On Wed, 25 Jan 2006 00:05:38 GMT, "david lang"
wrote:

wrote: in a recent thread "I expect the pppro is likely
to be an aggressively cost cut version with plasticine gears and coin cells,
so I'm more tempted by the Ryobi".

Lets look at the reality.

I'm a sales rep for a Danish high pressure cleaner manufacturer (at least
until next week). They have been around since 1962.

You can't make DIY pressure washers in Denmark, labour costs are simply too
high, so we bought in a badged range from FIAP in Italy. FIAP are highly
automated, very efficient and sell all over the world. We tested the kit,
based on 40 odd years in the game and by DIY standards it was pretty good.

So, Danish product manager negotiates a deal for container loads of machines
and multiplies delivered cost by 2.8 to allow for profit margin, marketing,
finance cost etc.

We sell product in UK, but because we have to offer a 40% discount to
resellers and cover our costs, we also mark up by multiplying by 2.8.

We now have a product that is shipped from Italy, to Denmark, to UK.
Everybody wants a mark up, so a machine that leaves the Italian factory at a
price of £50 has a UK list price of around £390.

This sounds to be more of a combination of wanting to retain profits
in Denmark and the high direct and indirect costs of employment there.




Enter stage left - B&Q and Machine Mart. They negotiate with FIAP, not for
container loads, but for huge volumes - really huge volumes, so they get a
better price. The shipping costs are less for larger volumes and they go
straight from Italy to UK. Fewer mark ups, less costs.

The upshot? Exactly the same kit (different colour, but identical) sold for
half the price. Exactly the same kit. Exactly.

Not a cheaper spec - changing that would actually cost FIAP money through
loss of volume. Simply bulk purchase, lower shipping costs, fewer mark ups,
lower margins.

That's how it works in the real world.

That's how it works in part of the consumer market.


Lower price no longer necessarily
means lower quality. It means more efficient distribution channels, lower
margins and mass marketing.


Service, support and spares from B&Q and Machine Mart?

Even £200 isn't a throw away price for a pressure washer, is it?

The fault is with the product manager in my view. He didn't think
about putting some differentiation in the product, or didn't think
about all the markets - i.e. does the brand carry more value in
Denmark than the UK?

This is classic private label procurement stupidity.

Clearly the colour didn't matter.

The right solution would have been not to have attempted to compete in
that price range in the market with an obviously identical product if
the total product value can't be communicated to the customer. That
can be done by somebody working for the branded manufacturer as long
as they have direct customer contact or customers able to discern
their value proposition. It's unlikely to work through a volume
distribution channel. That's a marketing game, not a sales one.

The mistake was trying to compete in the wrong part of the market. If
you have a high cost base, generally the choices are to reposition and
reduce the cost base to compete with the dog eat dog environment of
the volume retailers or to make a specific decision not to compete in
that part of the market and go for higher margin business if it exists
even if that means moving into new differentiated product lines.


In the tools marketplace, the branded manufacturers have a variety of
strategies to compete. Service offering is one, build quality,
innovation and design are others. Lifetime pricing is another. For
example, the very good deals around on older Makita drills at present.
That's before one gets to offshore manufacturing with suitable quality
controls.

The mid market branded professional tool manufacturers (e.g. Bosch,
Makita, DeWalt) have pretty comprehensive marketing strategies and
appear to execute them well. They only compete on price in fairly
targetted ways and channels.

The upper end of the market (e.g. Festool, Lamello, etc) are able to
command good prices through product quality, innovation and
engineering excellence on top of these things. You don't see deep
discounts on them. They've identified their customer base and
channels and address them correctly. They don't have the volumes of
B&Q etc. but do have a more sustainable business strategy and will
likely be around long after Kingfisher has dumped B&Q and Techtronics
finds another volume outlet for its stuff.

Product managers have a lot to answer for.




--

..andy