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Lessons from the East: applications of AI in Japan's retail

by Anh H. Nguyen

Vietnam and Japan going way back

At the beginning of the 20th century, patriotic students from Vietnam were flocking to Japan in search of intellectual enlightenment. For all intents and purposes, it was a political movement: the ultimate goal of those knowledge seekers was to gain independence for the motherland. Spearheaded by the fervently nationalistic scholar Phan Boi Chau, the crusade was named Dong Du (Journey to the East). Perhaps not accidentally, the term was coined as a subtle nod to the novel Journey to the West, which depicts the legendary monk Xuanzang on his westward-bound pilgrimage to obtain Buddhist sacred texts, notwithstanding devils, deities and a mischievous monkey king. At its peak, there were over a hundred Vietnamese learners, or revolutionaries-in-training, studying in Japan. Though short-lived, Dong Du left lasting impacts on various academic circles of Vietnam, and many of its proponents went on to become top leaders in subsequent organizations that eventually freed Vietnam from foreign grip.

Participants of Dong Du

Vietnam and Japan going forward

More than one hundred years has passed. Since 1973, Vietnam and Japan have cultivated diplomatic relations, established cooperation in trade and education, and developed an overall fruitful friendship. Japan is the biggest donor country of Vietnam, having pledged billions of dollars in ODA (Official Developmental Assistance). As the relationship strengthens, Vietnam again strives to emulate Japan's so-called economic miracle and technological might. Another eastbound motion is brewing and has been for a while: Vietnamese business owners and policy makers alike are increasingly looking at Japan for experience, wisdom, and standards in dealing with the transformative power of Artificial Intelligence.

In Japan, Artificial Intelligence, or AI in short, is one of the strongest fields of development. Combining machine learning and human critical thinking, AI could process vast amounts of data to make predictions and recommendations. Being new almost to the point of futuristic and constantly pushed to the forefront of the tech scene, AI is oftentimes perceived as a multi-edged sword with endless, disruptive implications. The Japanese government, however, is betting on AI as the nation's trump card and taking ambitious steps to incorporate it into Japan's growth strategy. The former Prime Minister, Shinzo Abe, has called for businesses to both invest more resources into AI research and to utilize it to a greater degree.

Despite the gap between Vietnam and Japan's economic wealth, there are some similarities at work here, as the Vietnamese government is also hoping to empower the country via breakthrough technologies including AI. Among the many sectors that may benefit from AI applications, retail seems to be the quickest on the uptake. Sizable amounts of traffic, sufficient funds, and a demand for immediate results all combine to make retail the ideal candidate for AI applications. In general, however, many Vietnamese retailers are still unfamiliar with the opportunities that come with AI. What insights could they possibly glean from their counterparts in the Land of the Rising Sun?

1. It is imperative to seek outside partners

The Japanese are a cautious, self-reliant people. Jimae Shugi (自前主義) is the principle of self-sufficiency, aka "make it yourself, do not buy" and it permeates many aspects of Japanese people's lives, but most notably as a doctrine in corporations. For businesses, it is both an honor and a duty to "pull themselves up by their bootstraps," i.e. to carry out their own tasks without outside help. As a result, Japanese companies consider it prudent to develop their in-house technology, both in accordance with Jimae Shugi and as a means to protect their intellectual property. Times are changing, though, and it is simply impossible for most businesses to single-handedly supply its own AI solutions, since R&D of AI is a costly venture that requires huge resources in money and talent.

While it was certainly a point of pride for Japanese companies to conduct Jimae Shugi, it also held them back from taking advantage of the full potential of AI: the applications of AI in Japanese are still sparse and much less effective than they should have been. Once a tech giant in the third industrial revolution, Japan has fallen behind in the AI race. As using AI in business becomes more mainstream, though, more and more Japanese companies are getting onboard with outsourcing that function. Some companies like Toyota, Toshiba, and Honda have established AI research labs in recent years, but the market simply cannot wait any longer. The age of Jimae Shugi is coming to an end.

Honda's Asimo robot. The company has set up its own AI research lab in Tokyo instead of Silicon Valley.

Instead of going through the same motion of trying to DIY, Vietnamese retailers could save precious time, money, and efforts by going straight to a firm that offers specialized AI-powered services. For Vietnamese retailers looking to stay competitive, it is clearly no longer a question of whether they should use AI, it is matter of how. Finding a suitable partner that supports their visions is good first step.

2. Customers services still matter

Omotenashi (おもてなし) is another long-held, much-treasured concept in Japan. Embodying the essence of Japanese hospitality, it is also quite difficult to translate, but could be understood as "no pretension or hiding". The term has gained popularity in the Western world thanks to international traveling and events predating the 2020 Tokyo Olympic (now postponed to 2021). Omotenashi encompasses the whole philosophy of treating guests in Japanese culture: sincere, thoughtful, and respectful. Omotenashi is always deliberate and based on a deep understanding of the guests in question, i.e. anticipating their needs without ever being intrusive.

