How Kobayashi Creates "Magical Drugs" Sought by Chinese Tourists

By Shiho Innami : Reporter of Toyokeizai
February 18,2016
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Chinese tourists in Japan have recently become exceptionally-valuable customers to many domestic retailers, thanks to their energetic shopping sprees.

Since the major Beijing-based portal site Sohu.com posted an article about “12 magical drugs you cannot miss in Japan” in October 2014, tourists who visited the Land of the Rising Sun began flooding drug stores in big cities like Tokyo and Osaka, which are the usual sightseeing destinations to buy these items in bulk.

Among the dozen items listed in Sohu’s web article, nearly half (five, to be exact) are products manufactured by Kobayashi Pharmaceutical.

Founded in “medicine town” in Osaka

Kobayashi is a pharmaceutical firm headquartered in Osaka since 1956, in a district named Doshomachi, which is historically known as a “medicine town” from as early as the Edo period (circa 1603-1868). A significant number of established drug makers in this country still keep their operational bases there to this day, including one of the leading players in the industry, Daiichi Sankyo.

To distinguish itself from the other big leaguers crowding the neighborhood, Kobayashi has remained consistent in its strategy to strengthen its competitive edge, primarily in the niche-drug market. Their niche products range widely, from pills for those concerned about obesity (Naishitoru) to fast-moving consumer goods (FMCG) like toilet deodorant (Bluelet) and breath freshener (Breath Care); these may not be life-or-death products but are well-received by many consumers as useful items to enhance their daily living.

While the anti-fat agent Naishitoru is one of the most recent additions to Kobayashi’s collection, Bluelet and Breath Care are longtime sellers that date back several decades. Bluelet was launched in 1969 as the company’s first product to advance into the FMCG market, when no other company was developing sanitation items that could both clean a toilet bowl and release a pleasant fragrance in bathrooms. Breath Care followed in mid-1970s, along with other successful products under the leadership of the then-president Kazumasa Kobayashi, who is now the chairman.

The must-buy items

The five medical items introduced in Sohu’s web article as must-buys in Japan include Netsusamashiito, Ammeltz Yoko Yoko, and Sakamukea, which are all Kobayashi’s flagship products.

Netsusamashiito, renamed as “Kool Fever” in English-speaking markets, is a gel sheet used for cooling the foreheads of patients with high fevers. It was released in 1994, when the mainstream fever-cooling product was Ice Pillow. Kool Fever became a huge hit and led to the development of its own new genre, which has now (as of 2015) grown into a 530 billion yen (about $4.4 billion) market, where Kobayashi enjoys the top 50+% share.

Other innovative products released by Kobayashi that developed into niche markets include Attonon, for accelerating the healing of cuts, bruises and burns, where Kobayashi dominates the market with a 95% share, and a medicated water for gargling through the nostrils called Hananoa, with which the company holds 64% share.

Ammeltz Yoko Yoko is an anti-inflammatory pain relief medicine that is applied directly to the affected areas and has been used widely for many years by those suffering from stiff shoulders, backaches, and muscle strains in this country.

Sakamukea is a liquid-filled adhesive bandage mainly used for covering painful hangnails on the cuticles. It is the most popular Kobayashi-brand product among Chinese shoppers, of which many say “it is an item that must be kept in our home medicine case at all times.” Thanks to their strong support, the sales volume of this product more than tripled between April and December 2015.

Naming is everything

The current president, Akihiro Kobayashi, representing the sixth generation of the founding family, unveiled one of the secrets behind the success of Kobayashi’s products: “The biggest investment we make in product development is in the naming of our new releases. There is really no meaning to advertise our products using different media if the consumers cannot remember their names.”

Indeed, Kobayashi is known for its unique product names, which are easy to remember because they are often humorous. For example, Naishitoru is a name formed from naishi, or internal fat, and toru, or take away. Sakamukea combines sakamuke, or hangnail, with kea, which sounds the same as the word “care” pronounced in Japanese.

President Kobayashi states that the top executives meet every month to share ideas on how newly- developed products should be named. Generally, more than 100 names are gathered in each meeting, and the final decision is made by the president himself. Some product names have even been changed at the eleventh hour, on the night before the press conferences to announce the new launches.

This unique naming policy is derived from a business model focused on the niche market, where the company makes its utmost efforts to become a “big fish in a small pond,” which is a key phrase used internally as a frequent reminder of its unchanging corporate philosophy.

Through the consistent pursuit of niche-market creation and expansion, Kobayashi has been able to maintain high profitability due to limited competition in product development and pricing. In the fiscal year of 2014, ending March 2015, the company recorded 17.9 billion yen (about $150 million) in operating profit, which was equivalent to 14% of the gross revenue that totaled 128.3 billion yen (about $1.06 billion). This percentage is extremely high compared to the operating sales profit achieved by major competitors like Lion, which did not even reach 4%.

In the current fiscal year, ending next month, Kobayashi expects the gross revenue to continue its four-consecutive-year increase, to around 137 billion yen (about $11.4 billion) with an operating profit of 20 billion yen (about $167 million), through sales of new additions to its vast inventory of hit items, including the previously-mentioned Naishitoru.

President Kobayashi showed his enthusiasm for and confidence in leading the company into a brighter future, not only domestically but also globally, expressing that “my mission is to expand our business abroad to 20 billion yen (about $167 million) in total annual sales, which is 1.5 times more than our current earnings from outside of Japan.”

Soon, we may see this unique Osaka-based pharmaceutical company establish its brand names all over the world. As the first step of this niche marketer’s ambitious growth plan, the president says that the company “will begin marketing Ammeltz Yoko Yoko directly in China because we have found that this item has a particularly high demand among the Chinese tourists who come to Japan with a buying binge to bring back many of our products.”