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CAN WASHLET CLEAN UP THE CULTURAL DIVIDE? THE REST OF THE WORLD IS LAGGING BEHIND THE JAPANESE SHOWER TOILET GENERATION*

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Kunio Hashimoto the CEO of TOTO LTD finally arrived home at midnight. He had just returned from Tokyo where he had attended his high school reunion party. It was exciting to meet his old schoolmates, as everybody’s life had changed so much. He walked to the bar in the living room, filled a glass of his favorite Japanese whisky and made himself comfortable on the couch.Whileslowlydrinking,helookedata pictureanoldfriend had givenhim.Hisfriend had traveled abroadfor the first time in his life and had visited Beijing. His friend gave him the picture as a joke and said that the CEO of TOTO should invent a Chinese toilet. Kunio read the translation written above the signs: “It’s time to enjoy, not to create. We don’t want you to fall off.”

In fact, the evolution of the toilet in Japan has not simply stopped at the transformation from the squat-toilet to the more comfortable seat-toilet. For many years, Japanese society has fully adopted the shower toilet. A standard toilet in Japan means a warm, comfortable seat, washing, bidet, and massage function with adjustable warm water. Kunio has always been fascinated both by the fact that Japan uses toilets that are so much more advanced and that the rest of the world is lagging behind. He strongly believes that the shower toilet will become the standard for most of the countries and cultures in the world, and this makes it one of the most strategic products for TOTO. However, competitors in Europe and the United States are looking at the shower toilet and have introduced similar products in the market.

Kunio knew that TOTO had much experience with cus- tomer-satisfaction and technological know-how. However, TOTO was seen by outsiders as being a Japanese domestic company with few internationally successful markets. But considering Japan’s low growth economy, TOTO must rapidly grow in the international sector. Kunio had implemented the TOTO V-Plan 2017 in which the internationalization of the Washlet was one of the major initiatives for success. Moreover, Kunio has already envisioned many possibilities for evolving the toilet to better serve customers and help them enjoy better

health. Soon the wireless-connected toilet will combine Wash- let technology with the preventive health care business by providing sample testing results and other body measurement data. Kunio took the glass from the table, drank the remaining whisky and said aloud to himself, We must win the Washlet battle in the U.S. and Europe in order to thrive in the future! The next morning Kunio sent an invitation for a business review meeting for the key markets: Germany and the United States.

BACKGROUND

What is a Shower Toilet? The core feature of the product is to provide a shower function that creates a paperless toilet and a bidet function for women. Additional features are controllable warm water, a warm seat, air dryer, deodorizer fan, remote control, automated cleaning, sensor controlled energy saving, and more. Shower toilets can be just a seat, or they can be entirely integrated into the whole toilet. The toilet is either a wall-mounted toilet (common in Europe) or standing on the floor. Depending on the maker, price, and design, quality and functionality can vary.

History and Evolution of the Shower Toilet in Japan The idea for the shower toilet comes from Switzerland. Hans Maurer invented the first hygiene toilet in 1956 using a garden chair,awaterhose,anda hairdryer.Basedonhisvisionofa toilet

*This case was prepared by Yukari Adam, Thomas Karwath, Jon Palmer, Hiroe Sakai, and Wilson Steiger of the Fox School of Business at Temple University under the supervision of Masaaki Kotabe of Temple University for class discussion rather than to illustrate either effective or ineffective management of a situation described (2014).

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with an integrated bidet, he founded the company Closomat, and he sold about 100,000 bidet toilets over the next 50 years until his company faced bankruptcy. In 1978, the Swiss company Geberit introducedinWesternEuropeaseatattachmentGeberellaanda water spray toilet Geberit-O-Mat.” In Japan TOTO introduced the Wash-Air Seat in 1954, an imported product from the United States. A competitor, INAX, followed the innovation path with the shower toilet in 1967. TOTO recognized early that the voice of the customers is a powerful tool to further customize and improve the quality of a product. Due to TOTO’s limited nfluence on the U.S. imported product, TOTO started its own development and production for the Wash-Air Seat in Japan in 1969. TOTO’s breakthrough came with the Washlet G-Series, launched in 1980. In Japan, the Washlet was widely adopted, and today more than 70 percent of all households enjoy one. In addition, the public sector also adopted the Washlet in hotels, restaurants, offices, and even in the bullet-trains. The reasons for the rapid early adoption in Japan are:

² Japanese have a positive image of Western technology, and originally the Washlet was recognized as a new Western lifestyle choice.

