business


OK, let’s say you started a new business. Which is a better strategy:

A) Sell fewer products at higher prices? (Margin game)
B) Sell more products at lower prices? (Volume game)
C) Sell more products at higher prices (High margins and high volume)

Obviously C is the ideal case. But is it easier to reach there via route A or B?

What’s your answer?

Our favourite bald marketer argues for A. It’s easier to convert a small group of customers at a time. The higher margin buys you time while you improve your product and expand the market. At the same time, there are costs associated with reaching out to a huge group of customers.

Many will argue for B. Witness the number of new product launches with generous discounts. Lowering prices is the best way to attract the maximum number of new customers. Get the word out and the volume up, then increase the prices.

This is obviously too simplistic, so let’s analyse this further with the example of bamboo flooring in Singapore.

1. Familiarity of product

Bamboo flooring is a new product in Singapore, many people have not heard about or used this product before. A lot of effort goes into educating the market, and this is best done one-to-one.

Based on this, I would choose Option (A).

2. Price constraints

The cost of your product limits how cheaply you can price it. The prices of your competing products immediately places a constraint how much we can price bamboo flooring at. The two most popular flooring products here are laminate floors and teak parquet. Given that laminate floors are dirt cheap here, it would not make sense to fight based on price.

Again, it’s Option (A).

3. Ease and cost of distribution

Bamboo flooring is a bulky and heavy product, so transportation and storage costs are correspondingly higher. Bamboo flooring also require the skills of specialist hardwood floor installers.

Not surprisingly, Option (A).

So based on the 3 factors above, we should sell as a lower volume and higher margin product. Which is exactly what we have been doing (in Singapore. We also do international export trading, but that is a different story altogether).

Now contrast bamboo flooring to a software programme which could be downloaded from the Internet: It could be cheaply marketed to a wide market and transported at near to zero cost. This company chose Option (B) with excellent results.

So it’s not about which option is better. Rather, it’s about which option is better for your business.

Advertisements

Since the cuts in China export tax rebates was announced last week, there has been an immediate impact on the bamboo flooring industry.

For bamboo flooring, the export tax rebate has been reduced from 13% to just 5%. In a cut-throat and highly competitive industry, profit margins have been cut significantly overnight. So what changes should we expect as a result?

Firstly, many of the larger bamboo flooring manufacturers have temporarily stopped purchasing semi-products. Contrary to what they may say, many of the biggest manufacturers only do the tongue-and-groove milling and/or lacquering. The initial processing from bamboo poles to bamboo boards are outsourced to many smaller factories.

(Star Bamboo is a smaller player, so we can focus on quality and make the entire bamboo flooring in our own factory.)

There is now uncertainty in the market. Will the customers be willing to accept higher prices or would we have to bear the full burden of the tax cut?

No one is sure until the tax cuts take effect on 1 July, hence a temporary pause in production.

Secondly, those manufacturers that do continue buying semi-products have dropped their asking prices. This means that the big boys are attempting to pass on at least some of the lower margins to their supporting factories.

This will cause a cascading effect up the supply chain, and probably force many of the small factories to close down.

Consolidation is a good thing for us in the long term, as it eliminates many of our competitors.

I’ll have more updates for you as events continue to develop in China.

Cascading dominoes

China has announced yesterday that they will cut the export tax rebates for more than 2,800 products starting 1 July 2007. The purpose is to reduce trade surplus and cut waste.

Export tax rebates means exporters in China get a refund on the domestic taxes they pay. This means they are able to charge lower prices than competitors from other countries. The whole scheme was started in the 1980s to encourage foreign investment.

But the booming Chinese economy and a burgeoning trade surplus meant that it’s a matter of time before this export tax rebate system is scrapped. Already, the rebates levels have been gradually reduced for many categories of products. This latest round of cuts is hardly surprising.

In all, 553 product categories deemed to be resource-intensive and polluting will have their rebates eliminated. Another 2,268 will have their rebate levels lowered.

So where does bamboo flooring fit into this?

Well, the details aren’t out yet. But our product is not polluting so I expect us to fall into the latter category of rebate reduction.

Unfortunately the USA is one of the biggest markets for bamboo flooring, and also the economy with the greatest trade deficit with China. This probably means bamboo flooring will have one of the lower rebate levels.

It’s a significant factor in an industry with paper-thin margins, and I expect prices to be adjusted upwards by 5-8% across the board. For the time being, we are holding our prices.

I’ll post updates on this as more details emerge.

Yes it’s true, we are number 1!