Omotenashi is an integral part of Japanese culture

While it is most prevalent in the hotel and restaurant businesses, Omotenashi could lend itself very well to retail. If retailers could somehow develop telepathy and learn the preferences of every shopper that go in the stores, they could elevate the services, customize the offerings, and transform the shopping experience from mundane to sublime. Maximizing sales and maintaining customer loyalty would be a breeze. And while telepathy is not yet on the table, AI-power analytics could come pretty close. Palexy's Store Optimizer, for example, could derive customers' likes and dislikes across all demographics: when they visit, how long they stay, where they like to browse the most, which their favorite products are, etc., Over time, it could paint a comprehensive and accurate picture of any customer base. Far from the cold, faceless feature that people often associate with hi-tech, AI for retail is tremendously customer-centric and could help retailers boost customer satisfaction with great success.

How Japanese retailers themselves harmonize their deep-rooted emphasis on services and their love for robotics is an interesting question. Unsurprisingly, in particularly Japanese fashion, it comes in the form of cashier-less retail kiosks. Using AI-powered cameras installed around the kiosks, the systems detect the purchases and automatically deduce the payment at the exits. The kiosks scored points for novelty, generated quite the publicity, and had lines of people waiting to try it out. However, the system faced harsh criticisms for lack of human warmth and rejection of good old omotenashi. And that is the simple message for Vietnamese retailers: in order to compete with online shopping and other rivals, they need to use AI, not to eschew customer experience altogether, but to enhance it. True omotenashi, whether administered by a Zen master of tea ceremony or sale assistants with the help of AI-powered softwares, will never go out of style.

Omotenashi is credited with bringing hordes of tourists to Japan. Could Vietnamese retailers somehow replicate the success?

3. Dynamic pricing may be the next big thing

Dynamic pricing, also known as surge pricing, is calculated based on demand in real time. It is most commonly seen in tourism and transportation: hotel prices and airfares often fluctuate widely depending on times of day (morning vs. evening), days of week (weekdays vs. weekends), times of year (high seasons vs. low seasons), or any other special occasions. Current moods and events have great effects on people's willingness to pay, and players in those industries usually attempt to leverage those to maximize revenue. Nowadays, dynamic pricing is also utilized by ride-sharing companies like Uber and Grab. Dynamic pricing could be summarized as "let's find out the highest prices that customers are ready to shell out".

Could dynamic pricing be applied to retail, though? Japanese businesses say yes. Following the 1990s property crisis, Japan entered a period of deflation known as "The Lost Decade", or Ushinawareta Jūnen (失われた十年), during which economic growth was sluggish and people adopted a downright frugal mindset. While Japan has left that era behind, prices are still stagnant, and retailers are afraid of raising them for fear of losing customers. The 2008 recession, the 2011 earthquake and tsunami, and 2020 Covid-19 certainly did not help. In fact, some has argued that the period should be extended to The Lost 30 years! However, many data-driven companies are using AI to figure out dynamic pricing. From gauging the demand in real time, they could issue prices so as to increase profit without dropping (too many) customers.

Retailers could control various metrics of stores' performance with Palexy's Store Optimizer

For Vietnamese retailers, this could be game changer, especially during this time of recovery after Covid-19. There are two things to keep in mind, though. First of all, dynamic pricing needs to be framed as giving customers more choices, not taking them away. In order to make higher prices easier to accept, retailers need to devise ways to attach additional value, tangible or not, to their products. By offerings add-ons such as better services or customization, retailers could imbue their products with a sense of "elasticity" and change customers' rigid mindset. Example: in Japan, beef on rice is a standard dish that costs so little it has become a symbol of economic hard times. However, by adding premium ingredients, fast-food chain Yoshinoya was able to charge almost double for half a million bowls. AI softwares could help retailers closely monitor customers' reactions and devise their pricing strategies accordingly.

Secondly, any attempts to do surge-pricing must be executed with proper planning. Ideally, Vietnamese retailers need to devise models to predict the decline in traffic and sales should price hikes happen. In order to do that, they need as much data as they could muster, either from past experience, surveys, or supplied by AI. Failing to do that could trigger greater than expected revenue loss. For example, Japan's budget clothing Uniqlo faced serious repercussions when it raised prices in 2014 (for the first time in 30 years!) Just two years later, it had to slash prices to get customers back.


It is an exciting time for Vietnam's data scientists and business owners alike: AI is widening its presence rapidly in many fields, earning huge profits and other desired outcomes; its development is supported by the state and cheered on by the people. As this trend continues, it is important to keep their eyes on the prize nonetheless: to solve real, specific problems in retail using AI, not to get in over their heads from the hype. Learning from Japan's valuable use cases is a practical way to stay grounded and avoid the "growing pains" that will certainly come with progression.



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