² The Japanese have a strong sense of body hygiene and bathe daily.

² A growing economy led to increasing prosperity, and more and more Japanese were able to move into modern Western- style apartments or houses.

² The government expanded countrywide sewage systems and required private households to connect bathrooms and toilets to the system in order to reduce pollution.

² Extremely high land prices led to small apartments and houses. Theneedforspace-efficientproductspushedTOTOtodevelop

a multifunction Western toilet with a water tank and an inte- gratedsinkfor washinghands.Thehighly standardizedproduct allowed the Washlet to be an optional attachment.

² Since most Japanese houses have no central heating, it is cold in the winter. The Washlet provides not only good hygiene, but also a comfortable warm seat.

TOTO HISTORY AND GLOBAL NETWORK

Nippon Toki Gomei began working on the first Japanese- made seated toilet in 1912. In 1914, it succeeded and through various name changes, economic ups and downs, war, natural disasters, and currency fluctuations the company endured and became known as TOTO in 1970. As the company grew, so did its product lines. TOTO ventured into a variety of areas, most related to the kitchen and the bathroom. It also focused much energy into product innovations, such as the Washlet in 1980. With increasing sales and expanding prod- uct lines, TOTO began to look at the overseas markets. It expanded sales and manufacturing facilities in many countr- ies around the world and continues to expand today. The chart below shows the major different markets where TOTO does business.

As can be seen in the chart, TOTO is present throughout much of the globe, and continues to look for opportunities abroad. If it continues to innovate and learn from these markets, then the outlook for TOTO seems very promising.

As of the fiscal end of 2012, TOTO has achieved total net sales of ¥452.6 billion (∼USD 3.88 billion). It is the largest publicly traded company in the toilet and bath industry and holds the majority market share in Japan.

Total net sales ¥476.2 billion

54%

Net Sales* Structure by Business Segment (Fiscal 2012)

Overseas Sales Breakdown (Fiscal 2012)

New Business Domains ¥14.1 billion

Others ¥100 million

3%

16% 27%

Overseas Housing Equipment Business ¥75.1 billion

Domestic Housing Equipment Business

(New construction) ¥128.6 billion

Domestic Housing

Equipment Business

(Remodeling) ¥258.1 billion

19%

Asia and Oceania ¥14.12 billion

54%

China ¥40.43 billion

3%

Europe ¥2.66 billion

24%

Americas ¥17.88 billion

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Corporate Vision TOTO aims to be a truly global company that remains indispensable to customers around the world by providing a “new everyday.” To achieve this, TOTO created the V-Plan 2017, in 2009. The V-Plan will reinforce corporate govern- ance and promote the three core businesses (domestic hous- ing equipment, overseas housing equipment, and new business domains) and four cross-organizational innovation areas (marketing innovation, supply chain innovation, man- ufacturing innovation, and management resource innova- tion). The driving force behind the V-Plan will be the TOTO Green Challenge, which will encourage better envi- ronmental conservation throughout the entire organization, production, and products. Much of this growth is expected to come from overseas markets through sales of the Washlet and TOTO’s superior technology, which is the reason TOTO has a large international focus today. The V-Plan targets a sales goal of ¥600.0 billion in fiscal 2017 and operating income of ¥48 billion. Their overseas net sales target is ¥150 billion with an operating income of ¥18 billion.

Product Portfolio TOTO has a wide variety of products. Most of these can be found in the kitchen or the bathroom, but others deviate more from the core business. The core of TOTO focuses on bath- room and kitchen accessories, baths, bidets, faucets, valves, sinks, toilet seats (including the Washlet), toilets, showers, urinals, and pre-manufactured bathrooms. Similarly, they innovate with new technologies that their products can use, such as the many features of the Washlet, as well as Hydrotech, which acts as a barrier on surfaces to prevent bacteria, mold, and dirt from accumulating.

