issue: August 2006 APPLIANCE Magazine
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by Tim Somheil, Editor
One man’s career encapsulates a number of the relevant lessons of the 21st Century appliance industry.
Tim Somheil, Editor APPLIANCE Magazine
At the recent GAMA and AHAM annual meetings I saw lots of familiar faces and met many new association members. I’m always eager to hear where people come from and how they arrived where they are today.
At one of the evening receptions I struck up conversation with Steve. Steve is a heck of a nice guy and very sharp—and his recent career reads like an appliance industry fable.
For years, Steve worked in marketing for Company-Z (not its real name). It was headquartered in the U.S. and had a U.S. factory producing high-quality paper shredders for the small office/home office (SOHO) market.
The SOHO market had been growing for years. The brand had a good reputation and the company had an established relationship with one of the biggest office products retail chains. In fact, Company-Z brand shredders dominated the store shelves throughout the retail chain.
But profits were getting tighter. Labor costs were on the rise. Company-Z management heard the siren song of lower-cost manufacturing overseas. After all, there were factories in China that could produce office appliances to Company-Z specifications, using the same materials and the same quality levels as products coming out of its U.S. plant. Even when shipping costs were factored in, the savings would be substantial.
Management made the big decision to close down its U.S. manufacturing and source overseas. It retained engineering, design, marketing, and management operations in the U.S. Products quality did not suffer in the move and product design remained unchanged. The big retail chain continued to receive shipments of the same Company-Z paper shredders—it simply received them from a different source.
The retailer knew, naturally, that the paper shredders were now coming from China. At some point, the retailer decided (probably with the help of a Chinese importer) that it could get paper shredders directly from China without going through Company-Z. Company-Z, after all, was now just a middleman. All it had was its brand and its unique designs. The retailer believed that it could still sell a product of the same quality and performance without paying, or charging, a brand premium.
Few consumers, the retailer reasoned, went shopping specifically for a Company-Z-brand unit—the name simply did not carry that much weight. If a potential buyer did come to the store with the Company-Z brand name in mind, only to find none of those branded products on the shelves, they were not going to leave the store. They just bought a different brand of paper shredder.
The retailer made the switch, and virtually overnight the Company-Z Company went from having a lock on paper shredder sales at one of the biggest retail chains to having almost no sales at the chain.
The retailer saw a big jump in profits and lower prices drove up unit sales. Customers were happy and the retailer was happy.
The lesson was a hard one for Company-Z Company, which is still in operation today—but it has a lot less business than it once did.
The story does not end there.
My friend Steve had not liked the direction Company-Z was headed and left the company before the big stumble. He was hired as president of the new U.S. marketing unit of a Korean-based manufacturer of air cleaning appliances. The company had been producing private-label appliances for the U.S. market for about 30 years, but had never sold products under its own brand name.
In 2005, the Korean company saw the time was right. And why not? It had proven engineering, experience and contacts in the U.S. market, U.S. product safety certification, and AHAM Clean Air Delivery Rate (CADR) ratings. The only thing it did not have was a recognizable U.S. brand.
But, from his Company-Z experience, Steve knew a brand wasn’t a requirement for product success.
Steve’s new firm did, however, see the need to put some industrial design work into the air cleaners. His products were designed for Korean buyers, and they didn’t look like any of the air cleaners for sale in the U.S. There was a need, they felt, to give the products a more “American” look and interface. Industrial designers were brought in and they produced a few mock-ups. Unfortunately, those designs were not ready in time to be exhibited at the 2006 International Home & Housewares Show. The company exhibited its existing products—the designs made for Korean consumers.
You can probably guess where this story is headed. The Korean-design air cleaners were a hit. Steve heard visitors say again and again, “They don’t look like any of the air cleaners for sale in the U.S.”
It was a forehead-slapping moment. The company already had what the other companies were struggling to come up with—product differentiation.
Another lesson learned. This time, it wasn’t too late to use the new wisdom. Steve scaled back the American-style redesign of his products and stuck with the unique designs he already had
If your company is contemplating the move to overseas manufacturing, maybe there’s a lesson for you here. Is your brand so strong that it can support your company, even if you take away your company’s other major advantages, like manufacturing?
What happens if your strong brand loses its impact? A single big product recall or some bad publicity can weaken any brand for a single selling season—and that’s too long if the brand is the only leg your company has to stand on.
The second lesson is easier to swallow. Make the most of what you already have.
Steve is doing exactly that—selling unique-looking, Korean-designed air cleaners to Americans with a great deal of success.