By Denise Harrison, Executive Vice President and COO
Note: The following article was first published in 2007 but is still relevant today.
What? How could a low cost company in India have trouble with low cost competition from China? Welcome to global competition. Over the last year several articles in Course and Direction addressed dealing with low cost competition. Several readers commented, “Nice theory, but how about some real-life examples?” Recently, Fast Company published an article entitled “Monsoon Marketing” which illustrated an excellent example of both what to do and what not to do when facing low cost competition.
Stag Umbrellas (“out in the rain”)
Ebrahim, Currin, & Sons produced umbrellas under the Stag name for almost 150 years. After over a century of market dominance low cost competitors entered the market and Stag found its market share dropping significantly. The company’s response was typical: Lower prices! Unfortunately lower prices lead to lower profits which lead to internal cost cutting which lead to lower quality. Sound familiar?
Stag took a step back and realized that this strategy was a recipe for failure and it was time for a change. What did they do?
- Returned to their roots – back to producing a quality product for a higher price.
The red ink on the bottom line turned back to black – now it was time for more investment – investment in innovation. First they needed some market analysis – what would work? Over the years the size of the middle class had grown significantly. In addition, the disposable income available to this group had increased. The middle class now purchased cell phones and had access to a wider variety of brand name food and beverages. How could Stag leverage this change?
- Stag chose to team up with product providers (cell phone manufacturers, beverage manufacturers, etc.) to use umbrellas with product logos to increase brand awareness.
- In addition, the formerly homogenous market segment of umbrellas buyers had segmented itself into niches that responded to a variety of changing market trends. Much the way cell phones went from a functional device to a fashionable item with assorted features and Swatch made watches a fashion item rather than simply a time piece, Stag turned the umbrella into a fashion item – yes, more colors than just black.
- Stag also used technology advances in the miniaturization of electronics in combination with emerging market preferences and increased the feature functionality of umbrellas. For example:
- Umbrellas with built in flashlights for travelers on secluded roads
- Umbrellas with music
- Umbrellas with alarms to fend off robbers.
Stag changed its strategy from trying to beat low cost competitors at their own game to one that both capitalized on the quality of their product and used market analysis to identify emerging market trends to develop products targeted to specific niches. This strategy enabled Stag to “come in out of the rain” and regain its eroded market share.
1. “Monsoon Marketing,” Fast Company, by Anupam Muker, April 2007.
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Denise Harrison is Executive Vice President and COO of the Center for Simplified Strategic Planning, Inc. She can be reached at firstname.lastname@example.org.
© Copyright 2014 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.