Other business areas TOTO is advancing into include expanding its ceramics business, remodeling and construction services, sales of building material and paints/coatings, licens- ing Hydrotech for other products, and selling photocatalytic coatings, ceramic power generating cells and ceramic power generation modules.

Shin Yamate: CFO Some of the company’s leaders had serious concerns. Shin feared the current strategy was not going to be enough to meet the V-Plan’s targets. In the past few years, sales had been increasing, and 2013 was expected to be a good year, but to reach the V-Plan goal of ¥600 billion by 2017, changes were needed. He thought, But what can we do? We tried everything that made us successful in Japan, but the European and U.S. market just do not seem to care about the Washlet. Maybe we should just focus on selling other products. Nevertheless, he knew that focusing only on other products was not really an option. TOTO employees were too dedicated to the Washlet to see it fail. But would an endless attempt to push the Washlet

into other cultures achieve the V-Plan goals, or would it be a financial black hole?

Shin concluded he must look more into the international numbers. He knew TOTO provided some of the best technol- ogy in the world and produced an outstanding product, so they would have to find a way for the Washlet to be successful abroad. He looked over his overseas sales information. It looked very promising. Overseas markets showed the largest growth percentage, but the actual yen amount of growth was relatively small. Also, much of this growth was due to the changing value of the yen; in addition most of the American sales were in standard toilets, not Washlets. Shin began to think of other options for expanding overseas. An acquisition was a possible option, since TOTO was sitting on almost ¥50 billion, but would that be enough to buy a competitor? The U.S. and European markets are dominated by a few big players, and mostly they were only present in their domestic markets. Some of the companies are also privately owned, which means they might not even consider an offer from TOTO. A Japanese competitor, Lixil, recently bought the large American company American Standard, and Grohe, which is a major player in the European and Chinese markets, but is this the best strategy for TOTO? A merger could be a possibility, but knowing the pride of the TOTO Company, losing its image through a merger would be devastating as well and probably not achieve their V-Plan goals. The company was currently involved with a joint venture that was showing some promise in Europe, but the new strategy needed to find another way to achieve the goals, while still following the TOTO way of doing business.

Shin had one idea left, one that had worked in Japan, but might need some modifications abroad. In Japan TOTO cre- ated strong relations with plumbers who installed the Washlets. Free products or higher margins were offered to the plumbers to help encourage the sales of Washlets. But would this work outside Japan? Could TOTO tap into the same overseas channels? What else could they do to increase awareness of the Washlet? As he thought about this he laughed and thought, This sounds more like a job for marketing, not the CFO. The important thing is to hit the V-Plan numbers; this will need to be discussed with marketing and to see if the current advertising invests are paying off.

Akira Matsuda: Market Research Director Akira Matsuda, TOTO’s Market Research Director, joined TOTO five years ago. One major reason why he joined TOTO was that he had always been a big fan of the Washlet, TOTO’s strategic product, and was very curious about why the shower toilet has been overwhelmingly successful in the Japanese market with a 74 percent penetration rate in 2012, but has not enjoyed this kind of success in the other countries. He

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thoughtthatthere mustbesomeculturalmarket-specificreasons why the Washlet has not been accepted in the same way as the Japanese market, and saw this situation as a great challenge. After reading the e-mail from the CEO, Akira reviewed how the Washlet successfully penetrated the Japanese toilet market and conducted research on the market situations in the U.S. and Germany. His review is summarized below.

TOTO’s Successful Market Penetration in Japan Tapping into infrastructure development: For its Washlet campaign, TOTO was able to take advantage of Japan’s infrastructure development. The Japanese government was expanding the nation’s sewage system. Only 30 percent of the country had had sewage systems in 1980, but this increased to 67 percent by 2003. During this time, Western-style flush toilets connected to sewage systems replaced traditional pit toilets, in addition to the new construction or remodeling of houses. This provided a great opportunity for TOTO to install Washlet toilets.

