Harvard Business Online
Serenading Consumers with a Lower-End Product
One of the key arguments in The Silver Lining is that companies have to find ways to "love the low end" to connect with budget conscious customers and fend off attacks from sharp elbowed, low-cost competitors.
A recent Wall Street Journal story shows how one company has found another benefit of loving the low end — keeping skilled workers gainfully employed as its high-end business shrivels up.
The story describes how legendary guitar maker C.F Martin & Co. has introduced a solid wood product line called the "1 Series" that sells for less than $1,000—more than 50% cheaper than its traditional all-wood guitars (the company also sells cheaper guitars that use laminated plywood).
Customers have, not surprisingly, reacted positively to Martin's innovation. The company's high-end guitars are luxury items that are typically early victims of consumer cost-cutting in economic downturns. Edging below $1,000 made luxury affordable enough that the company's first production run of 8,000 1 Series guitars sold out in April.
As one distributor told the Journal, "It was really smart of Martin to come out with these in the current economy. They seem to be filling the niche quite well."
Finding a creative way to boost sales has another important benefit for the company. Manual labor plays a vital role in the production of the company's high-end guitars. Cutting costs to match declining revenues would have resulted in a loss of accumulated capabilities. Instead, the company quickly re-tooled its processes, and kept expert woodmakers working.
Considering the merits of your own low-end play? Start by asking the following three questions:
Are there are a large group of customers that would be attracted to a much lower-priced product? If you only sell to relatively wealthy customers, large businesses, or customers in highly developed markets, a low-end play might be a great way to expand your market.
What would it take to cut the cost of your product or service by 50 percent or more? Consider bells-and-whistles that appeal to the most demanding customers, mark ups from multiple distribution channels, and other overhead elements.
What other benefits could come from loving the low end? Martin kept its workforce employed; a low-end play might also allow you to experiment with new distribution mechanisms that reduce dependency on a single channel, or edge into emerging markets.
Martin has joined the ranks of low-end lovers like Pfizer and Coach. Each of these efforts provides important lessons about how to address this growing strategic imperative.