The Business Cafe
Joe Bottieri's Web Site | The Internet | USA
Where in the marketplace are you positioned?
Recently, I had a conversation with the President of an auto accessory manufacturer. It seems they are changing their manufacturing process again. They did that twice before and it didn't work out to well, but I agreed that it was time to make a move in an effort to step out ahead of the competition. What I meant was they should improve the quality of their base products - the money makers.
What they are contemplating and actually have in the works, is to simplify the manufacturing process while at the same time improve the appearance of the products. While this sounds like a good plan, it involves the replacement of stainless steel with plastic as the base material because the new process can't be applied to stainless steel. I questioned the wisdom of moving from a metal part to plastic since my experience in his market showed that high-end consumers don't want plastic accessories of this type. Plastic accessories of this type are at the low end of the market. I.e.: cheap stuff buyers.
I went on to explain, when you make less expensive items you end up moving your products into a lower level of the market. They cost you less and you sell more, but you end up having to sell them for less so they can compete in that segment. Additionally, when you make products that anyone else can make you invite more competition and therefore your markup drops further while at the same time your cost to handle that product remains the same as it did when you were selling more profitable items. So, you have to sell a higher volume in a more competitive market at less profit, BUT the cost to handle each item remains the same.
So, what they end up with is a good looking, low priced product that isn't appealing to the upper-level market because it's plastic. And, being cheap and easily made makes it easy for anyone to knock it off, especially China. Mind you these are licensed products requiring a royalty to be paid on every unit they make. China can make them cheaper and don't care about licensing and won't pay royalties, thereby reducing the cost in China even more.
As you continue to move your products further down the ladder in the marketplace it requires a much higher sales volume to make it worthwhile. It takes just as much manpower to handle one cheap item as it does one expensive item. However, if you have to handle 20 cheap items to generate the profit of one expensive item.... well it's pretty obvious what happens to profit. At the same time these less expensive simple-to-manufacture products invite competition from here and abroad. IMHO that is not stepping out ahead of the competition, but simply stepping down into a market with more competition.
My philosophy has always been; make the best products and sell to the top of the market. Sell fewer at greater margins to high-end customers who pay their bills on time and let the vultures bottom feed.
The response was that they are quality orientated and that all the items they offer are top quality. Well he missed my point. I said top-end products - the best of the best not the best of the cheap.
Don't get greedy. Know where your profitable items sell and stick with it. You can't be everything to everyone. When you cheapen your products just to get more marketshare you are defeating the purpose. Selling more items at less profit is more work than the other way around. You end up in the pool with all the sharks. Know the value of your products and make the best quality you can at a fair price. When you start downgrading your product in an effort to gain marketshare you will eventually be less profitable.
Don't misunderstand; if there's a market segment you believe you can service with a less expensive quality product, by all means go for it, BUT make it under a diffrent brand with different packaging.
Value your customers who pay their bills as they should. Let your competition have those who don't.
Remember a sale without profit is a waste of time. A sale without payment is not a sale at all.
Joe Bottieri, 3/1/2020
Adopting one animal won't change the world, but it will change the world for that one animal.