Awareness Building: TOTO took various marketing approaches to build public awareness of the Washlet. When the Washlet was launched in 1980, it was a novel, high-end product, and TOTO created TV commercials with sensational catch phrases such as “bottoms just want to be cleaned,” which was developed by the famous catch-phrase writer Takashi Nakahara, who won the gold medal in the Cannes Advertise- ment Festival with his “Rain and Poppy”commercial for the Suntory whisky Torys. While TOTO initially received many complaints about using the word “bottom” (oshiri), in the commercial, this campaign created strong word-of-mouth buzz and greatly increased public awareness of the Washlet.

In addition, TOTO promoted trial usage by installing Washlet toilets in public places, such as hotels and golf courses, and a “Washlet map” was distributed so that people could find and try them. Furthermore, TOTO utilized a plumber’s net- work to spread the use of Washlets. In Japan at this time, people usually knew their community’s plumber, so TOTO gave away its Washlet toilets to plumbers for personal use them, and the plumbers then gave customers first-hand opin- ions about the Washlet. The company also gave plumbers high commissions for selling Washlets, so in effect plumbers became highly influential Washlet ambassadors.

In addition, TOTO sales staff visited gynecologists and doctors specializing in hemorrhoid treatment to promote the therapeutic properties of Washlets.

The U.S. Market TOTO entered the U.S. market in 1989. TOTO targeted mid- to-high-end segments, which made up two thirds of the market, and opened four galleries in New York, Los Angeles, Fort Lauderdale, and Chicago where people could view and try a Washlet, but not purchase them, so as to maintain an exclusive image. The Washlet was available only through dealers.

In the United States, most end-users consult with architects or interior coordinators when they are renovating existing bathrooms or building new ones, rather than consult a plumber. The final decision on what toilet to use is normally made by architects or interior coordinators based on the total design of the bathroom, not the toilet itself. In addition, to maintain its high-end product image, TOTO did not distribute the Washlet through Do-It-Yourself (DIY) channels.

Bathroom setting: Since 86.9 percent of all occupied homes in the United States had a central heating system in 2011, heated toilet seats are not viewed as necessary. In addition, some U.S. states require that electricians install power outlets in bathrooms, so end-users must hire one if they want to install a Washlet. Furthermore, in U.S. public restrooms, paper sheet covers are commonly provided for sanitary purposes, and a Washlet requires some adjustment of the paper sheet to avoid interference with the shower function.

Cultural Aspects: Americans normally feel uncomfortable about discussing their bathroom habits with others, which made it difficult to increase Washlet awareness through word of mouth. In order to tackle this obstacle, TOTO launched the Clean Is Happy campaign in 2007 with creative photos of naked buttocks with smiley faces imposed over them. This campaign caused a backlash from a religious group that was offended by the nudity, and Toto was forced to halt it, but the situation drew strong media attention that eventually helped to increase public awareness of the Washlet toilet. Also, TOTO benefitted from very positive word-of-mouth talk from celebrities who used Washlets.

German Market In 2008, TOTO established TOTO Europe GmbH in Germany to enhance its sales of bathroom equipment, mainly the Wash- let. Penetration of shower toilets in the Western European households is estimated below 5 percent, as it is positioned as a high-end product. TOTO has one sales site in Dusseldorf, but has no gallery in Germany, and the distribution channel has not yet been well established. It is common for end-users to visit wholesaler showrooms to decide on bathroom equipment, and toilets are purchased to match overall bathroom design. This means there are high expectations of quality and design. Choices and variety enabling customization are the key deci- sion-making criteria.

Bathroom setting: In Germany, 91 percent of households had central heating in 2005. Normally, there is limited use of appliances in the bathrooms, so electric construction is required for installing Washlets, and even if Washlets are installed, they cannot be heated all the time due to EU energy conservation regulations. In addition, a survey conducted by Geberit revealed that most Europeans do not feel comfort- able with heated seats as they think the heat came from the previous user.

