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issue: May 2005 APPLIANCE Magazine

APPLIANCE Line
The Value of Opportunity


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By Lisa Bonnema, Editor

COST—the dirty four-letter word we are all sick of talking about, reading about, and thinking about. It’s an issue, yes, but it’s not everything. And if you are focusing on it too much, you may be missing out on a more important opportunity.

Lisa Bonnema, Editor, APPLIANCE Magazine

And I’m not alone in that line of thinking. For those of you that think I’m some idealistic journalist that has no idea about the pressures of manufacturing, I am happy to say that I’m backed by one of the world’s most successful appliance producers.

In fact, anyone who attended the recent International Appliance Technical Conference (IATC) might agree with me. And if they don’t, they are at least looking at cost in a new way, thanks to an inspirational keynote from Henry Marcy, Whirlpool’s vice president of Corporate Innovation and Technology.

I, for one, found Mr. Marcy’s message both refreshing and encouraging. His focus wasn’t on cost, it was on value. In other words, not just how can you save the consumer—and your company—money, but how can you provide value to the consumer and turn that into a profitable opportunity for your company.

Did anyone ever think that a consumer would pay four figures for a washing machine? How about $500 for an upright vacuum cleaner? But it’s happening, and it’s a huge opportunity many of you wished you would have discovered first.

In the words of Mr. Marcy, the industry has been “cost cutting itself for profitability for too long.” There is a need, he said, for change in the value-cost equation. Sure, efficiency and operational excellence should be part of your company strategy, but those are just part of the value chain. What about product leadership and customer intimacy?

Mr. Marcy openly commented on the lack of differentiation among brands, referring specifically to the “sea of white” that lines every major retail floor. If that’s not opportunity, I don’t know what is. Why does a consumer recognize an iMac and BMW without blinking, but have to look for logos on their appliances? Unless you have an informed, energetic sales person touting your product’s features, that really only leaves the price tag as the main differentiator—not really the way to profitability.

How about the networked appliance idea we were all so pumped up about 5 years ago? As Mr. Marcy said, consumers love to be connected. Why not with their appliances? What is the hidden value we’ve neglected to find? Is it truly a dead concept, or did we just give up? Mr. Marcy admitted that Whirlpool canceled its suite of connected appliances, but he also said they’ve joined a group called The Internet Home Alliance to discover that hidden value. Have you?

As I reflected on Mr. Marcy’s speech, I easily saw his message weaved—both directly and indirectly—throughout every keynote at IATC. Joe McGuire, president of the Association of Home Appliance Manufacturers, talked about the challenges of manufacturing and selling appliances in the U.S. And, yes, there are more than we’d like to count. But the fact is, there will always be cost issues that are, for the most part, out of our control—tariffs, international legislation, and currency, to name a few. So the focus needs to be on what you can control, and that’s the value that your appliances offer to the consumer. What is it that could make dishwasher penetration hit the levels of refrigerator penetration?

And it’s not about finding opportunity and creating value in your premium lines alone. Mr. Marcy erased any notions of the trickle-down theory our industry has embraced over the years. “It is this need for innovation at every price point. It’s not…let’s innovate at the top, and we can have all the expensive stuff on the high-end line part of our product line and then over time, that will trickle down. That’s just dead,” he said. “Yes, it works and yes, we do it all the time, but it’s not the way to really create remarkable additional value. It’s innovation really at every price point for everyone that will result in new value.”

Another IATC speaker, Davide Milone, talked about the success of Italy’s Indesit Company, one of Europe’s leading appliance makers that has referred to what it calls “the value story” for several years. Back in 2002, I personally sat down with the company’s then CEO Andrea Guerra who criticized his own industry for selling major appliances at the same price as a pair of shoes. At the time, I was more than impressed by the insight of his comment: How could a consumer justify buying a pair of Italian leather heels for hundreds of dollars (euros), especially when they will most likely go out of style in about a year? Think about that. Couldn’t the consumer use that same mentality to buy an appliance—something that she uses every day for years on end?

Appliances, by the way, aren’t shoved in some box at the back of a closet. As Mr. Marcy of Whirlpool pointed out, your products are out in the open, facing the consumer every day. Are you making the most out of that interaction, or is the consumer’s first and last impression of your product lost in her credit card statement?

And if you’re still skeptical of this “pie in the sky” mentality, a keynote from Ken David, a professor at Michigan State University, even talked about value as it pertains to outsourcing—a longer and even dirtier word that almost everyone thinks of in terms of cost.

Yes, you can—and should—find value in this controversial manufacturing practice. According to Mr. David, outsourcing shouldn’t be used for cost-cutting purposes alone because that is not a sustainable, competitive advantage. Instead, it should be used strategically and for purposes that add value to your company and your product. “Outsourcing is a point of entry for things beyond the low-cost transaction,” he said. Using a Chinese partner to provide feedback about user habits is strategic and can add value to your product, but teaching that partner to build your flagship product can be cost-cutting suicide.

So are you spending the time—and dare I say it—money, on finding the value your products and your company can offer to today’s consumers, or are you focusing all of your attention on material and labor costs? Are you investing in R&D, in innovation, in your engineers? If so, how? Are you sending them to conferences like IATC to discover new technologies that can enable the features that lead to new opportunities, or are they buried in a cubicle, trying to find out how to incorporate cheaper components into existing products?

Let’s all be honest here. If you’re playing the cost game, you probably aren’t going to win. In fact, I’d bet on it. Value is what keeps the consumer coming back for more. And that, my friends, is priceless.

 

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