Japan is a collectivistic society, so who you are depends on which group you belong. This makes displaying your friendships and social networks more attractive in Japan than more individualistic countries.
Photos can be used as memento of events.
Purikura gives you privacy which is hard to find in Japan.
Marketing methods for purikura include making places exclusive for women, or using new machines with sekigaisen (infra-red exchange).
Purikura started in 1990 and became a big hit due to the band SMAP, and other bands like them giving it celebrity endorsement. They gave their fans pictures of themselves at purikura, and in turn ended up starting a trend.
Another way to attract people is too put cute characters or designs on their products, appealing to a younger generation.
Right now Digital cameras are one of the big three electric products in Japan (LCD, and DVD recorders being the other two).
Cellular phones are making big improvements to their cameras and some of the digital camera consumers are starting to think digital cameras are not needed. The technology will only build but it is safe to say that companies like Canon will focus on only improving their Digital cameras.
As the market slows in Japan, companies are headed to China in search of profits, most likely they will easily infiltrate the market.