Cultural Aspects: Word-of-mouth advertising does not work well in Germany, since Europeans feel uncomfortable discussing their bathroom habits. But because some European hotel chains have ordered large volumes of Washlets when renovating their bathrooms and because Europeans are more familiar with bidet toilets, the effectiveness of the shower function of the Washlet is easily understood and valued. TOTO is seeing a different sales trend compared with the United States, where such large orders have not been placed.

Ken Tokugawa: Competitor Analyst Ken Tokugawa, TOTO’s competitor analyst, was expecting a very slow and relaxing week at work, but then he read the e- mail from Mr. Hashimoto, his CEO. He trembled when he read that he had to complete a competitor analysis in less than two weeks for a presentation to the big boss. Ken had been focusing his entire efforts on the Chinese market and competition there,

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but Mr. Hashimoto requested to see information on Germany and the United States. These were not markets that Ken had studied in depth, but luckily he had some data from a previous project where he was researching the major players for both markets, Geberit in Germany and Kohler in the United States. He had used this data in a white paper for future growth. Now if he could only find that whitepaper! Ken remembered the last time he discussed the white paper was at the 82 Ale House near Tamachi Station and he immediately remembered that he placed the paper in his satchel after a few fingers of Scotch. Ken rushed to the closet and opened his satchel and felt an immediately sense of relief when he saw his paper was still there and in one piece. Below is what Ken had written:

“The Kohler Company, based out of Kohler, Wisconsin, founded in 1873 is a 100 percent privately operated company still managed by the founding family. David Kohler, president, is the fourth-generation leader of the company while his father maintains the CEO position. Being a private company has not restricted Kohler to a small market, as it currently is the market leader with approximately 34 percent market share for bath- room fixtures in the United States. Some estimates place TOTO holding 28 percent of the market share. As for Shower Toilets, Kohler has a very small yet impressive product line. The first product that Kohler offers is a C3 toilet seat.

“This shower toilet seat is an optional add-on to any of Kohler’s toilets to turn that toilet into a shower toilet. The basic features of the C3 are essentially the same as TOTO’s with a heated seat, anterior and posterior washing wands propelling heated water, a deodorizing fan, and a full-featured remote control. Some features missing from this product are a flush control and streamlining (or tank less/one-piece toilet). The Kohler Company does have a premier line as well, branded as Numi. This is its ‘sexy’ line that features a fully automated, one- piece, or tankless, toilet with all the functions that we offer in our Washlet, but they also add a full-color-screen remote control. One unique feature only found in the Kohler Numi is a foot warmer at the base of the toilet. Similar to most other manufacturers, Kohler has included the ability to program in music and playlists, so that you can enjoy your favorite songs while using the toilet. The cost of this product is much higher, but to a high-end consumer this is definitely a product we need to be aware of in the United States.

“Kohler offers its products via wholesalers and direct sales, and consumers are even able to order the products online via

third-party companies (i.e. Amazon.com). Its shower toilet products range in price from $600 (USD) to $6,000 for the product not including installation costs or shipping (if bought online). Some videos advertising its shower toilets are viewable online, but it does not actively advertise these products in consumer magazines or television. Being a private company, it does not post its financial data online, so it is quite difficult to gauge its net sales. Kohler is a global company, but no evidence can be found of its shower toilet offerings in Europe. Kohler has decided that when producing shower toilets it will focus its strategy only on its home market.

“Geberit is a publicly owned Swiss company founded in 1874. Often the leader of innovations in the bathroom fixtures industry, it has been said that Geberit invented the first shower toilet. Its product line is more in line with European designs where looks take preference over features or cost. Its shower toilet falls under the brand AquaClean, and it has eight models ranging from a basic seat to a fully integrated toilet. One unique point about the AquaClean product line is the absence of a seat heater. All other features are present, though, and its full-featured toilet is wall mounted, providing a cleaner instal- lation, much like our offerings in Europe. Their lower end product, the AquaClean 4000, is priced around 750 euros whereas their premier product, the AquaClean 8000 Plus is priced at 5,200 euros.

