It is natural for American fastener manufacturers to struggle with the high cost of production, dynamic cost changes in raw materials and to always search for ways to improve efficiencies and boost their bottom line.
As these large American fastener manufacturers dig deep into the details, they sometimes discover specific products that have been selling at a loss based on past decisions.
Alarm bells sound off and “Experts” arrive to improve efficiencies and increase their bottom line.
Where is the grave mistake in this process?
The “Experts” and production division have analytical discussions to re-evaluate costs, distribution agreements and pricing algorithms. The outcome of this thinking often results in reduced numbers of SKU's they manage in production, increases pricing on smaller quantities to ensure profitability and provide discounts on larger quantities to apply a fair economic scale which then causes their distributors to place larger stocking orders on those higher quantities.
Who could argue with that? Prudent cost cutting measures to improve the bottom line, right?
WRONG! This strategy completely removes the market environment from the best solution. American manufacturers need to better hear the feedback and opinions of their field distributors to arrive at the correct strategy.
Imports are pirating the fastener technology of these top U.S. brands and offering visible duplicate alternatives to the market at fractions of their selling prices. Competition continues to “pitch” the consumer on the benefits of abandoning these top U.S. brand creators of exceptional fastener technology for the pirated imports. Unfortunately many pirated imported products have reduced consistency, lower reliability and contain overall inferior quality. However, their price is lower and this helps the ultimate consuming manufacturer to reduce costs and improve their bottom line.
The “Experts” usually ignore the overall market conditions and instead just increase 3, 4, 5 or even 10 times the price of these competing imports. Distributors cannot simply risk purchasing larger quantities than their consumers require to maintain original costs. This larger inventory level will sit on their distributor shelves at a higher capital cost and likely become a greater tax liability. Ultimately, distributors are forced to either move their customers to other brands or imports to sustain business, dramatically increase the price to their customers or simply lose their business.
This ill-conceived thinking drives distributors and consumers to test new waters by buying imports at lower price points. Some of these customers may be lost forever to those top U.S. brand names. Also the number of SKU's offered by these top brands will be drastically reduced as the shelf stock of the distribution market is exhausted.
The final result? These top brands now have fewer SKUs to offer to the market. They have pushed small to moderate consumers away from their brands in the name of production cost analytics. They rolled out the red carpet and invited their consumers to move to the competition and imports with a neon “Your Business Is No Longer Welcome” sign.
What did these U.S. top brand manufacturers miss? It’s not just about carving your production down to the highest demand items with fewer consumers to improve the bottom line and abandoning the rest through unrealistic requirements that will not be tolerated by the market. It’s about sustaining their great brand which is the most important part of the equation. It’s about having as much product and as many of SKU's possible in the market to keep brand exposure. Every business has “loss-leaders” for a reason. A group of their A or B products will eventually become C or D products for a manufacturer. It is not prudent to establish unrealistic pricing or minimum order requirements for distribution and consumers to consider a C or D item for consumption.
Hopefully the essence of this article, “How to kill your brand”, will resonate.
On the Brighter Side
Bay Supply has had several meetings over the past few months with the American fastener manufacturers with a primary focus on regaining market share and reinvigorating their brand.
Over the coming months, Bay Supply will be establishing strategic inventory stocking arrangements with select U.S. manufacturers to increase SKU offerings by establishing shelf stock, reducing pricing and minimum order quantity requirements and participate in shared promotional and marketing programs to “Make American Brands Great Again”.