Building a subscription business: Hirotake Kubo on why customer experience matters

Instead of buying furniture such as desks and chairs we use every day, in the near future it may become a common practice to rent these items for a monthly subscription fee of a few hundred yen.

In August 2018, Hirotake Kubo, who was featured as the very first bachelor in “The Bachelor Japan”, a romantic reality television series which is popular on Amazon’s Prime Video, launched a new service “CLAS” which could transform Japan’s furniture industry and our perception of durable goods as well.

Based on a concept of “a lifestyle without ownership of furniture”, CLAS is a subscription-based service that allows renting high-quality furniture for a monthly fee starting at 500 yen to individuals and businesses alike.

Considering Mr Kubo has no prior experience in the furniture industry, we wonder: why did he decide to start up a company choosing a subscription-based business model? How does he intend to develop his business and expand its service?

Here we meet Hirotake Kubo, a businessman with previous experience in leadership and M&A roles, to ask about his thoughts on business strategy.

Start-up inspired by personal experience

Here is how Mr Kubo came up with a business idea and founded CLAS.

Hirotake Kubo: With my lifestyle I have to move almost every two years, and in the past, every time I moved I had to purchase new furniture because the old items did not match the layout of a new place. At one point I realized the exorbitance of fully replacing the old furniture. I spoke about it to a furniture specialist, who incidentally now serves as COO of our company, and he shared my view. Our conversation at the time was a precursor to starting a business of furniture rental.
So as to confirm his thoughts on furniture rental business, Mr Kubo conducted a survey which helped to reveal various unspoken tasks facing the furniture industry.

Hirotake Kubo: According to survey results, there may be unexplored territories on both supply and demand sides of the furniture industry. For example, almost 60 percent of furniture users did not provide an answer to the question: “What is your favorite furniture brand?” Those who provided answers only mentioned major furniture makers such as Ikea, Nitori and Francfranc. This would be equivalent to most respondents mentioning Uniqlo when asked about favorite fashion label. When I asked a similar question when involved with online apparel platform MUSE & Co, the responses varied widely. Meanwhile, the situation with furniture looks different.

Another salient issue is that buyers are left to deal with various aspects of owning furniture while the level of knowledge on furniture remains low. This motivated me to start CLAS hoping to transform the furniture sector.

Aiming to meet the demands of the times

We ask Mr Kubo about an unconventional pricing method of charging a 500-yen monthly fee for furniture subscription service, and here is how he explains his chosen business model.

Hirotake Kubo: In my view, two conditions need to be met for a subscription-based business model to work.

The first condition is updatability while the second condition refers to durability.

With regard to updatability, it seems to me that people residing in Tokyo update their lives at a very fast pace. My personal experience is that these days one moves up the career ladder more quickly than the previous generations, buying out a business within three years, then being part of online television series while doing freelance work. This has been my life’s path, but I think life stage update is happening today at a rapid speed for people in general. This means the way we use furniture can be adjusted as well so as to suit the demands of the times, and this can be better achieved through furniture rental rather than purchase.

As for furniture’s durability, the purchased items may have to be re-sold at certain point in time after use. However, users’ options are limited as the resale market for furniture is practically non-existent. This implies used furniture cannot be resold so as to allow someone else to re-use it but instead will have to be thrown away. Such limitations within the furniture sector also impose a burden on the environment. Although resale market could be created, I believe it would only partially resolve the issue. That is why we have chosen a subscription-based model which contributes to a circular economy.

Customer experience at the core of the business model

We wonder about marketing strategy adopted by CLAS to compete in today’s market environment where there are various subscription service providers such as video streaming companies. We ask Mr Kubo about most important parts of the marketing practices aimed at expansion of the company’s services.

Hirotake Kubo: Although we intend to organize marketing events both online and in real life, I do not think these techniques would be the key to building our customer base. Our priority is to deliver services to customers thereby conveying our key values, so that customers can see not how different we are from other companies, but perceive who we are through experiencing our services. An extensive customer base can be built without employing savvy marketing techniques at the launch stage. As our business involves physical goods, our first task is to make sure the products are ready for delivery, the price information is accurate and customer support is in place so that people would choose our service and recommend to others.

In response to our question on why users’ perception based approach is chosen instead of market research based differentiation strategy, here is how Mr Kubo explains.

Hirotake Kubo: Service differentiation has become difficult to achieve these days. People frequently ask questions such as “How can it be done again?” or “How high are the entry barriers?”, but nowadays most businesses have low entry barriers and anyone with determination can start a business. As it is easy to imitate other products, it has become difficult to differentiate based on product features and pricing. Given the current market environment, our approach is to elicit customers’ emotional response to the services we provide along with our company’s vision and ideals. We want our customers to be fond of CLAS and hope to achieve this on the premise of outstanding quality and features of our services.

Customers’ needs as key to communication strategy

When customers take a liking to the services of a company, we can say the company has created fans. Considering many companies today are struggling to attract fans, we ask Mr Kubo for his thoughts on interaction with customers.

Hirotake Kubo: To create fans, each company has to develop its own way of interacting with customers. The way we communicate with our customers is quite different from popular online communities. While the amount of daily interaction serves as a value measure in an online community, customers do not have to think of CLAS every day. Customers can think of CLAS when dealing with furniture and other home and living related tasks but then can forget about us while having a warm feeling about using our service. This way we bear in mind our customers’ needs when organizing our communication strategy.

Enhancing customers’ freedom to choose

We ask Mr Kubo how he sees the future of CLAS.

Hirotake Kubo: As of now, I intend to be involved in this project for the next ten years. I am also thinking about raising funds through public listing. However, our immediate goal is to address inflexible aspects of the market of durable goods such as furniture before focusing on long-term figures.

The purchase and management of real estate can be even more cumbersome than furniture, and with increasing levels of uncertainty and mobility in our times, home renters need services which would help to adjust to changes thereby enhancing freedom to choose. Our company’s vision is to deliver value to our customers offering more options to comfortably organize a living space. This way we hope to ensure our customers have freedom to make choices that suit their life stage needs.

Original Text: https://ampmedia.jp/2019/01/21/interview-clas-kubo/