“Geberit sells its products to wholesalers only, and the wholesaler usually has a large showroom in which all makers present their product offerings. The installers send their cus- tomers to the wholesalers where the salesperson shows the desired equipment. After the visit, the wholesaler will provide a detailed quotation based on the equipment the customer has chosen. The price in the quotation is based on the end-user price list. If the installer finally orders any equipment, the wholesaler will give a price discount in the range of 10 percent to 40 percent depending on the equipment and maker. Geberit has decided to only offer its AquaClean product in the Euro- pean market.”

One of the most important facts that Ken wanted to point out to the CEO was that only TOTO was available in both foreign markets, and neither competitor was offering its products in Japan or in each other’s market. After careful preparation and review of the material Ken had readily available, he placed all of this into an e-mail and sent it to Mr. Hashimoto.

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Global Integrated Strategies Utilizing resources from TOTO’s global network, TOTO has developed structures to meet the product grades throughout the world, while strengthening local development capabilities.

Partnership: The recent partnership in 2012 with Villeroy & Boch AG, a German ceramics manufacturer and leading Euro- pean complete bathroom supplier, brought significant strength to the TOTO group. Villeroy & Boch offer high-end products and sleek European stylethat could addto TOTO’s innovations. In Europe, this alliance demonstrated the European market’s acceptance of TOTO’s bidet technology. TOTO and Villeroy & Boch have begun developing a new bidet product. Besides, the OEM strategy in Europe could reduce the manufacturing and logistics & distribution cost and expand the European sales distribution network. In the United States, the sales alliance has provided North American consumers and distributors addi- tional value with its outstanding European-designed products that could improve TOTO’s competitiveness. On the trade, TOTO has supported Villeroy & Boch sales through TOTO’s large distribution network in North America. This partnership has created win-win global solutions for both companies.

“We believe in the future of the bidet toilet throughout Europe and, as one of the best known European premium brands, we would like to make this product category a signifi- cant sales segment for us,” explains Andreas Pfeiffer, head of the Bath & Wellness corporate division.

Value-Added Products: Incorporating innovation devel- oped in Japan, TOTO has been adding more eco-friendly featuresto itsbidet products that canattract more customers and strengthen each market’s development. As well as providing high quality bidet products, TOTO has also taken the lead in introducing water-saving products. For example, the Double Cyclone flushing system and the super-smooth SanaGlossin- crease the cleaning strength from water flow in the toilet bowl. The newest innovations include Actilight, eWater� spray, and Hydrotect coating, which keep a toilet bowl incredibly clean for months. TOTO has introduced state of the art technologies that have enhanced customer usage experiences and strengthened their competitive advantages.

LOCALIZED STRATEGIES IN THE UNITED STATES

Despite the challenges in the United States, where the bidet market includes less than 1 percent of households, TOTO has found market opportunities that can boost the marketing and sales of the Washlet. When the Energy Policy Act of 1992 regulated water consumption, TOTO was the one of the first players with a low-flush toilet. In addition, with its eco-friendly and water-efficiency features, TOTO takes advantage of the fact that U.S. consumers are making more environmentally conscious purchase decisions.

Incorporating with Social Infrastructure: As many states and cities today have begun to enforce water conservation, TOTO has gained its brand awareness by installing water- efficient products, which may attract more customers for its bidet products. When the city of Atlanta, Georgia, faced a 27.5 percent increase on its water and sewer rates in July 2008, TOTO provided water-saving solutions to the Grand Hyatt Atlanta hotel by installing TOTO’s 1.28 gpf ECO

UltraMax High-Efficiency Toilet. As a result, the hotel benefited from 63 percent water savings over the previous 3.5 gpf toilets. In 2011, TOTO received an award from the Chattahoochee Riverkeeper (CRK) for partnering with local government and businesses in Atlanta to upgrade the plumb- ing fixtures in the Hartsfield-Jackson International Airport. TOTO also offers a number of products including bidets that meet the new California Green, Building Standards Codes known as CalGreen, which proposed 20 percent water conser- vation in plumbing fixtures (toilets and urinals) both in resi- dential and nonresidential building.

