here to buy medicines and cosmetics."

Liu Zhengyang, a 38-year-old man from Tianjin, China, said, "I trust the quality of Japanese products, so I'm not looking for any particular brands, but rather products that make clear how I can use them." Liu was visiting Japan with a friend. 

Inside the store, the influence of social media was evident. Huang Baojun, a 30-year-old man from Chengdu, Sichuan Province, on his fourth visit, said, "This time around, I used information from social media and purchased things that I didn't buy last time."

Social media has a significant impact on Chinese consumers, as seen in the way the divine medicines list quickly spread via Weibo and WeChat, both very popular social media outlets in China. 

Kobayashi's products on the list are: Netsusama Sheet, a cooling gel sheet that sticks on the forehead; the Sakamucare liquid bandage; Ammeltz, an anti-inflammatory agent for stiff shoulders; the Nino-Cure skin cream treatment; and a medication for female health issues called Inochi no Haha. 

Taiwanese author Zheng Shibin, who has studied Japanese medical and cosmetics products for more than 10 years, is widely seen as inspiring the list of divine medicines by writing a book featuring his recommendations of Japanese products.

After he became enthralled with "splashy package designs that clearly and simply represent the content," Zheng published the book, titled, "Cosmetics and Medicines Guidebook in Tokyo," in Taiwan in 2012. It also proved popular on the mainland after printing in China two years later. 

Asked to analyze how Chinese consumers became enamored with his book, the author theorized it may have been popularized by social buyers who specialize in foods and cosmetics. They realized there were no equivalent products in China for the Japanese goods, making them much sought-after commodities.

New approach

For makers like Kobayashi, however, after a period when products flew off the shelves with no special efforts, Chinese interest seems to be plateauing. Kobayashi's sales numbers back this up. In fiscal 2015, which ended in March 2016, sales to inbound customers doubled to 4.3 billion yen($41.6 million) from the prior year. But second half sales slowed to 2 billion yen from the first half's 2.3 billion yen. Sales for the April-June quarter this fiscal year are flat compared to the same period a year ago. 

This trend has prompted the company to introduce measures to support its products. 

For example, the company has introduced a larger package for Inochi no Haha, a drug that alleviates menoxenia. The idea was inspired by Chinese visitors' tendency to purchase the product in large batches, such as 10 or 20 packs of the 420-tablet package, each costing 2,600 yen excluding tax.

"Chinese customers don't come to Japan very often," which is why they make big purchases on a single trip, said Yuki Kato, manager of branding at Kobayashi. "We introduced a large package containing 840 tablets."

The strategy proved successful. Sales of Inochi no Haha grew 14% year-on-year to 3.1 billion yen in fiscal 2015. The product continues to sell briskly, with shipments for the April-August period this year increasing 11% from the same period a year ago.

To take advantage of the product's popularity, Kobayashi introduced skin care products bearing the Inochi no Haha brand image this. It is the first time the company is rolling out a new product in this line in seven years.

This past April, Ammeltz Neo was added to the Ammeltz brand of products, whose roll-on bottle proved popular with buyers from China, where patch-type products are mostly used for stiff shoulders and pain relief.

Ammeltz Neo, the first makeover of the product line in nearly 30 years, comes in a bottle that is about 3cm longer than existing products, making it easier to apply it on one's own back.

Sakamucare was not part of Kobayashi's mainstream products until the Chinese popularized it. The liquid bandage, when applied with a tiny brush on minor cuts such as hangnails, solidifies and forms a protective thin layer. The company believes Chinese use it to alleviate chapped hands, caused by frequent exposure to water while doing laundry or washing dishes. 

To take advantage of the increasingly popular brand, the company again went with a larger product, expanding the size of the applicator brush for easier application to various body parts. 

Chinese tourists are also buying Kobayashi products that are not on the list. 

For example, there is Dusmock, a traditional Japanese medicine that, interestingly, has its origin in China. Hiroshi Nakatsuji, who oversees Kobayashi's sales at retail outlets targeting inbound tourists in Osaka, said the medicine is selling well in the Shinsaibashisuji shopping district, where there is a cluster of drugstores. 

Designed to alleviate coughing and help clear phlegm from the throat, Chinese are eager consumers who use the medicine to combat problems arising from smoky and polluted air back home, caused by PM2.5 and yellow dust, both notorious pollutants. 

An idea specifically targeting Chinese customers is the use of gold -- a popular color in China -- on the package of Netsusama Sheet, a sheet containing a cooling gel that is stuck on the forehead to alleviate fevers. About 100,000 packages went on sale on a trial basis last fall, and nearly all sold out. 

In January, the golden packages made their way onto shelves at 500 stores nationwide, and the company is assessing the best time to ship another batch later this year. 

Kobayashi also wants to grow by catering to Chinese after they return home. In May, the company opened an online shop on Tmall Global, a major Chinese-language e-commerce site operated by Alibaba Group Holding, making products available for purchase in the country. Instructions for each product are now available in Chinese and are downloadable from the company's website.

"We don't want to just sell our products and forget about the customer. We support our customers even after they've purchased our products," Nakatsuji said.

Kobayashi Pharmaceutical President Akihiro Kobayashi said the company is not sure how its China business will play out in the long term as "We aren't sure when the inbound tourism boom may end."

"But after we saw sales double [for Chinese shoppers], we look at Chinese tourists as a customer segment that we can't ignore," Kobayashi said.

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