The Death of Brand and the Rebirth of Maker
Sick of buying products that are junk and don’t last? Don’t blame the Chinese; they are only doing what they are asked to do – make it cheap! The good news is that the B2C model is thriving on the web.
If you are like me and most other people you grew up with your favorite brands. From Apple computers to Zenith TV sets these manufactures made some of the best stuff going. What most people don’t realize is, in most cases, these iconic brands no longer own the factories that make the products they sell. Production has been outsourced and their products are actually made by someone else.
ICONIC BRAND FACTORY————————> RETAIL STORE
FACTORY IN CHINA—————–> ICONIC BRAND COMPANY—————> RETAIL STORE
So why is that a problem?
First, you have to understand the retail game. Basically it is the old adage – buy low and sell high. Retail markups range from 35% to as much as 90%. If you use an average of 70%, which is about right in today’s marketplace, then this is what the math looks like on a $100.00 purchase:
- You pay the retailer $100.00
- The retailer pays the Iconic Brand Company $30.00 (Taking a 70% margin)
- The Iconic Brand Company pays the factory in China $15.00 (Taking a 50% margin)
- Less $2.00 shipping halfway around the world $13.00
- The Chinese factory cost assuming a small profit $10.40* (taking a 20% margin)
As you can see, the item that you are paying $100.00 for at the store needs to be made very cheaply in order to give the retailer and the Iconic Brand Company the profit they need in order to stay in business. So anything and everything they can do to save a penny here and a penny there is done, even though it will cause the quality of the product to decline. This is reason number one why the products we buy today are built cheap and don’t last. The Chinese factories are building junk because that is exactly what they are being asked to do by your favorite “iconic” brand.
The second issue is the fierce competition in the retail arena trying to claim the lowest price so you shop at their store. The proverbial race to the bottom is happening every day. In order to do this stores need to find the absolute cheapest source and that is exactly what they do. They want to sell you that product for $90.00, not $100, so they can make that claim and in order to do so they go back to the Iconic Brand Company and tell them that they have to sell it for 10 percent less. “Live better, pay less at Wal-Mart,” right? The Iconic Brand Company, which does not want to lose the retailer’s business to some other brand, will go back to the Chinese factory and beat them up for a reduction in cost. The owner of the Chinese factory will then figure out how to make it cheaper by cutting corners, which almost always comes at the cost of quality – plastic instead of metal, thinner plastic, thinner glass, cheaper paint, inferior electronics, lack of inspection etc. When they can’t go now lower in China it’s off to Bangladesh, Vietnam, Indonesia in search of lower cost based on cheaper labor and even less stringent regulations on worker safety and environmental responsibility.
This process has repeated itself every year for the past 20 years since manufacturing began the great migration to China and beyond. There are companies that are bucking this trend. The business model is called B2C, or business to consumer. In this model an American manufacturer sells direct to consumers via the Internet, cutting out both the Iconic Brand markup and the retail store markup. One such company is Liberty Tabletop, the only manufacturer of flatware left in the United States, where product is sold directly to consumers via their website https://libertytabletop.com. The owners worked for an iconic flatware brand company and saw them license out the brand and saw the product sourced from the cheapest possible vendor overseas. Matt Roberts, President of Liberty Tabletop, remembers hearing one of the executives say: “It doesn’t matter, put some crappy flatware in a nice box with our brand name on it. People will snap it up.”
“As a proud manufacturer of quality products this attitude made us sick,” said Roberts.
“We are consumers too and the cheap, almost disposable, products that you buy today frustrate us as well. Yes, the toaster may cost $19.99 but it will only last for a few years, not 30 like the one my mom had when I grew up. In fact she still has it,” added Greg Owens, CEO of Liberty Tabletop. “What is worse is that the cheap throw-away junk ends up costing you more in the end than quality products that are built to last. Since we took over the factory, our brand philosophy has been to drive quality back into the flatware. Make it like it used to be made, with a focus on quality, even if that costs a little more money. Our customers notice the difference and appreciate the effort. We hear it every day.”
So that is why most of the stuff you buy today is garbage. Things that used to be made of steel are made of plastic and nothing lasts as long as it used to last. In the end the Chinese factory, which is almost certainly capable of making quality products, is making junk because that is what they are being asked to make by that iconic Brand Company that you have been loyal to for all these years. If you are looking for real value, find a manufacturing company that sells direct… and you will end up paying for quality, not retailer markups in a nice box.