Expanding brand recognition: The challenge for TOTO is to expand their brand recognition throughout the nation. TOTO continues to expand sales networks and flagship show- rooms in both inland areas and northeastern cities. TOTO continues to participate in trade shows and to place ads in home improvement magazines. For consumers, TOTO dealers in their neighborhood can be found by searching by zip code on its website. In addition, TOTO promotes an environmentally conscious image through its philosophy, TOTOlogy, showing a commitment to environmental advocacy for water-efficiency, eco-power, and paperless toilets. Today, the distributors pro- mote with the slogan “1G (1 gallon) toilet,” a water-conserving toilet that uses only 3.8 L of water per flush.

Localized Strategies in Germany Unlike in Japan, where a toilet seat is considered an elec- tronics product, using electricity for toilets would be unimaginable to many European households. The adaptation of a new concept for a daily habit, such as the Washlet feature, is also difficult. However, the products with advanced technologies, high-water efficiency, and that are eco-friendly are attractive for the eco-conscious German market. The question is how to reach the customers in order to develop TOTO’s brand.

International Sanitary (ISH) Exhibition: Since 2009, TOTO group has displayed TOTO’s products in the Interna- tional Sanitary and Heating (ISH) exhibition held in Frankfurt, Germany, one of three largest housing equipment exhibitions in the world. Moreover, in March 2013, the newest Neorest series Neorest AC with Hydrotect and Actilight technologies was introduced. After participating in the ISH 2013 exhibition, TOTO has increased the number of European companies covered under Hydrotect licensing agreements, which helps to develop brand recognition.

Sales distribution channel: In Europe, approaching the market with a stylish total bathroom package, including a toilet, is a market requirement. As a manufacturer, TOTO must place its products in the showrooms of wholesalers and plumbers. Intensive training of showroom staff, as well as plumbers, and establishing strong relationship management with those channel partners are the critical success factors, especially for expensive and innovative products, such as the Washlet. The representa- tives in the showrooms need to be able to demonstrate to potential customers how TOTO’s bidet functionality works and emphasize how thestate of the art and eco-friendly products can nicely fit in one’s own bathroom. Wholesalers should also make sure stock is available for next-day delivery. Furthermore, TOTO should train plumbers how to properly install TOTO’s bidet products. The incentive for wholesalers and plumbers is a sales discount, which is not given to end customers.

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THE NEXT GENERATION PRODUCT

In addition to explaining the current strategy in the United States and Germany, Kantaro also wanted to have the board members pay attention to the next generation of TOTO’s products that might enlighten the U.S. and European markets and to start thinking about how TOTO can promote the future product.

In today’s world, most developed countries are experienc- ing a rapidly aging population. Chronic diseases such as high blood pressure, diabetes, obesity, and so on significantly

increase the cost of health care. In the near future, people will have to change their behavioral lifestyle in order to manage such diseases and the related health care costs. This calls for devices that help individuals monitor their personal health status on a daily basis.

TOTO and Daiwa House have developed the intelligent toilet, which enables health-checks at home. It has functions to check blood sugar, blood pressure, and obesity, factors that trigger lifestyle-related diseases. to the toilet also checks body temperature. The results and changes of measurements can be seen every day on a display panel in the bathroom. The data

are analyzed by computer software, which then recommends plans for food, exercise, and so on.

So far, the device is too expensive for normal residential homes. The strategic question is how to introduce this product successfully into the market. TOTO knows that only an overall economic cost consideration will make the product successful. If the intelligent toilet can demonstrate that it has a positive influence on behavior and as a result that it lowers health care costs by preventing or managing chronic diseases, then health care providers (insurance companies) should have an interest to subsidize or pay for the intelligent toilet.

DISCUSSION QUESTIONS 1. The Washlet or Shower Toilet was a quick success in the Asian market (China and Korea), so why is this product having such difficulty penetrating the market in Germany and the US? 2. What after-sales services can TOTO provide to enhance willingness of customers to try the Washlet in their homes? 3. How can TOTO increase the sales performance at the point of sales and in general? 4. Should TOTO keep the target segment high-end only, or should it expand its target segment?

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