Our blog site comes in right at the top of Google’s search results for “eco action day”. It’s #1 of 1,860,000 possible results.

Of course, the savvy net user would know it all depends on what you search for. The surprising thing is that our blog is barely 6 weeks old, yet we come out ahead of many other established web sites, including those for SEC (#3) and co-sponsor Ricoh (#4).

This validates what I’ve thought all along, and what others have been preaching: search engines love blogs.

Search engine ranking algorithms are jealously guarded trade secrets. Only insiders know exactly how they work. But the general rule of thumb is, the more incoming links a web site has, the higher its ranking. This is because incoming links are an excellent gauge of the usefulness of a web site (otherwise, why would anyone link to it?).

Thanks to our blog, we are already seeing a substantial increase in web traffic. And the best part is, it’s all completely free. You just need to put in the time and effort to write articles that others would actually want to read.

You can’t beat that for cost-effectiveness.

In a flash, the Star Bamboo blog has already been up and running for just over a month now. How has the experience been?

Without a doubt, it has been a highly positive move. In the past month alone, we have reached out to hundreds of new visitors, and strengthened our relationship with existing clients.

We discussed a huge variety of topics, including:

  • Developments and events in Star Bamboo
  • Inside information on bamboo flooring and products
  • Cutting edge designs in eco-friendly products and furniture
  • The latest marketing and branding ideas
  • Interesting eco-trends and news from around the world

Half of these topics weren’t even in our original agenda when we started the blog. You can be sure that the topics will continue to evolve and change.

Corporate blogging is a relatively new phenomenon in Singapore. It’s hardly surprising when you consider that many Singapore companies, especially SMEs, don’t even have a corporate web site.

A simple corporate web site would cost only hundreds of dollars to set up, and much less to maintain. With such low costs involved, there aren’t many excuses not to have one.

A corporate blog is even cheaper. This Star Bamboo blog has an extremely attractive price tag: It’s free.

Now you have no reason not to have one. Why not start one today?

A few days ago, I posted an entry questioning the high prices of Funkin Function’s scrap wood skateboards, and its adverse impact on the acceptance of eco-friendly products.

After that, I got an email from Daniel Moyer, the designer behind Funkin Function. He has agreed for his email to be reproduced here, so that readers may understand his side of the story.

Below are the main excerpts from his email, along with some of my thoughts:

Your only mistake is in assuming that I am a manufacturer. On the contrary, I am a one-man one-at-a-time furniture maker using the scrap from my furniture pieces to make similarly artistic longboard skateboards.

Each board is composed. Stock is arranged for visual statement and for physical characteristics that might contribute to the natural flex that makes these boards so nice to ride. Then I thickness plane, joint the ends. biscuit for reference, glue-up, rough sand, shape, mill for truck-mounting, finish sand, wet-sand-in a slurry coat of oil, buff off the slurry, and finish with a few coatings of hand-rubbed oil.

A one-man operation (OMO) like Daniel Moyer’s is still a manufacturer. But I see his point that he does not have the economies of scale. These skateboards are more akin to works of art – hand-crafted and one of a kind.

As a business model for manufacturing, this is a disaster. I’m not on a green mission; I’m just trying to be responsible with my own waste stream and make a wage from my time.

As a businessman, Daniel Moyer is entirely justified in pricing his product at what he considers to be a fair price. His rationale for the high prices is that his skateboards are entirely hand-made and artistic.

Where we disagree is what that price should be: his costs of production are low, and after taking into account the amount of manual work, I feel that he could still turn in a healthy profit even with lowered prices.

I realize that being thrust into the eco-spotlight by the BKLYNDESIGNS coverage leaves me open to whatever criticism I have coming to me. However, if someone were to imply I was seeking to milk or even bang the buying public while flying the green flag, I would find that most insulting.

I had never intended to imply that Daniel Moyer was taking advantage of the eco-conscious customer.

My point was that eco-friendly products should be more attractively priced to attract mainstream customers. Pricing them too expensively might actually slow down the green movement, as it creates a misleading impression that green goods are only for the rich and privileged.

And if the product is not intended to be positioned as a green product, then why not play down the “scrap wood” and promote the “hand made” and “artistic” parts?

There, I hope I have given a fair account of both sides of the story. Feel free to tell me what you think. 🙂

This may sound a bit odd coming from a manufacturer of eco-friendly bamboo flooring, but you really shouldn’t be paying over the top for eco-friendly products.

I have discussed this issue before. It is perfectly understandable if prices are higher due to higher costs of manufacturing. But we have to ask ourselves, is it a fair price?

(more…)

Next Page »