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Challenges, problems, and triumphs -- from a manufacturer's perspective.

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You Want Junk? You Got It

Pricing pressures are ruining good categories.

by "Vinny" (January 17, 2005)

So Hartnett's got predictions for 2005 in this issue. Well, I've got one of my own, although maybe it's a wish instead of a prediction. Here goes:

I think/hope this is the year when retailers begin to realize that their constant pressure to lower prices is hurting sales, not helping. Once the manufacturing and distributing systems are as efficient as possible, then the only way to lower prices is to lower quality.

If we're not careful, we'll lower the quality to the point where the consumer doesn't want to buy what we're selling. Examples:

1. An industry friend recently wanted to sew a pair of pants for herself. Went to a number of fabric stores and couldn't find any fabric she wanted. "All they had was cheap cotton," she said. She gave up and bought readymade pants instead.

2. A company with one of the strongest brand names in the industry, whose primary product has been drastically discounted, has been getting letters from consumers asking if the company has cheapened the product because the price is now so low.

3. Remember when acrylic paint was a dynamite category? It was successful in part because manufacturers paid enough profit to fund traveling teachers, pay for consumer advertising and all sorts of goodies that encouraged consumers to paint.

Then the retailers get price happy, vendors lose their margins and cut way down on promotions and ... you know the rest of the story. Does anybody really think sales would drop off if the industry increased the price a nickel a bottle then used that nickel to promote painting?

4. Years ago one of the industry's strongest categories was plastic canvas. Now you don't hear much about it. What happened? Well, a price war broke out every retailer wanted to sell it cheaper than his competitor. So they busted the vendors' chops. Then they cut their margins to keep up with the other guy.

Guess what? Pretty soon sales were great, but nobody was making any money. Not the retailer, not the distributor, not the manufacturer. So everybody stopped pushing the category and concentrated on products that let them put a few bucks in their wallet. Publishers switched to other categories and published fewer plastic canvas books, vendors didn't create as many new products and stopped promoting the category to consumers, retailers used endcaps and other prime spots for more profitable lines, and designers produced fewer projects because no one would pay for them.

So the consumer who loved plastic canvas from day one now hears less about it, sees fewer new projects that inspire her, and doesn't have as wide a choice of products to choose from. It's not as easy to find it in the store any more, either. So she turned to other things.

Time went by and eventually someone said, "Hey, whatever happened to plastic canvas?

So here's the moral of the story: retailers, insisting on lower and lower prices, will eventually result in me producing junk. You want junk? I'll give ya junk. That's easy.

I'm just not sure either of us will have a job in five years.

xxx

Note from a Small Vendor.

We're starting to re-think the whole show thing; for a small company like us, it's an enormous expense, and aside from some exposure, we're not sure that it really is proving to be worth what we have to spend to be there. I say this having worked to get the most out of every show that we can pre- and post-show mailings and calls, offering and publicizing our show specials, etc.

To put it in perspective, we spent - for booth components, shipping, drayage, booth space, travel, and so on nearly $15,000 on a [show last year]. This netted us only 27 new customers and the orders we wrote from them and from returning customers didn't even cover our expenses.

I've spoken to several of my show friends (other small manufacturers) who are similarly reviewing their 2005 budgets and concluding that doing all three of the major shows is probably not in the cards. Name Withheld

(To read previous columns by "Vinny," click on the titles in the right-hand column. Like to comment on Vinny's ideas here, or any other industry topic, for that matter? Email your thoughts on or off the record to mike@clnonline.com.)

xxx

 

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Vinny's Recent Columns...
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THE HISTORY OF PLAID ENTERPRISES, INC.; It's come a long way in 36 years.

"FLASH" SALES COME TO THE INDUSTRY; Q. & A. about the newest way to introduce new products or dispose of overstocks.

SITTING ON A BULLS EYE; What to do if competitors want your market share, or customers want to cut costs.

IS YOUR COMPANY ON THE VERGE OF BANKRUPTCY? 5 SURVIVAL TIPS; Time for a reality check.

FIVE COMMON AFFLICTIONS OF SALES TEAMS; The result: Bad morale and lower sales.

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YOU WANT JUNK? YOU GOT IT; Pricing pressures are ruining good categories.

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